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As easy as A, B, G

Updated 03 December 2020

3min read

Nick Green
Financial Journalist

It’s reassuring when you can measure the value you receive from advice, so you know you’re getting a great return. Jason Butler explains how recent research on this issue can help individuals to do just that.


If you are someone who needs, or anticipates needing, to live off your wealth when you stop work, ensuring that you don’t run out of money before you run out of life will probably be a key priority. You may also have aspirations to leave a financial legacy to your family and/or charitable causes when your time is up. Key factors which will affect your financial success include:

•    How long you live
•    The rate at which your cost of living rises (inflation)
•    Taxation on income and gains
•    Investment returns and the way they are delivered
•    The annual cost of your lifestyle and ad hoc spending
•    The time, inclination and knowledge you have in relation to personal financial planning and investing
•    Your emotions

“Financial advice is not free and it’s fair to want to avoid incurring costs for something where the value is not clear. BUT the academics have calculated the value of getting these decisions right in terms of additional retirement income, which they calculate to be 29 per cent more income”

Alpha, Beta, Gamma

For most people, building and maintaining a diversified investment portfolio is likely to be a key element of their strategy. This is where three investment measurement terms come into play: Alpha, beta and gamma, which are the first three letters in the Greek alphabet.


Alpha is the return that an investor achieves over that available from the stockmarket as a whole, which can’t be explained by known structural risk factors. Alpha might be due to investment skill (exploiting: pricing anomalies, market inefficiencies and betting against collective irrational investor behaviour) or, more likely, luck. Active investment managers sell the promise of alpha to justify their much higher average costs compared with the much lower average costs of funds which seek only to deliver the market return (also known as passive or index funds).

The weight of academic research shows that, after adjusting for costs and risk factors, alpha that is due to skill is delivered by a very small proportion of investment managers and that such alpha as does exist is usually down to luck (if you throw the dice enough times you’ll be lucky). Even those managers who do deliver alpha rarely continue to do so for long because markets are, by and large, efficient enough at setting prices that anomalies that do exist are quickly eliminated by the actions of investors who seek to exploit them.


Beta is the measure used to show the degree to which an investment moves in line with the investment market. Therefore, an investment with a Beta of one, moves in line with the market, whereas an investment with a Beta of less or more than one moves less or more than the market as a whole. Market beta, less costs, can be obtained easily by buying low-cost investment funds which track relevant market indices.


This brings us on to gamma, the third letter in the Greek alphabet. Until now gamma has been the term that academics used to describe the degree to which an investor is risk averse.  But recently two academics have redefined gamma as a measure of the additional expected retirement income achieved by an investor from making more intelligent financial planning decisions.

In summary these financial decisions relate to five areas:

1. A total wealth framework (or plan) to determine the optimal asset allocation
2. A dynamic regular portfolio withdrawal strategy
3. Incorporating guaranteed income products (i.e. annuities)
4. Tax-efficient allocation and withdrawal decisions
5. Optimising the portfolio to take into account risks such as those from inflation and currency movements

In the interest of brevity I’ll not explain each factor in detail, suffice to say that a significant proportion of investors will want and/or need to take ongoing advice from a professional financial adviser to make these good decisions. Financial advice is not free and it’s natural to wish to avoid incurring costs for something where the value is not clear. The academics have, however, calculated the value of getting these decisions right in terms of additional retirement income, which they calculate to be 29 per cent more income, equivalent to 1.82 per cent pa average additional return*.

Today’s financial advisers are highly qualified, knowledgeable and professional. While advice fees are a cost, the value that you and your family should receive, in the form of a better financial outcome, should make the cost pail into insignificance in the long run. So forget Alpha, Beta or Gamma and remember that, with a decent financial adviser, managing your finances really is as easy as A, B, G!

*Blanchett, David, and Paul Kaplan. 2012. “Alpha, Beta, and Now … Gamma.” Morningstar White Paper.

Please note: The opinions, beliefs and viewpoints expressed by our contributing authors do not necessarily reflect the opinions, beliefs and viewpoints of unbiased.co.uk.

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.