The Value of Financial Advice for Your Investment Needs

As technology advances and online investment resources become increasingly accessible, it might be tempting to manage your finances entirely on your own. While doing so may eliminate an advisory fee, the potential costs of inefficient tax strategies, higher investment expenses, poor portfolio construction and emotionally driven decisions could more than offset those savings. For high-net-worth individuals and families, financial complexity can make professional advice particularly valuable, if not indispensable.

Our two-part series explores the value of financial advice and the many ways a professional, such as a Corient Wealth Advisor, can help you build, manage and protect wealth. Studies have shown that advisors typically provide immense value to their clients. Research from a Morningstar report and a Vanguard study estimates that, on average, an advisor may add somewhere between 2.5% and 5% of value.¹ Even seemingly modest improvements in net returns can have a major impact on wealth accumulation over time, particularly for the ultra wealthy, as each percentage point of added value—compounded for many years—may equate to a significant dollar amount.

In this article, we focus on how an advisor can create and maintain a disciplined investment strategy designed around your goals, risk tolerance, tax circumstances and broader financial plan. In our companion article, we explore other critical areas of value from financial planning, including insurance, income tax, retirement planning and estate planning.

Potential benefits of professional investment management 

One common misconception is that the primary value of an advisor comes from selecting better investments.

While rigorous investment research and the ability to adapt to changing market environments are important, they represent only one component of successful long-term investing. An advisor can add value through a combination of portfolio construction, tax management, disciplined implementation, behavioral coaching and ongoing oversight. Let’s look at each of these important value-added actions.

Strategic asset allocation: estimated 0.30% to 0.4550% of additional value 

Identifying the appropriate asset allocation and maintaining meaningful diversification are foundational to an effective investment strategy, yet they are often overlooked.

An advisor designs a well-diversified portfolio in order to withstand different market and economic environments by combining investments that may perform differently under varying conditions. For high-net-worth investors, this may include a thoughtful allocation across public and private markets, equities, fixed income and other asset classes.

The objective is not simply to maximize returns, but to seek the most appropriate return potential for the level of risk you’re willing and able to take on. A comprehensive financial plan provides valuable perspective on how much risk you actually need to take to meet your goals—and the potential trade-offs of taking more or less risk.

Cost-effective implementation and access: estimated 0.20%+

Vanguard identifies cost-effective implementation as an important component of the value advisors can provide. This includes managing investment expenses, minimizing unnecessary trading and implementing portfolios with an emphasis on after-tax, after-fee returns.

For high-net-worth investors, scale can provide additional advantages. Firms with significant purchasing power may be able to provide access to lower-cost investment share classes or negotiate more favorable pricing on certain investment strategies. Access can be particularly valuable in private markets, where the dispersion of returns is significant between top-tier hard-to-access managers, and bottom-tier managers. As an example, public market returns vary by only roughly 3% between top- and bottom-tier managers, while private market returns differ by over 14%.²

Tax efficiency: estimated 0.20% to 1% h

Building wealth is an important investment objective, but preserving that wealth through thoughtful tax management can be equally important. An experienced advisor knows how to integrate tax considerations into portfolio construction and investment decisions.

Two areas include: 

1. Tax-loss harvesting: An advisor can help you participate in strategies like tax-loss harvesting to lower your taxes. Let’s say you sold some investments during the year at a significant profit. That’s great, but you could also be on the hook for a big tax bill on your capital gains. With tax-loss harvesting, you identify securities in your portfolio that are currently in a loss position. You sell those securities in the same tax year as the capital gains, which allows the ensuing capital losses to partially or fully offset the gains, thereby lowering your taxes. While not suitable for everyone, option overlay strategies can be used to generate tax losses if your portfolio has significant embedded gains. Especially in the early years, these strategies may generate tax value significantly greater than 1%. An advisor is invaluable when it comes to understanding and properly executing a tax-loss harvesting strategy.
   

2. Asset location: Asset location focuses on placing investments in the types of accounts where their tax characteristics may be most advantageous. For example, tax-inefficient investments like taxable bonds or certain income-producing alternative investments may be more appropriate for tax-deferred accounts, while more tax-efficient investments, such as those that generate capital gains and/or dividends, may be better suited for taxable accounts. The optimal approach depends on your circumstances, including your tax bracket, investment horizon, liquidity needs and the types of accounts you hold.

   For high-net-worth families with multiple account types and significant taxable assets, coordinating asset location across the portfolio can become increasingly complex—and valuable.

Behavior coaching: estimated 1% to 2%+

An important but often overlooked aspect of the value an advisor brings is helping you manage the emotional side of investing. When it’s your money at stake, it’s easy to invest emotionally. Humans are inherently wired to make poor investment decisions. For instance, when times are good and you’re making strong gains, you might ignore possible risks or invest later to avoid missing out on possibly great returns. It becomes tempting to be greedy, pushing for more gains. Conversely, if market forces have caused certain stocks to decline in value, you might panic and sell at a loss, even though the decline might be temporary and a rebound is likely. Both types of behavior have the potential to be destructive and cause you to lose money. 

Investors can also fall victim to herd mentality—the tendency to follow the actions of others rather than rely on a disciplined investment plan. A popular investment may create fear of missing out, while negative news or social media commentary can create widespread pressure to sell.

A skilled advisor provides a calm, rational and objective perspective during these periods, helping you distinguish between short-term market noise and meaningful changes to your long-term financial outlook. Perhaps most importantly, an advisor can help you remain disciplined when emotional decision-making could otherwise undermine your financial plan.

Portfolio rebalancing: estimated 0.10% to 0.35%

Given the behavioral biases that many people maintain, it’s imperative to have a disciplined rebalancing approach to remove the emotions of investing. Regularly rebalancing the portfolio in good and poor markets alike may serve as a way to compel you to buy low and sell high. 

For high-net-worth investors, however, rebalancing is more nuanced than simply buying and selling in order to return to target allocations. Tax consequences, concentrated positions and liquidity needs must be considered. This is another reason why tax-efficient portfolio management and tax-mitigation strategies are so important to creating additional tax flexibility for rebalancing.

We’re here for you

A trusted advisor can provide the expertise, discipline and perspective needed to manage the many interconnected decisions that come with significant wealth. From portfolio construction and tax-efficient investing, to behavioral coaching and ongoing rebalancing, an advisor can help ensure that your investment strategy remains aligned with your broader financial objectives.

Advisors also have a network of other experts—such as tax specialists, estate planners, accountants and attorneys—to offer support and provide comprehensive services. Seeking professional advice can free up more of your time to focus on what’s most important to you, while helping build a stronger financial future for you and your family. Contact us today to get started.

¹ For educational purposes only. Different types of investments involve degrees of risk, including possible loss of capital. Past performance is not indicative of future results.

² https://www.kkr.com/insights/clearer-view-private-equity

ABOUT THE AUTHOR