Vanguard has claimed that financial advisers could add an average net return to their clients’ investment of “around 3% per annum” using the firm’s “Adviser Alpha” system, which encourages a more disciplined client approach.
The UK version of system was announced at Vanguard’s investment symposium on Thursday, having been applied by the firm in the US for more than ten years.
Speaking at Vanguard’s investment symposium on Thursday, Nick Blake, European head of retail, emphasised that the onus is ultimately on advisers to assure clients of their personal worth and apply an “emotional circuit-breaker”.
“It is about value perception rather than the actual number,” he said. “It is up to advisers to persuade clients of their value.
He also explained that due to the ever-changing market landscape the 3% given is more of a ballpark figure than actual reference point.
“You could use 4% or even 2%, but we want this to be credible,” he said. “We are comfortable that 3% is a believable number.
“If tomorrow equities dropped by say 30%, then a client might call and want to sell. We think they should stay where they are and wait for the inevitable bounce. But that is not going to happen every day, every week, or even every year.”
Adviser Alpha uses a value-add components basis point system relative to “average” client experience to reach the final figure of 3%, distributed as follows:
| Strategy Modules | Value-add (in bps) |
|---|---|
| Asset allocation (funds/ETFs) | >0 |
| Rebalancing | 0-43bps |
| Expense ratios | 66-92bps |
| Behaviourial coaching | 150bps |
| Tax allowances and asset location | 0-23bps |
| Spending strategy | 0-48bps |
| Total return v income investing | >0bps |
| Potential value added | “about 3%” |
Blake elaborated on the discrepancy between the basis points accumulation and the 3% total given at the bottom of the table, saying “not all of the values are present for every client, but most of them are there most of the time”.
