RGT Wealth Advisors
Client Login
Menu
  • Our team
  • Our focus
  • Our approach
  • Our latest
  • Client Login
  • Our Team

    We’re always strategic and we think outside the lines to bring our clients fresh ideas.

  • Our Focus

    RGT manages your finances so they don’t manage you. And that equates to complete peace of mind.

  • Our Approach

    We’re an independent, fee-only firm that provides investment advice – always in our clients’ best interests.

  • Our Latest

    Did you know? RGT is always active and engaged, whether we’re making the news or sharing it.

Prev post Next post
Aug
12
Recent Research Confirms the Value of Financial Advice

by: Mark McClanahan, CFP®

As consumers we are constantly asking ourselves if the value of a particular product or service warrants its cost. Some products and services are relatively easy to quantify and others much more difficult to assess.

 

When considering the engagement of a wealth management firm, how do you determine if the value of an advisor justifies the cost – or if you are better off just handling your own finances?

 

Until recently, the answer to this question was not always clear. However, in 2013, Morningstar, an independent investment research organization, published a groundbreaking analysis in a white paper entitled Alpha, Beta, and Now…Gamma. The report’s findings? Advisors can add additional income to investor portfolios by helping their clients make better financial decisions in five key areas. The Morningstar study quantified this value at a 29% increase in retirement income, or the equivalent of generating 1.82% of additional return annually.

 

What may be surprising to some is that the selection of investments is only a portion of the overall value derived from advisors. The five key areas discussed in the Morningstar study are asset allocation, withdrawal strategy, tax efficiency, product selection, and liability investing (or investing toward a specific goal).

 

Asset Allocation

By owning a number of different assets that are not highly correlated, investors can reduce risk substantially without dramatically lowering returns. Long thought to be the only meaningful lever of investment return, studies now show asset selection as only one determinant of total portfolio return. The assets used in the Morningstar study included U.S. stocks and bonds as well as foreign stocks and bonds.

 

Tax Efficiency

In concert with asset allocation, tax efficiency is the proper positioning of assets. For example, it generally makes sense to place high income-producing assets, such a corporate bonds (that pay taxable dividends and will be taxed at ordinary income rates), into IRAs or retirement plans. More efficient assets, such as stocks or real estate (taxed at potentially lower capital gains rates), are placed into taxable accounts.

 

Annuity Allocation

The utilization of an asset or strategy that guarantees a series of principal payments regardless of how long one lives. In the Morningstar analysis, an immediate annuity was used for a small portion of the overall portfolio. This approach serves to remove the risk of outliving your assets – as payments from the annuity are guaranteed by the insurance company. Other means to accomplish this end could include a ladder of zero coupon bonds that would mature every year for a period well beyond one’s life expectancy.

 

Dynamic Withdrawal Approach      

Historically, people take a set percentage or a dollar amount of income from a portfolio every year. Morningstar used a dynamic approach that adjusted the annual distribution based on the amount of money left in the portfolio and the individual’s life expectancy.

 

Liability Optimization

This strategy is the focus on achieving financial goals, including retirement, education, or the purchase of a property, to name a few. If your portfolio temporarily drops 10% in value due to a stock market swoon, how does this impact a goal that is 10 years away? By concentrating on the objective, investors are less likely to make rash judgments by watching their portfolios on a daily basis. Conversely, if you have a very short-term goal, market risk should certainly be taken into consideration.

 

Morningstar has published a very beneficial report that has been long overdue. As we’ve learned, in order to accurately evaluate the value of an investment management firm, consumers and advisors must better understand the factors that influence financial success.

 

 

Mark McClanahan, CFP®, is a Managing Director at RGT Wealth Advisors.

 

 

 

Archive

  • October 2019
  • September 2019
  • August 2019
  • June 2019
  • April 2019
  • February 2019
  • January 2019
  • October 2018
  • July 2018
  • April 2018
  • January 2018
  • October 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • July 2016
  • April 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • August 2015
  • July 2015
Prev post Next post

The first step on the path to getting where you want to go starts with an honest conversation. And once we determine the right direction together, we’ll help you stay the course.

Let’s Talk
  • Contact Us
    214-360-7000
Submit request onlineCancel
Fields marked with an * are required
  • Cancel * Required field
    5950 Sherry Lane, Suite 600
    Dallas, Texas 75225
    214-360-7000
    ©2019 RGT. All rights reserved. Terms of Use
    • Website Privacy Policy
    • Careers
    • Client Access