By Lou Melone, CFP®, CEPA®

The ever-lingering, nonverbal question.  It’s a question that’s been and will be asked by clients or prospective clients (at least in their mind) - Are you worth your fee (synonymous with, do you add value)?  This may not have been verbalized - but don’t believe for a moment they’re not thinking it.  Every-Time-You-Meet-Them.  Understanding this justifiable concern, how does the advice giver demonstrate to the client/prospective client his/her value?

If you’re a CPA, M&A broker, or business value advisor there are tangible ways to validate your advice, however if you’re in another industry, or to this article’s focus – a Wealth Planner - it can be somewhat of a challenge.  Why?  A few reasons: a) your value doesn’t display on a client’s quarterly statements, as a separate line item, or higher multiple received on a sale and b) it’s a longer-term value, established during those knee-jerk behavioral events, in the wealth you’ve helped them preserve in moments of panic. As you will witness in a moment.

Unfortunately, this is not how it’s perceived, especially in the mindset of a business owner, which we are all aware can function at a different pace.  A business owner’s perception tends to be shorter-term, meaning what you’ve done for the portfolio this year (or maybe – this month).  Further complicating the issue of value is that we cannot guarantee investment performance - nobody can, if they’re honest.  And performance of investments most often is the sole purpose investors believe - falsely driven by the financial media and market prognosticators- they engaged you or your firm.

Now recognizing the reality – Again, Are You Worth Your Fee? 

Research from independent sources say – (deep breath) Yes, you are.  However, this doesn’t cover ALL advice providers in the financial industry.  You see, according to the research, to add value one must not only offer but perform certain services.  And as CERTIFIED FINANCIAL PLANNER® for twenty-four of my twenty-nine years in this industry – I’ve witnessed that many do not.  So, how can those who are not currently providing the necessary services become the valued advisor required to retain those business owner clients longer-term?

As Paul Harvey used to say, “And now the rest of the story.” 

Russell Investments provided their annual report titled, 2025 Value of An Advisor – the 12th edition, stating “Russell Investments believes investors benefit greatly from the expert guidance that an advisor provides on their investing journey. We also believe that guidance has value. Webster defines value as something that has relative worth, utility or importance, a quality or principle that is desirable, or a numerical quantity determined through calculation. The services an advisor provides reflect all three of the definitions above…

Indeed, our study consistently finds that the value advisors deliver to their clients materially exceeds the 1% fee they typically charge for their services.”

The formula and services analyzed were as follows:

• A- Asset allocation

+

• B- Behavioral coaching

+

• C- Customized family wealth planning

+

• T- Tax-Smart planning and investing

Once the value of the services is added up, they are compared to the average Annual Advisory Fee in the industry - which is typically around one percent per year.  The formula created was meant to quantify (as most of what a wealth planner provides is intangible) both the technical and emotional/behavioral contributions provided by an advisor.

Let’s look at the categories and how each adds value:

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Asset Allocation: +0.30% in 2025

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Comfort.  Familiarity.  These are words that soothe the minds of the average investor.  And Human Nature dictates that we do not like change.  If we combine these concepts – it’s no surprise that when it comes to building a diversified portfolio, the average investor defaults to what they know.  Comparatively – against those portfolios of an investor with an advisor – they can be miles apart.  According to the American Association of Individual Investors, a self-directed investor is likely to keep around 20% of a balanced portfolio in cash. In addition, choosing only larger companies when allocating to equities.  Below provides a view of how the two compare:

Why is this important?

As we will see later in the Behavioral Coaching section, feeling comfortable and reaching longer-term wealth planning goals can take two different paths.  Although a larger portion allocated to cash may provide mental comfort, unfortunately it can be a drag on the investors’ longer-term returns.  The second path – staying invested and diversification - can not only enhance the probability of reaching long term goals but provide a smoother ride along the way.

Below Russell Investments applied actual numbers to the portfolio allocations of Self-Directed and Advisor-Directed, regarding both risk-adjusted returns and dollar growth of those portfolios over a 20-year period.

