It is a common question and I would assume an even more common thought. “Why do I need a financial advisor?”

Common objections can be the cost, target date funds and/or robo-advisors being seen as better options, or about how they are untrustworthy. I am not here to go through, one by one, any objection and dispute them. A financial advisor is not a necessity for everyone. Yes, you read that right. An advisor just said what he does is not needed by everyone. 

But do you have the knowledge base to ensure that what you are doing is correct? Mistakes in the financial world can cost thousands upon thousands of dollars not to mention years of retirement. If you don’t have the knowledge already, how much time are you willing to commit to learning? You can spend decades studying and still not know it all. Markets mutate more than celebrities faces and hairlines. Are you passionate enough to follow this stuff every day? Can you hold it together during the tough times? This is your family’s and your future at stake. It should not be taken likely.  

I would like to address what a good advisor can do for you and how the value can often outpace the cost. 

Advisor’s Alpha

From the day I started investing 13 years ago, I have been a big fan of Vanguard. They are investor owned. This is a big deal. It means the company doesn’t do what is in the best interest of shareowners but rather they answer to the folks who have put their hard earned money into their funds. Vanguard was started by Jack Bogle, a man who felt investing shouldn’t only be for the cultural elite so he created a company for the every day investor. They are one of the largest custodians for self-directed investment accounts.

I mention all of this because I think it is interesting to note that Vanguard published a research paper around a term they coined called “Advisor’s Alpha.” Alpha is a measure used in investing to attempt to measure the performance of a portfolio in relation to a benchmark. Said simply, it measures a strategy’s ability to “beat the market.” With that in mind, Advisor’s Alpha is essentially how much additional return you could get by working with an advisor versus not working with one. Vanguard concluded that an advisor can add about 3% net returns (after taxes and fees) to a client on an annual basis. This is an average so some can be above and some below. Don’t believe me? Here is the link.

A company like Vanguard giving advisors this sort of credibility is the highest type of praise I can think of.