Our latest research illustrates how we can quantify the value of specific financial planning recommendations in the context of an overall financial plan. We compare the potential outcomes for these recommendations in aggregate with a similar distribution of outcomes for an investor’s current plan.
To do this, we introduced the Vanguard Financial Advice Model (VFAM). VFAM develops personalized recommendations based on unique client circumstances and assesses how much those recommendations would improve a client’s current approach or situation. By taking into account taxes, advice fees, uncertain market and inflation scenarios, and variable life expectancy outcomes, VFAM allows us to quantify the value of a specific investor’s financial plan relative to the current strategy.
It is not unusual for the combined effect of advice interventions to increase value for clients by hundreds of basis points annually and hundreds of thousands of dollars over time. 1 (A basis point is one-hundredth of a percentage point.)