Good news advisors - you make a difference!
According to a new study from Charles Schwab, self-directed clients who have help from a financial advisor are more fully invested, better diversified and on average have a higher account balance when compared to investors who do it all by themselves.
The survey, which uses data collected throughout the third quarter of this year, monitored roughly 137,000 Schwab self-directed brokerage accounts.
Around 19% of self-directed brokerage accounts are run with help from an advisor, according to Schwab.
The fact that the advised acounts are typically larger - with an $449,552 average balance versus $234,643 for non-advised - is not a reflection of better returns but rather time spent saving. The accounts run with help from an advisor tend to belong to older clients who will have accumulated more assets, Schwab said.
Where the help of an advisor can be seen to add value is in ensuring money does not sit in cash and by reducing concentration risk.
‘Advised accounts tend to be more fully invested, with less allocated to cash than non-advised accounts. This provides more opportunity for market gains,’ Larry Bohrer, vice president, corporate brokerage retirement services at Charles Schwab, said.
On average non-advised accounts had 16% sitting in cash, versus 4% for those who had assistance from advisors.
Advised accounts also benefited from being less concentrated in individual stocks.
On average non-advised accounts had a 35% allocation to individual equities, followed by 32% in mutual funds, 15% in ETFs, 16% in cash and 2% in individual fixed income securities.
By comparison advised accounts had, on average, 50% allocated to mutual funds, 22% in ETFs, 20% in individual equities, 4% in individual fixed income securities and 4% in cash, according to the study.
‘In general, participants who had professional help were more diversified across all of their holdings. In addition, advisors typically rebalance a portfolio more often and keep their clients invested’ Bohrer said. ‘As the report shows, advisors kept clients’ cash allocations low, while individual investors left more of their accounts in cash pending investment decisions.’
Across all self-directed accounts, both advised and non-advised, allocation by vehicle was as follows: mutual funds (37.4%) , individual stocks (30.4%), ETFs (16.9%), cash (12.6%) and fixed income securities (2.7%).
The fund family most used across all types of account was Vanguard, which made up 13% of mutual fund assets, followed by Schwab with 10.9% and Dimensional Fund Advisors (DFA) with 8.8%.
For advised accounts the most popular fund families were a little different with DFA topping that table. For advised accounts DFA US Core Equity Institutional fund was the top mutual fund holding, while non-advised accounts had Vanguard as their top fund family and the Schwab S&P 500 Index fund as their top mutual fund holding.
|Top 10 fund families||%|
|T. Rowe Price||3.69%|
|Dodge & Cox||1.61%|
The top mutual fund holding across all accounts was the $34.3 billion Schwab S&P Index fund, followed by the $8.4 billion Schwab Total Stock Market Index fund and then the $111.4 billion Pimco Income fund.
|Top 10 mutual fund holdings||%|
|Schwab S&P 500 Index||3.90%|
|Schwab Total Stock Market Index||1.94%|
|DFA US Core Equity||0.86%|
|Vanguard 500 Index||0.86%|
|Pimco Income Institutional||0.79%|
|DoubleLine Total Return Bond||0.70%|
|Schwab International Index||0.69%|
|Vanguard Total Stock Market Index||0.68%|
|DFA International Core Equity||0.68%|
Michael Moriarty, chief investment officer of New York-based RIA Sontag Advisory, said that non-advised accounts probably have the Schwab S&P 500 Index fund as their top fund holding, as opposed to the DFA US Core Equity Institutional fund, because it was a cheaper option.
‘The expense ratio on the Schwab fund is probably very low and if you buy it through a Schwab brokerage account they might even waive the transaction fee,’ Moriarty said.
The Schwab fund has a total expense ratio of 0.03% and the DFA fund's is 0.19%.
Both advised and non-advised accounts held Apple, Amazon and Berkshire Hathaway as their top individual security positions, however non-advised accounts dedicated a larger percentage of their accounts to these companies.
Advised accounts held roughly 12.1% of assets in their largest three stock holdings compared to 21.6% for non-advised accounts.
To read the full findings from the survey, click here.