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What Is The Value Of An Advisor? Vanguard Totes Up 'Advisor's Alpha'

Feb. 13, 2017 1:31 PM ET198 Comments
David Van Knapp profile picture
David Van Knapp


  • Vanguard estimates that the value of using an advisor is around 3% additional net annual gains for the investor.
  • Does this estimate make sense?
  • Do you need an advisor?

Last September, Vanguard issued an updated research paper, "Putting a value on your value: Quantifying Vanguard Advisor's Alpha®." The "your" in the title refers to financial advisors; that's who the paper was written for. It's about advisors valuing their services when explaining themselves to clients.

Although Vanguard's Advisor's Alpha concept has been around since 2001, I only recently discovered it through references in a Seeking Alpha article. The article used it to support the general notion that with advisors, investors (over time) gain about 3% per year in value for their investments, compared to what they would get by not employing an advisor.

Advisor fees are commonly estimated at 1% per year, although of course there are a myriad of arrangements, including hourly fees. The implication of "Advisor's Alpha," of course, is that the 3% additional annual gain that an individual gets from working with an advisor more than justifies the 1% annual fee (or other fees) that the advisor charges. So the 3% advantage becomes a marketing point.

As an individual investor who has never used an advisor (except once, for which I was not charged), I find myself oddly curious about what advisors do to market themselves. I think it's fascinating.

My curiosity reduces to a single question: What is the value proposition that an advisor offers to his or her potential clients? And of course the follow-up question would be, is the value proposition true? That is, do clients receive the value suggested by the marketing proposition?

Per Vanguard, their updated research paper does the following:

[D]elves into the concept of Vanguard Advisor's Alpha®, which outlines how you can add value, or alpha, through relationship-based services such as financial planning, discipline, and guidance, rather than by trying to outperform the market….

Use this paper to:

  • Discover five

This article was written by

David Van Knapp profile picture
“Top 30 Dividend Growth Stocks for 2021: A Sensible Guide to Dividend Growth Investingl is the premier source on how to be a dividend growth investor. Learn more at https://www.davevanknapp.com/home .My mission is to help self-directed individual investors profit from stock investing. I contribute articles and studies to both Seeking Alpha and Daily Trade Alert, as well as videos on YouTube. I hold an undergraduate degree in physics from Holy Cross College and a JD from Georgetown University. My wife and I live in Canandaigua, NY.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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