The ROI of Wealth Advisory


Why We Became a Client

You might be a little skeptical about a blog authored by a marketing person at BakerAvenue, so before you skip, I'd like to share why my family became clients.   

About 2 years ago, my mother was diagnosed with cancer.  It was a very traumatic period for our family. In addition to my mom's health fears and uncertainty, we were also perplexed about her and my dad's finances (and mine).

It was extremely comforting to reach out to the people I trust at BakerAvenue, to get advice and an action plan. Getting the same support that any client would get from our firm, I immediately had access to a team of experts discussing financial planning, risk tolerance, tax considerations, and estate planning. 

Before I started working at BakerAvenue, I had wondered why people would pay a fee to have a financial advisor (when, in this day and age, using a low-cost robo-advisor would suffice). I quickly learned what it means when we say, "When you're going through a life transition, big or small, BakerAvenue is here for you."

Life Transitions Create Added Complexities

In times of transition, such as starting a new job, getting married, or planning for retirement, people often seek the guidance and expertise of a wealth advisor.

  • Wealth professionals specialize in helping individuals and families navigate the complexities of financial planning during significant life changes.

A wealth advisor can provide personalized advice tailored to individual needs, ensuring clients make informed financial decisions. With their years of experience and knowledge, wealth advisors can offer valuable insights and strategies to help clients achieve their financial goals. Additionally, building a trusted relationship with a wealth advisor can provide emotional support and peace of mind during times of uncertainty.

Typical Fees & Estimated ROI of a Wealth Advisory Firm

You might ask, "OK, so what are the typical fees, and what do I get out of it?"

  • According to a Vanguard Study1, the average fee for a wealth advisory firm is around 1% of the assets under management (AUM). This fee structure is often based on a tiered system, where the percentage decreases as the AUM increases.

The ROI of working with a wealth advisory firm is contingent upon several factors, including market performance and the individual's financial goals.

  • However, the same Vanguard study found that clients who worked with a wealth advisor had a net return that was 3% higher, on average, than those who did not seek professional advice.

This demonstrates the potential value that a wealth advisory firm can bring in generating higher returns and optimizing financial outcomes.

1Vanguard Study: Putting a value on your value: Quantifying Advisor's Alpha, The Added Value of Financial Advisors.

A Closer Look at Robo-Advisory

I used to think a lower-cost robo-advisor was sufficient and more efficient, but before you decide for yourself, consider the pros and cons.

In today's digital age, robo-advisory services have gained popularity as a convenient and cost-effective option for financial advice. However, while these services offer convenience when it comes to providing customized financial advice, robo-advisors often rely on algorithms and automated processes, which may not be able to navigate complex financial situations as effectively as a human advisor.

While technology integration is important, wealth advisors can incorporate technology to enhance their services and provide a hybrid approach that combines personalized solutions with the convenience of digital tools. In the ever-evolving world of finance, human wealth advisors continue to offer an irreplaceable service.

And What Are the Typical Fees?

Given the automated nature of robo-advisors, the average fee for a robo-advisory service is typically lower than that of a human financial advisor, ranging from around 0.25% to 0.50% of the assets under management (AUM). While this may seem appealing, it is crucial to recognize that robo-advisory services lack the personal touch and human element that a wealth advisor can provide, which may ultimately cause clients to miss out on the indispensable emotional support that goes beyond solely financial management.

Comparison of the Pros & Cons

  Robo-Advisor Wealth Advisor
Cost Lower fees and expenses Generally higher fees
Accessibility Available 24/7, online platform Scheduled appointments, in-person or virtual
Automation Automated portfolio management Personalized advice
Simplicity Easy setup and user-friendly interface Tailored solutions
Low Minimum Investment Often require lower minimum investments May require higher minimum investments
Personalization Limited customization based on algorithms Tailored advice based on personal situations
Human Interaction Lack of personal interaction and emotional support Face-to-face interaction and emotional support
Complex Situations Might not handle complex financial situations Expertise in complex financial scenarios
Behavioral Guidance Limited behavioral coaching Behavioral coaching during market fluctuations
Adaptability to Life Changes Less adaptable to changing life circumstances Adjustment of a financial plan to changing needs
Comprehensive Financial Planning Focus on investments, not holistic planning Comprehensive planning beyond investments

What I've Learned  

A traditional wealth advisor's expertise and personalized guidance are invaluable when it comes to navigating significant life changes and achieving financial goals. While robo-advisory services offer convenience and cost-effectiveness, they lack the personal touch, emotional support, and adaptability that a human advisor can provide. By building long-term and trusted relationships with your wealth advisor(s), you can make informed decisions about your family's finances and have comfort during times of uncertainty. 

Ultimately, the decision between a wealth advisor and a robo-advisor should be based on your financial goals, comfort level, and the complexity of your financial situation.  In my situation, choosing a wealth advisory firm with people I trust who would look out for my family's best interest was paramount. It was a long 2 years, but luckily (knock on wood), my mother survived stage 3 cancer at the age of 83. We also had the peace of mind that we'd be fine financially.

So, when you need to discuss your personal and professional life transitions, BakerAvenue is here for you.  Talk to one of our experts today.