We believe advisors provide real value to their clients. Much of the work of an advisor is complex and happens behind the scenes, though, making it hard for clients to appreciate. Our Value of an Advisor program is designed to help advisors and investors articulate and understand the full value of an advisor’s services.
The Value of an Advisor formula
Cumulative value of the various services offered by a typical financial advisor.
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Preview our study below.
IS FOR ACTIVE REBALANCING OF INVESTMENT PORTFOLIOS
Without regular rebalancing, a client's diversified balanced portfolio could have become overly heavy in large capitalization U.S. equities.
For example, if you had purchased a hypothetical balanced portfolio of 60% equities and 40% fixed income in January 2002 and not had it rebalanced since then, by the end of 2021 the portfolio would look quite different.
You would be heavily invested in equities—71% of the portfolio—and not enough in fixed income—29% of the portfolio. Remember, fixed income is generally considered the stabilizing element in a portfolio to offset the volatility of equities. Being so top-heavy in equities can be risky if the markets were to suddenly plunge.
WHEN BALANCED BECOMES THE NEW GROWTH
The potential result of an un-balanced portfolio
For illustrative purposes only. Not intended to represent any actual investment. Source: Morningstar, Russell Investments. Analysis based on quarterly data from 1/1/2002 - 12/31/2021. Initial asset allocation: 20% S&P/TSX Composite Index (Canadian equity), 20% S&P 500 Index (U.S. Equity), 20% MSCI EAFE Index (Foreign Equity), and 40% FTSE Canada Universe Bond Index (Fixed Income). Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Please note: numbers have been rounded.
Featured insights from our experts:
Value of an Advisor: Active Rebalancing Video
IS FOR BEHAVIORAL COACHING
Many investors fled for the exit in mid-March 2020 when the pandemic emerged (as many investors did). You could have missed out on some significant gains, depending on whether and when you re-invested in the market. Pulling out of the market when it is falling can lock in losses and could lead to missing out on any subsequent rally. Without a crystal ball, it’s hard to time the perfect point to get back into the market once you have left.
As the graph below shows, missing out on even a few days of good performance can really hurt your portfolio. And the thing is—you can never predict when the market will have a good or bad day. Although it’s scary when markets decline, it’s worth remembering that they do tend to go up over the longer term. In fact, the S&P/TSX Composite Index has risen 74% of the time since 19201. Those are pretty good odds.THE INVESTMENT IMPACT OF MISSING BEST MARKET DAYS
10 years ending December 31, 2021
Source: Morningstar. In CAD. Returns based on S&P/TSX Composite Index, for 10-year period ending December 31, 2021. Click here for underlying data of the best missed days. For illustrative purposes only. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
1 Source: Russell Investments, Confluence. Represented by the S&P/TSX Composite Index from 1920-2021
Featured insights from our experts:
Value of an Advisor: Behavioral Coaching Video
IS FOR CUSTOMIZED EXPERIENCE & FAMILY WEALTH PLANNING
Let’s face it, as your life becomes more and more complicated, with your own set of personal goals, circumstances, and preferences, an advisor who has a deep understanding of your individual situation can provide significant value to you. The customized client experience and comprehensive wealth planning that advisors can provide may be vital to guiding you and your family through all of your major life events and decisions. How much value do you put in an advisor who really knows you and what you are trying to achieve?
Hypothetical scenario for illustrative purposes only.
Featured insights from our experts:
Value of an Advisor: Customized Client Experience Video
IS FOR TAX-SMART PLANNING & INVESTING
Why should we be concerned about tax management? Because taxes can have a significant impact on returns.
An advisor can help you fully understand the difference between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), and the best way to withdraw funds from them. Or help you understand the contribution and withdrawal rules that govern a Registered Education Savings Plan (RESP) to avoid any potential tax penalties for you or the student you are supporting.
The following chart shows the differences in taxation on different types of investment income.
HELPING CLIENTS KEEP MORE OF WHAT THEY EARN
Differences in taxation of $1,000 of distribution
For illustrative purposes only. All examples shown are based on the following 2022 Ontario marginal tax rates for calculating the tax liabilities: interest income = 46.4%, Canadian eligible dividends = 29.5% and capital gains = 23.2%.
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Communicate advisor value
The waning of the pandemic and the new geopolitical environment could be the perfect time for you to work more closely with your advisor. As noted earlier, our post-pandemic lifestyles, dreams, goals and finances may be vastly different from what they were before COVID-19 emerged. But one thing likely hasn’t changed: your wish for financial security. And that’s where a trusted advisor can truly provide value.
Client relationships are your most valuable assets
Use this additional material to help shape your conversations with clients.
A collection of materials for frequent client conversations, this kit includes our evidence-filled report: Why work with a financial advisor? Because that relationship may be one of your best investments.