How do you know you are getting smart financial advice? Can financial advice be quantified? A new Morningstar approach may help you put a value on the value of an advisor. Researchers at Morningstar have devised what they’re calling gamma to quantify the benefit planners can deliver to clients.
Gamma is defined as the additional value achieved by an individual from making more intelligent planning decisions. According to Morningstar, planners can add the equivalent of a 1.82 percent annual arithmetic return to clients through five components of gamma. Over time, that can translate to nearly 29 percent more that clients can spend in retirement.
Morningstar research executives David Blanchett and Paul Kaplan list five components of client service, which make up gamma. None of these should come as much of a surprise to a good planner:
- Total wealth asset allocation
- Tax efficiency
- Dynamic withdrawal strategies
- Annuity planning
- Liability-relative optimization
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If one or two of those terms seem opaque, you’re not alone, so below are details on the actions and services planners should be providing to clients in each of the five areas, as well as a few others. According to Morningstar, each of these components is worth a certain percent more each year and a cumulative amount over time.
Source: Morning Star Direct
