You might have heard the claim that a good financial adviser can add around 3% per year to your investment outcomes.
Sounds a bit too good to be true, right?
This idea comes from research by Vanguard, one of the world’s largest investment firms, and it’s known as Adviser’s Alpha. But the real value of this research isn’t the number itself — it’s where that value actually comes from.
Let’s break it down.
What Is Adviser’s Alpha?
Adviser’s Alpha is Vanguard’s way of measuring the value a financial adviser can add beyond picking investments.
Importantly, it’s not about beating the market.
Instead, it focuses on the areas where long-term outcomes are most influenced — things like structure, discipline, behaviour and strategy.
Vanguard’s research suggests that when these areas are handled well, the combined effect can add the equivalent of around 3% per year in net value over time compared to a do-it-yourself approach.
That value doesn’t arrive neatly each year, and it’s never guaranteed — but over decades, it can be meaningful.
Where Does the “3%” Actually Come From?
Vanguard breaks Adviser’s Alpha into several components. Here are the big ones.
1. Behavioural Coaching (This Is the Biggest One)
This surprises most people.
A large portion of Adviser’s Alpha comes from helping clients avoid poor decisions, especially during market downturns.
Selling in a panic, abandoning a strategy, or constantly changing direction can do serious long-term damage. An adviser’s role is often to help clients:
- Stay invested when emotions run high
- Stick to a long-term plan
- Avoid costly reactionary decisions
This alone can make a significant difference to outcomes.
2. Getting the Big Picture Right (Asset Allocation)
How your money is split between growth assets (like shares) and defensive assets (like cash and bonds) matters far more than trying to pick the “best” investment.
A well-designed portfolio that:
- Matches your goals
- Reflects your time horizon
- Aligns with your risk tolerance
is far more likely to deliver a better experience and outcome over time.
3. Discipline and Rebalancing
Over time, portfolios drift.
Rebalancing — trimming what’s grown too much and topping up what’s lagged — is boring, unsexy, and incredibly effective. It helps manage risk and encourages buying low and selling high without emotion.
Most DIY investors simply don’t do this consistently.
4. Tax Efficiency and Structure
Returns don’t matter much if they’re lost to unnecessary tax.
Advice around:
- Super vs personal investments
- Contribution strategies
- Asset location
- Timing of income and capital gains
can quietly add value year after year without increasing risk.
5. Keeping Costs Under Control
Vanguard’s research also highlights the importance of minimising unnecessary investment costs.
This doesn’t mean “cheap at all costs” — it means being intentional about what you’re paying for and why.
Is the 3% Guaranteed?
No — and Vanguard is very clear about this.
The 3% figure is an estimate, based on research and long-term assumptions. It won’t show up every year, and it depends heavily on the client’s situation, behaviour and the quality of advice.
Think of Adviser’s Alpha as:
A collection of small, sensible decisions made consistently over time.
Individually, they might seem minor. Together, they can be powerful.
What Adviser’s Alpha Really Highlights
The key takeaway isn’t the number.
It’s this:
👉
Good financial advice is less about predicting markets and more about helping people make better decisions, more consistently, over their lifetime.
That’s where real value tends to show up.
For personalised financial services and advice, speak with your Financial Advisor today at Elevate Financial Planning
- Arlan Davine
