What the research actually shows, not what the industry says
By William F. Davis, CFP®, CDFA®
If you’ve ever wondered whether paying someone to manage your money actually pays for itself, you’re asking the right question. It’s the same question I ask myself every year about my own fee. The good news is that this isn’t a matter of opinion anymore. Several of the largest, most credible research shops in the industry have tried to put a number on it, using very different methods, and they keep landing in the same neighborhood.
The Return Studies
The most-cited work here comes from Vanguard’s Advisor’s Alpha framework, most recently updated with data through the end of 2024. Vanguard’s research team breaks advisor value into seven components, including asset allocation, cost-effective implementation, rebalancing, behavioral coaching, asset location, spending strategy, and withdrawal sequencing, and concludes an advisor following that framework can add roughly 3 percentage points in net annual returns.
| Vanguard — Advisor’s Alpha (data through 2024) Advisors following a structured framework can add about 3% in net annual returns, mostly through behavioral coaching, cost control, and tax-smart implementation. | ~3% PER YEAR |
Russell Investments runs a similar exercise every year under its A+B+C+T formula (active rebalancing, behavioral coaching, customized planning, and tax-smart investing). Its 2024 study, focused on the Canadian market, found advisors added 3.52% in value. Earlier US editions of the same study have shown figures closer to 4-5%, with behavioral coaching consistently the single largest driver, worth more than the typical advisory fee on its own.
| Russell Investments — Value of an Advisor Study (2024, Canadian edition) Comprehensive wealth management added 3.52% in value versus a typical 1% fee, led by behavioral coaching and customized planning. | +3.52% PER YEAR |
The Behavior Gap
Here’s the flip side. Morningstar’s annual Mind the Gap study compares a fund’s actual total return to what the average dollar invested in that fund actually earned, which captures the cost of buying high and selling low. Over the ten years through 2024, the average investor earned about 7.0% per year versus 8.2% for the funds themselves, a gap of roughly 1.2 percentage points annually, which Morningstar estimates cost investors about 15% of their potential gains over that stretch. It’s not that the investments were bad. It’s that the timing of getting in and out of them was.
| Morningstar — Mind the Gap (10 years through 2024) The average dollar invested lagged the funds it was invested in due to mistimed buying and selling, not fund selection. | -1.2% PER YEAR LOST |
This is the piece I spend the most time on with clients, honestly. Nobody calls me because they’re worried about expense ratios. They call me in March 2020 or April 2025, wanting to sell everything. Keeping people invested through the scary parts is unglamorous work, but it’s where a lot of the value in that first chart actually comes from.
The Retirement Income Payoff
Retirement introduces its own set of decisions, and Morningstar’s Blanchett and Kaplan tackled that separately in their well-known ‘Gamma’ research. Rather than looking at investment returns, they modeled the impact of five planning decisions retirees make, like withdrawal strategy, asset location, and product allocation, and found that making the efficient choice on all five could generate 29% more retirement income on a utility-adjusted basis compared to a naive 4% withdrawal approach. They translated that into a return-equivalent figure of about 1.82% in additional annual value.
| Morningstar — Blanchett & Kaplan, “Alpha, Beta, and Now… Gamma” Retirees who made efficient decisions on withdrawal strategy, asset location, and product choice generated meaningfully more income than a naive constant-withdrawal approach. | +29% MORE INCOME |
The Planning Habit Itself
One more data point worth knowing, because it doesn’t require picking a single stock or timing a single trade. Hearts & Wallets, an independent research firm that surveys thousands of US households, has repeatedly found that people with an actual financial plan, not just an account, show higher savings rates, more balanced asset allocation, and more confidence in their financial decisions than people without one. Plans don’t guarantee outperformance. But they consistently correlate with better habits, and better habits are most of what long-term wealth building actually is.
The Bottom Line
None of these studies agree on the exact number, and I’d be skeptical of anyone who pretends they do. What they agree on is the shape of the story: the return-chasing and cost-cutting arguments for hiring an advisor are actually the smaller part of the case. The bigger part is behavioral, staying invested when it’s uncomfortable, sequencing withdrawals correctly in retirement, and having an actual plan instead of a collection of accounts. If Eagles fans can learn patience through four separate playoff heartbreaks before the Super Bowl finally showed up, most of us can learn to sit still through a 10% pullback. That’s really what you’re paying for.
#CFP #financialplanning #feeonlyadvisor #vericrestinsights
William F. Davis is a CERTIFIED FINANCIAL PLANNER™ and Managing Partner with Vericrest Private Wealth LLC, a financial advisory firm in Newtown, Pennsylvania.
Vericrest Private Wealth LLC (“Vericrest”) is an SEC registered investment advisory firm. The information provided herein should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or investment advisory service. Past performance is no guarantee of future results, and there is no guarantee that future investments will be profitable. While we believe that third party information provided is accurate, Vericrest does not guarantee or otherwise warrant such information. For more information please contact Vericrest or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) to review important disclosures about our firm.
