The Value of Holistic Financial Advice

Abstract

Financial advice has historically been narrowly focused on investing decisions, which has led to skepticism from researchers and policymakers about its value, both in terms of the net alpha and personalization level of advised portfolios. This article explores the potential value of broader, or holistic, financial advice that also covers savings, debt and insurance decisions, which are relevant to a much broader population, not just those with enough wealth to care about investment alpha. The results show that there's tremendous value in holistic financial advice, which is worth $4384 per year or 7.5% of annual income for the typical household and translates into 2472 bps of the median 401(k) account balance. More importantly, this type of advice can be especially valuable for those with lower income who historically have been underserved. While policymakers have traditionally focused on the costs of financial advice, this research suggests that they should also be concerned about ensuring low and middle-class households have access to valuable holistic guidance, which is becoming increasingly affordable by leveraging AI and other technologies.