Pure Benchmarks · Guide
Did My Financial Advisor Beat a Simple Index Fund?
Short answer
To see whether your advisor beat an index fund, build a low-cost index mix with the same stock and bond split as your account, feed it the same deposits and withdrawals on the same dates, and compare its value today with your account after all fees. A single all-stock index is the wrong comparison for a balanced portfolio. If the index mix comes out ahead over several years, the advice has not yet covered its cost in returns, though it may still add value through planning or behaviour.
The simplest test of an actively managed account is whether it did better than a cheap, hands-off alternative. The comparison sounds easy but is easy to get wrong, because risk, fees and cash flows all distort it. This page explains how to build a fair index comparison, what to make of the result, and how to look at the decisions behind it.
Link the account your advisor manages and see whether each change made in it beat leaving the portfolio alone, and how the account ranks against real investors in the same risk category.
See Your Free Benchmark ReportMatch the mix, not the headline index
An account that is 60% stocks and 40% bonds should be compared with a 60/40 index mix, not with the S&P 500. Comparing a balanced account with an all-stock index makes the advisor look bad in rising markets and good in falling ones, for reasons that have nothing to do with skill.
Give the index the same money
If you added or withdrew money, give the index mix the same flows on the same dates. Otherwise new deposits make your account look better than it performed, and withdrawals make it look worse.
Compare after every fee
Use your account value after the advisory fee and fund expenses, and give the index mix the cost of a low-cost index fund. What you kept is what matters. A gross return compared with an index is not a fair test.
Look behind the result
If the account trailed, the cause may be fees, a different mix, or specific decisions that did not work. If it led, it may be one lucky call. Scoring each change made in the account against the portfolio it replaced shows whether the result came from a repeatable process.
Measure it on your own account
Pure Benchmarks, our own product, can model an index alternative against your real holdings, and with a linked account its Decision Benchmark scores each change your advisor made against the portfolio you would have kept, with deposits and withdrawals neutralised. It also ranks the account against verified investors in the same risk category.
Link the account your advisor manages and see whether each change made in it beat leaving the portfolio alone, and how the account ranks against real investors in the same risk category.
See Your Free Benchmark ReportFrequently asked questions
How do I know if my advisor beat the market?
Compare your account after all fees with an index mix that has the same stock and bond split and the same deposits and withdrawals, over several years.
Should I compare my advisor to the S&P 500?
Only if your account is invested entirely in large US stocks. For a mixed portfolio, a blended index with the same allocation is the fair comparison.
What if my advisor did worse than an index fund?
Check whether the gap comes from fees, a different mix or specific decisions, and look at several years rather than one. This page is information for comparison and not a recommendation about any advisor.
Do most financial advisors beat index funds?
Results vary widely and depend on fees, mix and behaviour. Measuring your own account is more useful than any average.
Can I check my advisor’s individual decisions?
Pure Benchmarks, our own product, scores each change in a linked account against the portfolio you would have kept and ranks the account against verified investors in the same risk category.
Keep exploring
- How Do I Evaluate My Financial Advisor’s Performance?
- Do Financial Advisors Actually Beat the Market?
- What If You Had Invested in Index Funds Instead?
- Is Your Financial Advisor Worth the Fee?
- Vanguard Digital Advisor vs a Target Retirement Fund: What the Extra Fee Buys
- Empower (Personal Capital) vs Vanguard Personal Advisor: Fees, Minimums and Advisors
- How Much Is My Financial Advisor’s Fee Really Costing Me?
See how real portfolios at a specific firm rank against everyone else:
New here? Read the portfolio benchmarking FAQ or the Pure Benchmarks blog.
This page is an information baseline for comparison only. It is not investment advice and not a recommendation to buy, sell, replace, or transfer any specific asset, account, or firm. Past performance does not guarantee future results. All figures shown are illustrative.