The idea of developing a model - let alone an actual measurement - of the amount of added value required in order to justify advice are, frankly, laughable. Nevertheless you can check out some of heat generated by this issue over at this link. It shows an obsession with 'return on investment' that is perhaps laudable in the normal course of the investment adviser's day job, but he or she should set it aside when looking at their value add.
Instead of creating a fictional world in which the adviser's value was measured solely by their ability to add to the ROI they should turn to the real world and consider the reasons consumers choose to work with them today, even in spite of the fact they may not achieve a higher return than the consumer investing directly.
It may be humbling for investment advisers to admit it, but consumers may feel the adviser isn't covering their fee with out-performance and still get value from them. There are at least four ways this can be true:
- The adviser helps them to overcome a desire to spend the money rather than invest - behavioural change is a big part of much advice-seeking, from membership of weight-watchers to hiring employment lawyers
- The adviser re-affirms their choice - they were going to invest anyway, but they needed re-assurance. Perhaps few among their circle of friends even have funds to invest. Perhaps the others recommend property...
- The adviser performs tasks which they find unpleasant - from simple mathematics to reading complex offer documents and giving an opinion on their contents
- The adviser is costly, but the cost is lower than the opportunity cost the client attaches to the time that they would have to invest to achieve the same aim
Sure, you could deliver better performance as well. Ideally you would. But don't forget to take these things into account. Tony Vidler spotted that financial advisers often forget what benefits they really offer clients - see this link.
There may be more reasons. If you don't think these are valuable consider similar alternatives in your life. A couple of years ago I had my driveway re-laid. I could have done the work myself. I could have achieved an equally good outcome, but I preferred to have my leisure and avoid what I would find unpleasant. Those are just as valid as the narrower definition of 'value' so often the focus of these arguments.