How an advisor adds value through behavioral coaching
How an advisor adds value through behavioral coaching
VANGUARD ADVISOR'S ALPHA?
FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.
The problem:
Disparity between investor returns versus fund returns: Ten years ended December 31, 2017
Moderate Small-cap Small-cap Small-cap Mid-cap
allocation value
growth
blend
value
Mid-cap growth
Mid-cap blend
Large-cap Large-cap Large-cap
value
growth
blend
?0.51%
?0.86%
?0.13%
?1.25%
?0.53%
?0.96%
?0.22%
?0.38%
?0.76%
?2.45%
Notes: The time-weighted returns in this figure represent the average annual investor returns, compared with fund returns, in each category. Investor returns assume that the growth of a fund's total net assets for a given period is driven by market returns and investor cash flow. An internal rate-of-return function calculates the constant growth rate that links the beginning total net assets and periodic cash flows to the ending total net assets. Fund categories include fund-of-fund assets and cash flows to best capture investors' experience when that structure is common. Source: Vanguard calculations, based on data from Morningstar, Inc.
FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.
Why do we have the problem?
Common human biases:
Overconfidence Inertia Loss aversion
Availability Framing Representativeness
FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.
The solution:
Vanguard Advisor's Alpha? behavioral coaching
1%-2%
Source: Francis M. Kinniry Jr., Colleen M. Jaconetti, Michael A. DiJoseph, Yan Zilbering, and Donald G. Bennyhoff, 2019. Putting a value on your value: Quantifying Vanguard Advisor's Alpha?. Valley Forge, Pa.: The Vanguard Group. FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.
Behavioral coaching is business development
Automation is here. Focus on the human elements of advice.
Personalization
Higher
REBALANCING COST-EFFECTIVE IMPLEMENTATION ASSET ALLOCATION
Lower
FAMILY-OWNED BUSINESS STRATEGIES CHARITABLE GIVING STRATEGIES INSURANCE ACCOUNTING & TAX SERVICES ESTATE PLANNING & TRUSTS BEHAVIOR COACHING SPENDING STRATEGIES TAX-EFFICIENT ASSET LOCATION TOTAL RETURN VS. INCOME INVESTING
Value/immunity to automation
Higher
Source: Vanguard.
Embedded advice solutions
FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.
Digital advice
Digital relationship
Wealth management
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