Advisor’s Alpha

By Mark Barnicutt on January 11, 2011

HighView Financial Group, as a firm, has always held the view that the greatest value provided by quality Investment Advisors to their clients is the stewardship of their wealth.  In other words, the accumulation of wealth requires patience, perseverance and hard work;  Because of this, investors don’t want to create their wealth twice!  This applies to all types of investors whether family or institutional client such as pensions, foundations & endowments.  As a result, such stewardship has much more to do with acting as a fiduciary for clients than it does about trying to “beat the market” or find the next “hot” investment sector…….strategies, which many times in our experience, can impair wealth more than enhance it.

A recent article by Vanguard titled, Advisor’s Alpha, puts forth the view that the “alpha” that Advisors provide to their investor clients should not be considered to be their ability to “beat the market indices” but in the experience & stewardship that they provide to clients in the relationship. According to this article, the traditional value proposition for many Advisors has been based on their investment acumen and their prospects for delivering better returns than those of the markets. No matter how skilled the Advisor, the path to better investment results may not lie with the ability to pick investments or strategies.

According to the Vanguard article, instead, Advisors should consider a new value proposition based on alternative skills and expertise: that is, they should act as wealth managers and behavioral coaches, providing discipline and experience to investors who need it. On their own, investors often lack both understanding and discipline, allowing themselves to be swayed by headlines and advertisements surrounding the “investment dujour”—and thus often achieving wealth destruction rather than creation. In the Advisor’s Alpha framework they’ve described, the Advisor becomes an even more important factor in the client–advisor relationship, because the greatest obstacle to clients’ long-term investment success is likely themselves.  To view the Vanguard article, click here.

Jack Bogle, the founder of Vanguard, has held the view that the investment industry needs to return to its roots as investment fiduciaries and stewards.  To view an article on his view, please click here.

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