People with Advisors Get Better Investment Returns, Study Says Hot
By: Nicholas W. Stuller, President & CEO, AdviceIQ
I spoke at the FPA annual retreat this May and sat in on a few other sessions. In one of them a reference was made to a German study illustrating that investors had not fared better with an advisor compared to a self-directed portfolio. I recalled reading about a different study done here in the US by AON/Hewitt showing just the opposite. I found it odd that that the AON study was not referenced, but in retrospect, I don’t recall this report getting much press. I read all the B-B trades every day, and fancy myself as being somewhat current, but perhaps I missed it too.
And so, I re-visited the original AON/Hewitt report at, AON/Hewitt report
My conclusion: Every advisor should be shouting out the AON report from atop every mountain top. It’s an enlightening, must-read for every advisor
In short, the report states that investors utilizing the help of advisors enjoyed a nearly 300 basis point annual return in their 401k plans over the years 2006-2010. In my opinion, this report is not just another white paper, or survey done by a fund company or trade association, but rather the most important and objective argument to hire a financial advisor ever. Specific facts in the report that lead me to this conclusion:
o Over 425,000 ACTUAL investor accounts were monitored
o Eight large defined contribution plans representing over $25 billion in assets were examined. Age ranges and account balances were also from a broad spectrum.
o The study was done by two notable and respected firms: AON/Hewitt (one of the largest Human Resources Consultants in the world ), and Financial Engines, (one of the largest advisors in the US, founded by financial Nobel Laureate Bill Sharpe of Sharpe Ratio fame)
To be fair, one potential "gotcha" exists in connecting this report as it relates to its applicability to the argument of hiring a financial advisor: The report’s definition of "Help" within the 401k account only included one of the following scenarios:
- 95% of the investors money was in a Target Date Fund or
- A Managed Account was used in the account or
- Use of on-line help at least once in the preceding 12 months
So one could argue that the above definition of "Help" does not map perfectly to the average relationship or advice given by a personal financial advisor. That said, my rebuttal would be that (a) many advisors adhere to the teachings of Bill Sharpe, (b) many advisors offer managed accounts in one form or another on a personal basis, and (c) I would imagine that the vast majority of personal financial advice would trump any one-time, periodic advice found on even the best of online advice sites.
My takeaway is that every advisor should write a very short intro to this report, link to it and put it on their site’s home page. Referrals from your clients are perusing your website as we speak, and this report might be just enough to push them over the edge and decide to move forward and hire you.
Agree? Disagree? I would love to hear from any advisors out there on this report.
