Investigations have revealed that individuals who engage the services of financial advisors frequently achieve better results than those who opt to manage their finances independently. This article will briefly examine two studies that demonstrate the benefits that advisors bring to their clients.

Aon Hewitt conducted a study that compared "do it yourself" investors with those who received some form of guidance or assistance managing their investments. The study analyzed a ten-year period that included the financial crisis of 2008 and the broader period of the late 2000s that is commonly referred to as The Great Recession. The study discovered that individuals who sought the advice of a financial advisor outperformed those who did not by an annualized rate of 1.86% when measured on a "net of fee" basis. The impact of financial advice was even more pronounced during the worst years of market turmoil. During the years 2009 and 2010, individuals who relied on a financial advisor outperformed their "do it yourself" peers by 2.92% net of fees.

Another study that revealed comparable results was performed by Vanguard. The Vanguard study called "Advisor Alpha" discovered that investors with advisors outperformed their peers by 3% per year. 

Advisor Alpha explains that the value proposition for advisors has long been a challenge, as value is subjective and varies from person to person. While certain aspects of investment advice can be quantified, these measurements are influenced by unique client and market environments. As the financial industry increasingly shifts towards fee-based advice, there is a desire to define an advisor’s value-add as an annualized figure. This allows fees to be justified by an "annual value-add." However, some strategies, such as reducing investment costs or taxes, may provide an annual benefit, but the most significant opportunities arise intermittently, often during times of market turmoil or euphoria. 

These opportunities may tempt investors to abandon well-crafted investment plans, and in such circumstances, an advisor has the chance to provide substantial value-add, potentially offsetting years of advisory fees. Nonetheless, it is important to note that the difference in performance for clients who stay invested according to their plan, versus those who abandon it, will not appear on any client statement.

The Vanguard study also sought to identify the reasons behind this. The study discovered that at least 50% of the difference in performance (or 1.5% per year, net of fees) could be explained by what they termed "behavioral coaching." This means that half of the increased performance was due to investor behavior, rather than investment selection.

These studies indicate that advisors can (and on average do) provide considerable value net of fees. 

More significantly, they also demonstrate that much of this added value comes from assisting clients in removing emotions from their financial decision-making. An investor's long-term success frequently depends on their ability to remove two dangerous emotions from the equation: fear and greed. Incidentally, as the famous Warren Buffet so famously states, “be fearful when others are greedy, and greedy when others are fearful”, consider the emotions that arose during the financial crisis of 2008. There was a significant amount of fear. A decade before that, we had the "dot-com" boom, during which investors observed others around them becoming wealthy from tech stocks, and there was a real fear of missing out. If investors had been able to overcome their excessive fear during both crises, they could have analyzed the situations rationally and sought out strong companies that were intrinsically undervalued in the market. By purchasing these companies at those inexpensive prices, they would have had a considerable potential for outperforming market indices in the following decades.

History shows that it is most critical to remove emotions such as fear and greed when it is most difficult to do so. The research is clear that advisors assist investors in keeping their emotions in check and their financial plans on track.