With that in mind, it can be an important component of a powerful marketing program. The paper is timely as investors are becoming increasingly concerned about fees eroding their investment returns. The concern is illustrated by the growing popularity of low-cost index funds and has been driven, in part, by the financial media frequently expounding the impact of expenses on investment returns.

At the same time, online robo-advisors are calling attention to fees by offering low-cost or even free investment advice. Illustrating the value of financial advice, of course, is also challenging. As the Vanguard study points out, the value of convincing clients to avoid panic selling or market timing isn’t something that can be stated in account statements.

Encouragingly, the Vanguard paper maintains that the cost of investment advice can be justified because advisors can help investors improve investment returns. In that regard, advisory fees are similar to fees charge by a CPA for completing tax returns—in many cases, CPAs can find deductions that can result in tax savings that exceed the professionals’ fees.

The Vanguard paper, called “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha,” expands upon the firm’s “Vanguard Advisor’s Alpha” concept from 2001 by estimating the extent to which advisory services can enhance investment returns. It quantifies the positive impact upon investment returns of the following aspects of advisory services:

• Cost-effective implementation: By using low-cost funds, advisors can potentially add 45 basis points to investment returns.
• Portfolio rebalancing: Rebalancing portfolios on a routine basis can enhance returns by 35 basis points.
• Behavioral coaching: By preventing clients from trying to time the market, clients can deliver 150 basis points of additional performance.
• Asset location: By allocating different asset classes appropriately among taxable and non-taxable accounts, advisors can deliver up to an additional 75 basis points.
• Tax efficient spending: By helping clients withdraw assets strategically from taxable and non-taxable assets, advisors can enhance returns by up to 70 basis points by reducing taxes.

The paper maintains that the results will vary depending on each client’s unique circumstances, yet in many cases returns will be enhanced by 300 basis points. It further explains that the extent of the additional returns will vary from year to year.

The study provides various opportunities for advisors seeking to enhance their marketing efforts. For example, advisors may want to craft a brief brochure that summarizes the report’s finding. The brochure should start by emphasizing that the paper has determined that advisors can enhance returns by 3% and then use bullet points to highlight how different aspects of an advisor/client relationship can improve investment results. The brochure should also include a call to action. That is, it should encourage prospects to contact the advisor for information about the study and information on advisory services.

Advisors can also use the brochure during initial conversations with prospects to illustrate that financial advice can potentially generate returns that exceed fees that financial planners charge. The brochure can also serve as a reason to contact existing prospects who are considering using an advisor but may have concerns over fees and with existing clients who may question an advisor’s fees.