Senior Advice Strategist,
Vanguard Workplace Solutions
Senior Behavioral Economist,
Investment Strategy Group
Maybe you see where I’m headed with the retirement plan advice connection. One of the most common questions I get asked when working with plan sponsors and consultants is “How do I know if an advice program is adding value for participants?” I wrote a recent blog post on this topic, and I’ll continue to come back to it given its importance, but here I’d like to focus on two aspects of advice value that are often overlooked.
Vanguard has been publishing research for years on the multiple pillars of advice value: financial, portfolio, emotional, and time value (here’s a recent example). While most people I speak with conceptually agree with all four sources, many fiduciaries tend to prefer metrics that can be quantified with cold, hard numbers. Emotional value? Too mushy. Time value? Too hypothetical.
The American Psychological Association’s annual study on stress in America shows money as one of the top stressors in people’s lives.1 And money stress can take many forms: People may spend much of their day worrying about their finances, they may be ashamed of their financial situation, or their personal relationships may suffer.
At the same time, we often hear that advice can give people peace of mind. So my coauthors, Marsella Martino and Malena de la Fuente, and I surveyed more than 12,000 Vanguard clients, including advised and nonadvised retirement plan participants and retail investors, to better understand the role of advice in providing emotional value and reducing the time spent thinking about and dealing with their finances.2
For time value, a recent research paper points out that Americans spend, on average, seven to eight hours per week thinking about their finances.3 At Vanguard, we found that number to be around four hours a week. Importantly for plan sponsors, at least one of those four hours seems to occur during work. That adds up to more than one workweek per year!
Interestingly, 76% of Vanguard-advised clients said that advice saves them time compared with managing their finances on their own. The median number of hours saved was two hours per week or more than 100 hours per year. In particular, 58% of advised clients said that Vanguard advice has reduced the number of working hours that they are distracted because of financial stress.
To summarize, our research shows that advised clients believe that the benefit of advice extends beyond portfolio construction and financial planning, delivering substantial emotional and time value as well.
This is a simple question that is hard to answer. One key reason is that clients may choose one specific type of advice—robo or human—because it better fits their needs, so we never get to learn from them about the differences between the two.
Having said that, 88% of clients with human advisors reported greater peace of mind compared with approximately 70% of those using digital advice. While these populations shouldn’t be compared directly, since the underlying groups are different, I do think it’s still reasonable to conclude that:
- Digital advice provides peace of mind to more than two-thirds of investors who use it.
- Human advice is highly valued, providing peace of mind to the vast majority of clients.
When we talk about the value of financial advice at Vanguard, we think about the four sources: portfolio construction, financial planning, emotional value/peace of mind, and time value. Portfolio construction and financial planning are delivered through the specific interventions that advice providers recommend for each investor. Emotional and time value are delivered through the process by which the advice provider produces, explains, and implements those interventions and ensures their follow-through.
When clients tell us in our survey that they have more peace of mind, are thinking less about their finances, and are less distracted in the workplace, I understand this as meaning that it’s because advice is helping them with their portfolios and financial planning. For example, for 68% of nonretired Vanguard-advised clients, having Vanguard advice increases their confidence that they can retire within their desired timeline.
Our survey shows that quantification of emotional and time value is possible, and it suggests that both the employee and the employer may benefit from financial advice.
Paulo Costa, Ph.D.
Vanguard has been a pioneer in research on the emotional value of advice, and now we’ve added the time dimension as well. We’ll be publishing our research later this year. And you can expect more from us in this field of study, as we know it’s important for our clients, for Vanguard, and for the financial advice industry.
Thanks so much, Paulo, and congratulations on this interesting and important research. I’m excited to see the full report soon. And maybe you’ll let me join you in a future YouTube video?
1 Stress in America 2024. American Psychological Association. October 2024. https://www.apa.org/pubs/reports/stress-in-america/2024.
2 Research findings based on responses of 7,700 advised clients out of 12,000 Vanguard clients surveyed.
3 Sergeyev D, Lian C, and Gorodnichenko Y. The Economics of Financial Stress. The Review of Economic Studies, November 15, 2024. https://academic.oup.com/restud/advance-article-abstract/doi/10.1093/restud/rdae110/7900971?redirectedFrom=fulltext.
More from the author
The right advice options for your plan
Employee advice
Notes:
All investing is subject to risk, including the possible loss of the money you invest.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.