The Value of A Holistic Approach to Financial Planning
New research shows a comprehensive approach can boost investment return over the long term.

Since our start in 1985, Mercer Advisors has firmly believed that investors have the most to gain by looking at their financial lives holistically – a mixture of investment advice, comprehensive planning, and life-driven goals. Recent research has put a value on this integrated approach.
Studies by Morningstar and Vanguard show financial advisers who provide wealth management best practices can add significant value beyond market performance. While the findings are hypothetical and are not actual investment results, both sets of research illustrate the value provided by comprehensive financial planning.
Our research shows that investors who follow best practices can earn an additional 1.50% to 3.00% annually. Splitting the difference between these statistics, Figure 1 shows how an additional 2.25% annual return could impact a portfolio over thirty years. (For illustrative purposes only.)

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The average investment portfolio return has an assumed average annual return of 6% compounded monthly. The return attributed to financial planning has an assumed average annual return of 2.25% compounded monthly.
Morningstar says smart financial planning can translate to 1.5% more in annual average returns. Academics at Morningstar recently coined the term Gamma to define the potential valued added to a portfolio from intelligent financial decisions. In a white paper titled Alpha, Beta and Now….Gamma the authors stated, “Getting Gamma from financial planning best practices offers a much more certain and consistent return than seeking traditional alpha from choosing outperforming mutual funds.” Morningstar identified more than 100 financial planning techniques that can serve as sources of Gamma. They focused on five for their study: total wealth asset allocation, annuity allocation, dynamic withdrawal strategy, liability relative optimization, and asset location & withdrawal sourcing.
Figure 2 shows how properly implementing these value-added strategies can increase returns by as much as 1.59% annually. Of the five strategies, a dynamic withdrawal strategy had the highest potential Gamma. In addition to the five factors, Morningstar found that making informed Social Security claiming decisions could increase returns by another 0.74% annually.
Vanguard finds working with an adviser can add up to 3% in net returns. Vanguard performed a similar study and concluded that financial advisers using wealth management best practices can add “about 3% in net returns” to their clients’ portfolios. Vanguard emphasized that while the value added will vary according to each client’s circumstances and from year to year, “It’s a number that is very real and can reinforce the importance of sticking to a plan and following sound financial advice.”
As detailed in Figure 3, clients can benefit from a qualified adviser who helps them invest in a low-cost, broadly diversified portfolio, maintain their target allocation, and draw down their savings tax efficiently. Successfully implementing all seven strategies can potentially add “about 3%” to an average client experience.
Notably, research finds that advisers can add the most value – “tens of percentage points of value-add, rather than mere basis points” – by helping clients stay the course during bear market lows and avoid performance chasing during market highs.
Best Practices at a Glance
Below are five strategies identified by this new area of best practices research. All of these potential return-enhancing strategies are practiced by Mercer Advisors:
Academic Portfolio Design
Research has found that asset allocation is the biggest driver of a portfolio’s return and risk. Best practice studies conclude that one of the advisor’s primarily responsibilities is to design a properly diversified investment portfolio tailored to each client’s personal needs, goals, and risk profile.
Ongoing Personal Guidance
Studies have shown that average investors often jump in and out of the market, buying at the euphoric highs and panic selling at the distressing lows. Not surprisingly, the returns the average investors earn on their investment portfolios are significantly lower than what the market offered. One of the most valuable services an advisor can provide is to help clients steer clear of money-losing ventures, like trying to time the market or chase returns.
Low-Cost Investing
Research has repeatedly documented that low costs lead to better investment performance. Advisers who implement investment plans with lower-cost funds can add significant value to their clients’ portfolios. Cost-effective implementation is especially important in times of low market returns, when fund expenses erode a higher proportion of returns.
Systematic Portfolio Rebalancing
A good financial adviser keeps the investment plan on track through systematic portfolio rebalancing. Regular rebalancing keeps positions within their target weights and enforces the discipline of buying low and selling high. Without guidance, many investors fail to rebalance their portfolios because it seems counterintuitive to sell winners and buy laggards.
Customized Distribution Planning
Research has shown the benefits of adjusting distributions based on the investment climate and a client’s remaining life expectancy. Advisers utilizing variable withdrawals strategies can help maximize how long their clients’ savings last. Customized distribution planning allows investors to increase spending during good markets, without having to cut back as much in down markets.
David has served as CEO of Mercer Advisors since 2008. He is responsible for the firm’s strategic vision, business plan execution, and organizational structure.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
Stock Market Today: Another Quarter, More Mixed Price Action
"Up and to the right" remains the general trend despite persistent uncertainty around critical policy issues.
-
Over 100k Medicare Accounts Breached in Latest Hack: Was Yours One?
Letters are going out to 103,000 Medicare beneficiaries who may have been impacted. Here's how to protect your identity and benefits.
-
Why Homeowners Should Beware of Tangled Titles
If you're planning to pass down property to your heirs, a 'tangled title' can complicate things. The good news is it can be avoided. Here's how.
-
A Cautionary Tale: Why Older Adults Should Think Twice About Being Landlords
Becoming a landlord late in life can be a risky venture because of potential health issues, cognitive challenges and susceptibility to financial exploitation.
-
Home Equity Evolution: A Fresh Approach to Funding Life's Biggest Needs
Homeowners leverage their home equity through various strategies, such as HELOCs or reverse mortgages. A newer option: Shared equity models. How do those work, and what are the pros and cons?
-
Eight Tips From a Financial Caddie: How to Keep Your Retirement on the Fairway
Think of your financial adviser as a golf caddie — giving you the advice you need to nail the retirement course, avoiding financial bunkers and bogeys.
-
Just Sold Your Business? Avoid These Five Hasty Moves
If you've exited your business, financial advice is likely to be flooding in from all quarters. But wait until the dust settles before making any big moves.
-
You Were Planning to Retire This Year: Should You Go Ahead?
If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get It
The Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning Playbook
Consider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.