Claude K. Koontz, CFA
Principal, Portfolio Manager


“Automated investment services promise to make investing easy, inexpensive, and even fun. Sometimes called robo advisors, these companies can take the pain and uncertainty out of investing by constructing a portfolio, investing in ETFs, rebalancing, reinvesting dividends, and even harvesting tax losses.” – Forbes February 2015 “Investors who prepare their own tax returns have probably wondered whether an expert like a CPA might do a better job. Are you really saving money by doing your own tax return, or might a CPA save you from paying more tax than necessary? Would you not use a CPA just because he or she couldn’t tell you in advance how much you would save in taxes?” – Quantifying Vanguard’s Advisor’s Alpha, March 2014

The two quotes above clearly offer opposing viewpoints. The Forbes quote suggests do-it-yourself investing can be easy and fun through use of a computer program. The writer of the Vanguard article highlights the cost-benefit equation of paying a CPA to prepare tax returns versus preparing one’s own tax returns to save money. The rise of “robo advisors” has, in some quarters, called into question the value of investment advisors and financial planners. Indeed, the Vanguard article notes that, at times, some clients focus solely on the absolute or relative performance of their portfolio, while losing sight of the greater value generated by their advisor’s guidance over the longer term. Vanguard, the mutual fund company, recognized this issue over a decade ago and in 2001, developed a mechanism to help clients better understand the value of an advisor in a quantifiable manner – essentially putting a number on the value of advice.

Vanguard’s research is based on the projected results of a portfolio that is managed using well-known and accepted best practices for wealth management versus portfolios not managed under such practices. The table below details Vanguard’s list of wealth management best practices and its “value-add” results based on that parameter.

“Behavioral coaching” produces the highest potential value-add of 150 basis points, and is the focus of this article. Behavioral coaching can be defined several ways, but in essence the term applies to helping clients maintain a long-term perspective and disciplined approach. Put another way – advising clients against making bad decisions based on shortterm factors. It is important to note that opportunities for an advisor to add value do not present themselves consistently, but occur intermittently as market conditions dictate. Such conditions can raise a client’s fear or pique his or her greed. In periods of duress or euphoria, short-term thinking can drive one to either consider selling (fear) or buying (greed) – abandoning a long-term and carefully planned investment plan. According to Vanguard, in such instances, the advisor may “have the opportunity to add tens of percentage points of value-add, rather than mere basis points, and may offset years of advisory fees.”

Examples of such circumstances are:

  1. A desire to sell all or a significant portion of an equity portfolio and move proceeds to cash based on an unexpected or predicted market event.
  2. Attempts to “time” the market. An investor decides the market value is too high and he or she sells a significant portion of the equity portfolio with a plan to buy back once the market declines.
  3. Failure to rebalance the asset allocation. It can be difficult for investors to sell stocks in a strong bull market to bring allocation back to planned allocation levels, especially when the consensus opinion suggests continued positive growth for stocks.
  4. Financial media. CNBC, Bloomberg, Fox Business – all three channels offer almost constant flow of financial continued on back information, and investment advice. Such channels offer almost nothing to help individual investors achieve their unique financial goals. Unlike investment advisors, these pundits are unaccountable to clients who might follow the pundits’ advice.
  5. Chasing performance. “I’m missing out on some great returns in “X” strategy or asset class, and need to get invested there!” Chasing performance is likely the single biggest investment mistake that investors make. Many times the factors producing such great returns are nearing their end, and it is too late.

The effective investment advisor, using his or her years of experience and education, can counsel the client away from making bad short-term decisions such as those outlined above by refocusing on the longterm objectives of the investment plan, and by highlighting the potential negative consequences of short-term decision making.

While, as noted above, an advisor’s guidance to avoid a costly decision based on a client’s current feeling of fear or euphoria, and stay the course can ultimately result in significant positive performance results, there is no real way for client statements to track the value of such guidance…but the value and impact on clients’ wealth creation is very real. Client statements can easily list historical absolute or relative performance each quarter. However, the more important measure of value – the advisor’s “historical” guidance to clients to avoid making a costly decision is, of course, not reflected on any statement.

It should be noted that the rise of “robo investing” and “robo advisors” has occurred during a period of double-digit stock market returns (using the S&P 500) in recent years. When markets are rising and investors are confident, the inclination to rely on a computer algorithm to guide an investment plan might seem tempting and even sensible. However, when sudden events occur that shake markets, or portend a potential significant market decline that boost an investor’s fear and uncertainty levels, how will the “robo advisor’s” algorithm respond? Will there be a relationship built on years of trust and an understanding of each client’s unique considerations to base a response?

Investment clients who have maintained long-term relationships with an advisor or group of advisors can very likely provide concrete examples of the advisor’s guidance and avoidance of short-term decision making, during periods of both market euphoria and duress, which resulted in significant value added beyond any measure of absolute or relative performance of stocks or bonds. First and foremost, wealth management is the value of advice based on a relationship built by trust.

Francis M. Kinniry Jr., CFA, Colleen M. Jaconetti, CPA, CFP ®, Michael A. DiJoseph, CFA, and Yan Zilbering, March 2014, Putting a value on your value: Quantifying Vanguard Advisor’s Alpha. Valley Forge, Pennsylvania, The Vanguard Group, Retrieved com/pdf/ISGQVAA.pdf Rob Berger, February 2, 2015, 7 Robo Advisors That Make Investing Effortless, Forbes Online, Retrieved robertberger/2015/02/05/7-robo-advisors-thatmake-investing-effortless




Mastrapasqua Asset Management, Inc. does business as M Capital Advisors. If you have a question or need further information, please contact:
Patrick Snell, CFA, Principal & Portfolio Manager in Nashville at 615-244-8400, or or
Claude Koontz, CFA, Principal & Portfolio Manager in San Antonio at 210-353-0519, or

© 2018 Mastrapasqua Asset Management, Inc. All rights reserved.
The information and opinions contained in this report should not be treated as fact or as insight that will produce desired investment results over time. Investment conclusions always bear risk, and that risk may not be reasonable for any particular reader. Obviously the writer, even assuming good intentions, does not know of the reader’s particular financial circumstance and therefore is not able to assess the propriety of whether a named security makes sense as part of a given individual, family, or institutional portfolio. Mastrapasqua Asset Management clients may, from time to time, own some of the companies mentioned. We hold out no duty to give readers of this column advanced notification of when we may change an opinion. To our knowledge, none of the information contained in our column would, when it becomes publicly available, have an influence on the valuation of a particular stock. Investors should receive investment advice based on an assessment of their own particular investment circumstances and not on the basis of recommendations in this report. Past performance is not indicative of future returns.

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