Working with a financial advisor is sometimes described as a way to “increase returns.” That phrase can be misleading if it sounds like anyone can reliably “beat the market.” Markets are unpredictable, and no advisor can guarantee higher performance.
What an advisor can often do is help you:
- Build a plan that matches your goals and risk tolerance
- Create a portfolio aligned to that plan
- Reduce avoidable mistakes (especially in volatile markets)
- Improve tax efficiency and cash-flow decisions
- Stay consistent over time
Those factors may improve outcomes—and in many cases that can show up as better long-term performance relative to what an investor might have achieved on their own.
The “return” that matters: outcomes, not predictions
A good plan isn’t just about chasing the highest number. It’s about increasing the odds that your money supports what you want it to do—retirement income, a legacy, charitable goals, or simply greater financial confidence.
In practice, many investors don’t struggle with picking a fund; they struggle with behavior:
- Buying after markets have already risen
- Selling during declines to “stop the bleeding”
- Holding too much cash for too long
- Concentrating in a familiar stock or sector
- Changing strategies frequently
Even small, repeated decisions like these can quietly erode long-term results.
What Vanguard found: “Advisor’s Alpha” and the potential value of advice
Vanguard’s well-known Advisor’s Alpha research estimates that a quality advisory relationship can add value—often cited as about 3% in net returns—not as a guaranteed annual outperformance, but as a potential benefit that can come from multiple planning and portfolio activities working together.
Importantly, Vanguard emphasizes that the value is not one single lever. It’s the combined effect of several practices, such as:
- Behavioral coaching:Helping clients stay invested and avoid emotionally driven decisions during market stress.
- Appropriate asset allocation:Building a diversified mix aligned to goals and risk tolerance.
- Cost-aware implementation:Using cost-effective vehicles where appropriate, and being intentional about trading and turnover.
- Rebalancing:Maintaining risk levels over time rather than letting market swings reshape the portfolio.
- Tax-smart decisions:Asset location, tax-loss harvesting where appropriate, withdrawal sequencing, and coordinating with other tax considerations.
Some of these items may increase pre-tax returns, others may reduce taxes/fees, and some may simply reduce the odds of a costly mistake. The key point: the “3%” figure is best understood as a framework for potential value—and it will vary widely by investor circumstances, market environments, and the specific services provided.
Why “having a plan” can improve results (even without changing the investments)
A written plan can be powerful because it turns big financial goals into a practical decision system.
Here are a few ways planning may improve financial outcomes:
1) It sets a clear risk budget
Without a plan, many investors discover their true risk tolerance only after a major decline. A plan helps define what level of volatility is acceptable before markets get turbulent, which can reduce panic moves later.
2) It creates boundaries around spending and saving
Your investment return is only one part of the equation. Savings rate, withdrawal rate, and spending discipline often have an equal (or greater) impact on long-term success.
3) It improves decision-making timing
People tend to make big decisions—selling, shifting to cash, abandoning a strategy—when news is loudest and emotions are highest. A plan helps you anchor decisions to long-term goals rather than short-term headlines.
4) It coordinates the “moving parts”
Real life is messy: taxes, Social Security timing, Required Minimum Distributions (RMDs), pension choices, insurance, and estate planning. Coordinating these choices can improve after-tax and after-fee outcomes, even if the market return is the same.
A practical way to think about an advisor’s value
Rather than expecting an advisor to “find the next hot investment,” many clients benefit most from an advisor who:
- Clarifies what you’re trying to accomplish
- Builds a strategy you can stick with
- Keeps portfolio risk aligned with your goals
- Implements ongoing adjustments as your life changes
- Helps you stay disciplined when markets test your patience
In other words: the value often shows up in the gap between what investors could earn in theory and what they actually earn after emotion, taxes, costs, and inconsistent decisions.
Q&A: Working With an Advisor and Building a Plan
Q: Does working with an advisor guarantee better returns?
A: No. No one can guarantee higher returns or protect against losses in all markets. The potential benefit is that advice may improve decision-making, risk management, and after-tax outcomes—factors that can contribute to stronger long-term results.
Q: What does Vanguard’s “3%” figure really mean?
A: Vanguard’s research suggests that the ongoing value of advice could be around 3% (often described as “about” or “up to” 3%), primarily from behavioral coaching, rebalancing, cost awareness, and tax considerations. It’s a research estimate, not a promise, and actual results vary.
Q: If my investments are already diversified, do I still need a plan?
A: Diversification is important, but a plan covers more: retirement income strategy, taxes, withdrawal sequencing, insurance needs, and how to handle market volatility without making damaging changes.
Q: Is an advisor only useful during retirement?
A: Not at all. Pre-retirees often benefit from contribution strategy, tax planning, and risk alignment. Retirees often benefit from a coordinated income plan, managing sequence-of-returns risk, and integrating Social Security, RMDs, and healthcare considerations.
Q: How do I know if I’m getting value from advice?
A: Look beyond performance. Are you clearer on goals? Is your risk appropriate? Are taxes and withdrawals coordinated? Do you feel confident during market volatility? Value can show up as better decisions, fewer mistakes, and a strategy you can maintain.
Bottom line
Working with the right advisor and following a real plan may improve financial outcomes—not because anyone can control markets, but because planning and disciplined execution can reduce avoidable errors and improve after-tax, after-fee efficiency.
If you’d like, we can review your current strategy and identify where planning opportunities may exist—especially around risk, taxes, retirement income, and behavioral guardrails when markets get choppy.
Sources
- Vanguard. Advisor’s Alpha (research on potential value of financial advisors; commonly cited estimate around 3%). https://advisors.vanguard.com/insights/article/putting-a-value-on-your-value-quantifying-advisors-alpha
- DALBAR. Quantitative Analysis of Investor Behavior (QAIB) (research commonly cited on the impact of investor behavior on realized returns). https://www.dalbar.com/qaib