Understanding and Communicating an Advisor’s Value

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“The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.”

—H. P. Lovecraft (1927)

The studies have it wrong

There are two types of studies that explore the value that advisors provide to their clients. The first examines the various tasks an advisor performs, such as asset allocation, rebalancing, and investment selection, and attempts to quantify the value of each of them.

The second asks investors about the qualities they most value in an advisor. This is often done by having the investors rank a predetermined list of advisor attributes such as “helps me reach my goals,” “is easy to get a hold of,” and “has the relevant skills.”

The results of these studies are often inconsistent with one another, but they do provide some useful information. The quantification studies offer directional help in understanding which of an advisor’s activities contribute the most to an investor’s financial success. The qualitative studies provide a glimpse into the characteristics that investors most value in their advisors.