What you will notice is that the Risk-Adjusted Returns of the Advisor-Directed allocation adds 0.30% value per year since 2005.  In addition, when viewing the dollar growth, you’ll witness the value of 100 dollars allocated to the four asset classes over time.  The highest return provided by the Advisor-Directed asset allocation.  This chart also clearly identifies the drag (purchasing power risk) on a portfolio when invested in cash over time.

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Behavioral Coaching: +2.47% in 2025

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The dominant determinate of long-term, real-life returns that real investors receive

is the behavior of the investors themselves. 

-Nick Murray

I believe this is the “mother” of all value added.  Let’s begin with this simple fact: Human Nature is a failed investor.  Our prehistoric brain, proven with the rise of Behavioral Science, is hard-wired with cognitive bias and heuristics that lead the average investor to react to market events as a perceived threat (shown below in orange as the monthly net flow of cash into and out of Mutual Funds/ETF’s).  This behavior is similar to how cavemen would have reacted to the threat of a Saber-Toothed Tiger at full charge, fangs protruding. 

Conversely, according to Russell Investments, “as the chart demonstrates, some investors rely on backward-looking information to make forward looking decisions. Let’s use the March 2020 pandemic outbreak as an example. Investors pulled $330 billion out of the market. They had already felt some pain at that point as they had lost 9% in the prior 12 months. But those investors who left then missed out on the subsequent 12-month return of 63%. Even if they had decided to reinvest at some point they wouldn’t have captured the entire upside.” It provides evidence of how the average investor continued to buy after it had already begun to climb and sell after it began to fall.  Simply stated – Bought High and Sold Low.  Viewed another way – if the average investor wanted market like returns – generally, this could have been accomplished by doing one seemingly simple task – not reacting to the noise from the financial media.  A media that spews end-of-the-world-as-we-know-it on a daily basis.

Furthermore, although we are no longer running from Saber-Toothed Tigers, the stimulus we are running from, financially, elicits similar physiological responses.  In other words, when it comes to financial decisions, we tend to act like knuckle-dragging cave people.

This prehistoric reaction triggers a gap.  We call this the investor behavior gap (Annualized cost to retail “chasers”) which is shown from the research below by comparing the Average Investor Return vs. the S&P 500 Index from 2010-2024:

Clearly, the average investor consistently behaves themselves out of 2.47% per year in return.  Generally, due to Human Nature’s pitfalls – as I referenced above in the embedded longer-term value advisors can provide.

• Loss Aversion
  • We value gains and losses differently.  We feel the pain of loss twice as much as the pleasure of a gain.
• Overconfidence
  • A tendency to hold a false and misleading assessment of our skills, intellect, or talent. In short, it's an egotistical belief that we're better than we actually are.
• Herding
  • Going with the crowd.  Assuming things are good or bad because others are doing the same.
• Mental Accounting
  • Although every dollar is the same, we mentally attach a different value on each dollar, based on how it was acquired.
• Familiarity
  • The preference of the individuals to remain confined to what is familiar to them. They wish to remain within their comfort zone and do not want to take the path never taken.

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Customized Family Wealth Planning: +1.13% in 2025

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The wealth planning industry is evolving – albeit slowly – and if you’re not adjusting your practice to it, you may not realize it yet, but you may soon be the way of the Saber-Toothed Tiger.

I believe the foundation of any successful planner/client relationship is a comprehensive financial plan.  Let me repeat this simple, but powerful statement, one more time - it is the foundation. Anything less can easily be filled by a Robo Advisor or the like.

How can one be certain of the prior statement?  There is NO historical evidence for the persistence of performance.  None.  And if that’s the one and only service you are providing to the client, if you’re honest with yourself, that client is actually a “customer.” And customers are generally inclined to find the lowest cost provider. Or in our industry – chasing last year’s highest performing investment, advertised by the next Asset Allocator.

So, planning is the way to helping achieve financial goals for the client and a “stickier” long term client relationship.

Let’s examine this a bit further.

What’s the value of typical ancillary services an advisor and his/her team offer compared to a Robo Advisor? Ancillary services provided to clients such as: addressing tax and estate planning, cash management, trust services, financial planning, wealth education, succession planning, family relationship management, lifestyle planning, career and giving strategies, insurance needs, custom requests, and questions. These additional services can quickly consume 20, 50, or 100 hours each year.  If the advisor/firm offers these ancillary services, Russell Investments estimates that the average flat planning fee is about 1.50% - as the chart below shows.

