Why should you pay your advisor to manage your money? Three reasons…
1.) They can outperform the market.
2.) They can keep pace with the market with less risk than the market.
3.) A blend of both one and two.
If they cannot accomplish that, then you are better off cutting the thousands of dollars of active management cost and investing in a passively managed index fund, saving you a lot of money and time. You might be surprised that about 85% – 90% of people reading this fall into this category of “paying your advisor to trail the market benchmark with more risk, for more cost. Yes, I said it.
How do you know if you’re the 85-90% being deceived or if you are lucky enough to be in the 10-15% exchanging value for equal value? While there is no perfect way, one option is Alpha. Alpha is a term describing the return your portfolio achieved relative to the market benchmark on a risk adjusted basis. Or in other words, if you have a portfolio with an alpha of 2.00, you outpaced the benchmark by 2% on a risk adjusted basis. While not perfect, Alpha can be used to demonstrate if your advisor is doing what they should. To review, money managers are paid to outpace the market, keep pace with the market with less risk or a blend of both. If they aren’t doing those things, you’re possibly paying your current advisor for something you could do yourself for much less cost and possibly better returns.
At EFS, we have a demonstrable, objective value proposition. Because of our fully independent nature, we have the ability to bring value where others are incapable. To learn more about how we can show you how much you’re missing out on, click here.