In a recent white paper, “Vanguard – Quantifying Advisor Alpha“, mutual fund company Vanguard attempts to quantify the added value of the “passive” investment advisor. They estimate the value at as much as 3% per year without any attempt at outperforming the market.
In two previous posts, I wrote about the irony of the active manager asking a departing client, “If you’re going passive, why pay anyone at all”. In the previous posts, I discussed how the active investment manager fails in its sole purported value-add of outperforming the market. So, rather than pay an active manager to massively increase the probability of underperforming the market versus an index fund portfolio, investors are better off paying an advisor for investment management and financial planning advice that delivers actual value. These services might include:
- Setting asset allocation strategies that reflect client risk preferences and goals.
- Portfolio implementation of low-cost index and asset class funds.
- Tax efficient investing strategies including tax-loss harvesting and asset location.
- Portfolio rebalancing.
- Applying discipline for the client to adhere to the investment plan during stressful market periods.
- Financial planning assistance in non-investment areas such as insurance, estate planning, mortgage finance and college savings.
is the founder and principal of Westchester, New York-based, Fifth Set Investment Advisors LLC, a Fee-Only, SEC registered investment advisory firm. Following a career in equity research, an examination of competing investment management approaches led Ian to create Fifth Set to offer clients customized wealth management strategies built on a foundation of evidence-based financial theory.