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Tax-Smart Planning and Investing: +0.97% in 2025

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How much drag can be reduced with a tax-smart approach? According to Russell Investments, the average annual tax-drag for the five years ending December 31, 2024 was significant. Investors in non-tax managed U.S. equity products (active, passive, and ETFs) lost on average 1.76% of their return to taxes, Passive US Equity Funds was a drag of 1.01% and those in tax-managed U.S. equity funds forfeited only 0.79%.  That’s a value difference of 0.97%.

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THE BOTTOM LINE: WHAT IS YOUR VALUE?

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• A- Asset allocation: +0.30%

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• B- Behavioral coaching: +2.47%

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• C- Customized family wealth planning: +1.13%

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• T- Tax-Smart planning and investing: +0.97%

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TOTAL VALUE OF ADVISOR IN 2025

~ 4.87%

TYPICAL ADVISOR CHARGE FOR SERVICES

1%

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The bottom line: Russell Investments’ Value of an Advisor study is meant to demonstrate the overall value an advisor can provide.

FOR MORE INFORMATION:

Call Russell Investments at 800-787-7354 or visit russellinvestments.com

To view the full study, go to https://russellinvestments.com/us/resources/financial-professionals/value-of-advisor

Disclosures:

This material is for Financial Professional use only and not for public distribution.

Graphics and market data were sourced using Russell Investments 2025 Value of an Advisor Study and used with their permission.

Melone Private Wealth, LLC (“MPW”) is a registered investment advisor and is not affiliated with Russell Investments.

The views expressed in this article are those of the author(s) and do not necessarily reflect the opinions, beliefs, or positions of Russell Investments or its affiliates.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

All investments include a risk of loss that clients should be prepared to bear.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets.

The Investment Company Institute is the national trade association of U.S. investment companies, which includes mutual funds, closed-end funds, exchange traded funds and unit investment trusts.

Bloomberg Barclays U.S. Aggregate Bond Index: An index, with income reinvested, generally representative of intermediate term government bonds, investment grade corporate debt securities, and mortgage-backed securities (specifically: Barclays Government/Corporate Bond Index, the Asset-Backed Securities Index, and the Mortgage-Backed Securities Index).

FTSE EPRA/NAREIT Developed Index: A global market capitalization weighted index composed of listed real estate securities in the North American, European and Asian real estate markets.

MSCI Emerging Markets Index: A float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The MSCI EAFE Index is an equity index which captures large- and midcap representation across 21 developed markets countries around the world, excluding the U.S. and Canada. With 918 constituents, the index covers approximately 85% of the free float adjusted market capitalization in each country. Countries include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the U.K.

The MSCI World ex U.S. Index tracks global stock market performance that includes developed and emerging markets but excludes the U.S.

The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

The S&P 500® Index is an index, with dividends reinvested, of 500 issues representative of leading companies in the U.S. large cap securities market.

Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

Past performance does not guarantee future performance.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

First use: July 2025. RIFIS 26584

METHODOLOGY FOR ASSET ALLOCATION “A” 0.30%: For the Self-Directed and Advisor-Driven Comparison, January 2005 – December 2024

• Morningstar Risk-Adjusted Return is adjusted for risk by calculating a risk penalty for each investment's return based on "expected utility theory," a commonly used method of economic analysis. Although the math is complex, the basic concept is relatively straightforward. It assumes that investors are more concerned about a possible poor outcome than an unexpectedly good outcome; and those investors are willing to give a small portion of an investment's expected return in exchange for greater certainty.
• Self-Directed Allocation Portfolio: consists of 36% U.S. all cap, 14% non-U.S., 30% fixed income, and 20% cash. Returns are based on the following indices: U.S. Equities = Russell 3000® Index; Non-U.S. Equities = MSCI ACWI ex USA Index and Cash = FTSE Treasury Bill 3 Mo.
• Advisor Driven Allocation Portfolio: consists of 32% U.S. large cap, 6% U.S. small cap, 10% non-U.S. developed, 5% emerging markets, 4% REITs, 38% fixed income, and 5% cash. Returns are based on the following indices: U.S. large cap growth = Russell 1000® Growth Index; U.S. large cap value = Russell 1000® Value Index; U.S. small cap = Russell 2000 Index; non-U.S. developed = MSCI EAFE Index; emerging markets = MSCI Emerging Markets Index; REITs = FTSE NAREIT All Equity REITs Index; fixed income = Bloomberg U.S. Aggregate Bond Index, and Cash = FTSE Treasury Bill 3 Mo.
• Portfolios rebalanced annually.
• Growth of Wealth: Cash = FTSE Treasury Bill 3 Mo.; Inflation = U.S. Bureau of Labor Statistics Consumer Price Index

