06 Mar 2025 What’s the ROI of Working With a Financial Advisor?

Over the years, there have been a few attempts to quantify the value of working with a financial advisor. Clearly, not an easy task. Clients are different, financial advisors are different. That variability makes measurement difficult.

In 2001, Vanguard published a paper titled Vanguard’s Advisor Alpha that outlined ways in which financial advisors could add value. What was admirable about their study was that it not only included relatively easy-to-quantify areas like investment management and taxes, but also accounted for behavioral benefits, which are much harder. Vanguard considered asset allocation, choosing low-cost investment options, rebalancing, behavioral coaching, asset location, withdrawal strategy, and taking a total return approach to investing rather than focusing on income. Initially published more two decades ago, they update it regularly.

Years later, Morningstar took a stab and came up with a figure they call Gamma: “The additional value that can be achieved by an individual investor from making more intelligent financial planning decisions.” Their research focused on five areas, four of which overlap with Vanguard’s study: optimal asset allocation, dynamic withdrawal strategy, incorporating annuities, tax-efficient allocation decisions, and a “portfolio optimization that includes a proxy for the investor’s implicit and/or explicit liabilities.”

Most recently, SmartAsset did a study (no neat name, unless you count the name of the business itself) on the potential return-on-investment (ROI) of hiring a financial advisor. Their approach looked at the difference between professional investors and the S&P 500 to determine additional returns then surveyed individuals to see who used a CPA and who did not. They then averaged the additional tax savings of those working with a CPA.

Each study found a positive ROI, though there is some variability:

• Vanguard Advisor’s Alpha: +3% annually
• Morningstar’s Gamma: +1.59% annually
• SmartAsset: +2.39-2.78% annually.

Interestingly, the SmartAsset study measured the long-term impact: a 45-year-old engaging a financial advisor could see a net worth that is 92-113% higher than if he or she went it alone. Also, for every $1 spent working with an advisor, they found a 3-4x ROI.

Each study shows a clear financial benefit to working with a financial advisor. But that’s not really the point of today’s brief. The point is–I know, it took awhile to get here–oftentimes it’s the qualitative stuff, the things that are harder to measure, that provide the greatest ROI to your life. So when I am asked something like, “How do you earn your fee?” I can talk about taxes and investments, strategies for accumulation and decumulation. But it’s the squishier stuff, as Jared would say, that is harder to put a value on. Here are a few examples:

What’s the financial benefit of meaningful advice during a significant life event like taking a new job, the death of a loved one, buying a bigger house, or retiring?

If you’re married, how would it feel to have someone express a sincere interest in the financial goals you and your spouse have? (Relatedly, a friend of mine practices marriage counseling. He says the biggest benefit is simply having the spouses together for a few hours each month where they can talk without distractions. I’d argue similar benefits occur when partners get together to talk about money.)

Additionally, how would it feel to have an impartial arbiter, one that is genuinely invested in your success, help you navigate decisions where you and your spouse may not be aligned?

If you’re single or widowed, how would it feel to have a joint decision maker? Would you feel more confident in your decisions? How would that confidence affect the other areas of your life?

How do you value hand-holding during difficult stretches in the stock market?

How is your life improved by unloading the burden of overseeing your finances? How do you value the other things you can do with your time, whether it’s work, taking on a hobby, volunteering, exercising, or spending time with family?

Would your financial decision-making benefit from the perspective of an individual or team that has helped others navigate similar decisions?

If you’re a “spender,” would you benefit by having someone help you automate saving and investing to make over-spending harder and accomplishing your long-term goals easier?

If you are a “saver,” how might your life improve by having a trusted advisor give you permission to spend on things that matter to you? That it’s alright, good, even, to enjoy the fruits of your labor now.

What’s the ROI of working with a financial advisor? Maybe it’s 1% annually, maybe it’s as much as 3%. The bigger benefits, however, are confident decision-making, simplicity, and alignment between what’s most important and where your money is going. That’s much harder to quantify, and certainly more valuable.

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.