Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 206

The value of Adviser's Alpha explained

Adviser's Alpha refers to the added value that is demonstrated by a financial adviser's ability to effectively act as a wealth manager, financial planner and behavioural coach, rather than by overconcentration on investment selection.

Vanguard coined the term Adviser’s Alpha in the US following an original research paper written by Fran Kinirry in 2013. This is a framework where the real value of financial advice can be understood to be more than simply pointing to a portfolio return number versus market benchmarks.

Recognise what helps clients most

Demonstrating value for advisers has become increasingly important as the compensation structure in Australia has evolved from a transaction-based system to a fee-based, asset management framework. However, providing a well-considered investment strategy and asset allocation is as important as an adviser's investment acumen and ability to deliver better returns than the markets.

Rather than investment capabilities, the Adviser's Alpha model relies on the experience and stewardship that the adviser can provide. The model focuses on asset allocation, rebalancing, tax efficient investment strategies, cash flow management and, when appropriate, coaching clients to change nothing at all, rather than relying on market outperformance.

Historically, many advisers have sought to add value through active strategies such as tactical asset allocation, fund selection and rotation and securities selection, despite the mounting evidence suggesting that these efforts will help neither their clients nor themselves in the long run.

Guidance in controlling emotions

On their own, investors tend to chase performance. Twenty years of data illustrates how investors can pour money into the stock market after a run-up, only to sell their holdings when a downturn is well under way. Prudent financial advisers use a top-down investment approach by establishing asset and sub-asset allocations in line with their clients' goals and then periodically rebalancing those allocations. They also eliminate the emotional element, which many individual investors can't overcome.

In times of market shocks an adviser’s experience and stewardship can be particularly valuable to clients because if left alone, investors can make choices that impair their returns and put at risk their ability to achieve their long-term objectives.

In that sense, the Adviser's Alpha framework suggests a better measure of an adviser’s value is to judge it against what an investor would likely do without professional advice.

Recently, an updated version of the research paper for the Australian market has been released and is available here, and on vanguard.com.au/advisersalpha

 

Robin Bowerman is Head of Market Strategy and Communications at Vanguard Australia, a sponsor of Cuffelinks. This article is general in nature and readers should seek their own professional advice before making any financial decisions.

 

  •   15 June 2017
  • 1
  •      
  •   

RELATED ARTICLES

The most vital question ever put to me as a portfolio adviser

Royal flush: 15 questions to ask a financial adviser now

Is manager selection worth the effort for financial advisers?

banner

Most viewed in recent weeks

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

The retirement scorecard: how many of these questions can you answer?

From the maths of retirement, estimating spending and picking the right asset allocation to survive a poor decade, here are the questions every retiree – current or future – should be able to answer for themselves.

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Latest Updates

Testamentary trusts: Treasury has picked the wrong reading

A decades-old estate planning tool has survived one tax crackdown only to be caught by another. The surprise isn't who the reform is targeting, but who could end up paying the price for drafting choices made years ago.

Latest from Morningstar

Does an American retirement rule work for Australians?

The 4% rule has survived decades of scrutiny, but Australia's retirement system changes the equation in ways most overlook. Before accepting or rejecting this rule of thumb, it pays to understand what really drives retirement outcomes.

Shares

Glencore lands on the ASX. Should BHP and Rio shareholders switch?

A coal-heavy miner with governance concerns isn't the obvious choice for investors. Yet, Glencore's ASX listing may offer something BHP and Rio can't. The challenge is working out whether the opportunity outweighs the risks.

Why does the system treat capital gains and losses differently?

Investors are often told not to let tax policy drive their investment decisions. Yet, under the new CGT rules, portfolio construction, volatility and even how assets are owned may have an outsized impact on their final outcome.

Economy

Three common sense reforms that Australia needs

What do frozen bank accounts, mortgage traps and pension penalties have in common? They're all symptoms of a system that makes life much harder. Yet the obvious solutions seem to have escaped the attention of Canberra.

Shares

The hidden cost of government debt for investors

Some of the important effects of rising public debt never make the headlines. Research shows the immediate effects may already be unfolding, influencing corporate behaviour in ways that many investors would never suspect.

Investment strategies

When do fundamentals matter?

Is fundamental investing losing its grip on markets? Investors continue to search for valuation-based explanations for every price move, but the dominant force behind short-term returns may be something else altogether.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.