METHODOLOGY FOR TAX DRAG UNIVERSE CONSTRUCTION:

• Average of Morningstar’s Tax Cost Ratio for universes as defined.
• Averages calculated on a given category. For example, average reflects the arithmetic average of the Morningstar Tax Cost Ratio for the universe/category as listed. Data includes all share classes
• Large Cap/Small Cap determination based upon Morningstar Category
• If fund is indicated by Morningstar as passive or an ETF, the fund is considered to be passively managed. Otherwise, the fund is considered to be actively managed.
• Tax Drag: Morningstar calculated Tax Cost Ratio.

The Morningstar categories are as reported by Morningstar and have not been modified. © 2025 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

METHODOLOGY FOR TAX DRAG:

Includes all open ended investment products – mutual funds/ETFs  that are both active and passive. Tax Drag reflects the arithmetic average of Morningstar Tax Cost Ratio. Data includes all share classes and reflects Morningstar category of US Equity and Taxable Bond for equities and fixed income respectively

MORNINGSTAR CATEGORY DEFINITIONS:

U.S. Fund - Large Value: Large-value portfolios invest primarily in big U.S. companies that are less expensive or growing more slowly than other large-cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

U.S. Fund - Large Blend: Large-blend portfolios are fairly representative of the overall U.S. stock market in size, growth rates, and price. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. These portfolios tend to invest across the spectrum of U.S. industries, and owing to their broad exposure, the portfolios' returns are often similar to those of the S&P 500 Index.

U.S. Fund - Large Growth: Large-growth portfolios invest primarily in big U.S. companies that are projected to grow faster than other large-cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields). Most of these portfolios focus on companies in rapidly expanding industries.

U.S. Fund - Mid-Cap Value: Some mid-cap value portfolios focus on medium-size companies while others land here because they own a mix of small-, mid-, and large-cap stocks. All look for U.S. stocks that are less expensive or growing more slowly than the market. Stocks in the middle 20% of the capitalization of the U.S. equity market are defined as mid-cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

U.S. Fund - Mid-Cap Blend: The typical mid-cap blend portfolio invests in U.S. stocks of various sizes and styles, giving it a middle-of the-road profile. Most shy away from high-priced growth stocks but aren't so price-conscious that they land in value territory. Stocks in the middle 20% of the capitalization of the U.S. equity market are defined as mid-cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate.

U.S. Fund - Mid-Cap Growth: Some mid-cap growth portfolios invest in stocks of all sizes, thus leading to a mid-cap profile, but others focus on midsize companies. Mid-cap growth portfolios target U.S. firms that are projected to grow faster than other mid-cap stocks, therefore commanding relatively higher prices. Stocks in the middle 20% of the capitalization of the U.S. equity market are defined as mid-cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).

U.S. Fund - Small Value: Small-value portfolios invest in small U.S. companies with valuations and growth rates below other small-cap peers. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. Value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

U.S. Fund - Small Blend: Small-blend portfolios favor U.S. firms at the smaller end of the market-capitalization range. Some aim to own an array of value and growth stocks while others employ a discipline that leads to holdings with valuations and growth rates close to the small-cap averages. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate.

U.S. Fund - Small Growth: Small-growth portfolios focus on faster-growing companies whose shares are at the lower end of the market-capitalization range. These portfolios tend to favor companies in up-and-coming industries or young firms in their early growth stages. Because these businesses are fast-growing and often richly valued, their stocks tend to be volatile. Stocks in the bottom 10% of the capitalization of the U.S. equity market are defined as small cap. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).