Executive Summary
Financial advice revolves around money, and the affluent individuals that most financial planners work with have a good-sized chunk of it, which means the conversations often turn quickly to investments, and how to manage them effectively. As a result, a lot of time is often spent on investment portfolios, asset allocation, and decisions about particular investments, including whether to implement them with passive or active strategies.
Yet the reality is that the value of financial advice extends far beyond just a focus on investment returns. In this guest post, Bob Seawright explains what he thinks are the top benefits to financial advice, beyond just the investment selection and the passive/active debate. The value ranges from advisor insights about taxation and tax efficiency, to helping clients through a long list of their behavioral biases, to all the other parts of financial planning that matter besides just the money itself.
In a world where many financial advisory firms have become increasingly investment-centric, hopefully this will be a helpful reminder of all the other value that financial advisors bring to the table. For those who have maintained a more comprehensive focus to their financial advice all along, this may still be useful as a good recap of the benefits that your clients enjoy by working with you! Happy reading!
Recently, while I was otherwise engaged, Josh Brown threw some fuel on the active v. passive fire:
“Active investors, in the meantime, really can't say anything. There isn't a single empirical datapoint backing up the idea that an investor is financially better off paying someone to pick their stocks for them. There are other considerations in favor of active managers - mostly emotional ones involving elbow-rubbing, fancy lunches and alerts - but we'll leave those aside for now.”
Putting aside the actual substantive argument (my views, including why I advocate some active management, are here and here), advisors routinely tell me that if they used index funds, their clients wouldn’t need their services, consistent with the Dilbert cartoon above. I disagree vehemently. Here’s my top ten list of reasons why.
A great reminder of what clients can and should expect from their advisor. These types of posts are particularly important to combat all of the messaging around advisors added expense but not value.
A good financial planner will also work to validate assumptions you or they make about investing by reviewing how these decisions have performed in the past. While no predction is perfect, an unexamined portfolio isn’t as strong as one that has its performance periodically measured against the goals set when investing in it.
We shared our most recent review of our assumptions on our blog recently.
Warren and I can only hope our clients don’t read the part about our 2% per year decline.
I guess I’ll have to retire when I turned 110, because by then I’ll be in big trouble, 50 x 2 = 100%, I think I have that right. 50+50? Yes.
Einstein, you have it right if it is like a “simple interest” calculation. however, if you lose 2% of anything per year, assuming it is 2% of the current balance, the function is asymptotic and will never decline to zero.
When it’s about your money, it’s very hard to let go. You can do too much – such as trading too frequently, or too little like investing only in a bank account. There is no shortage of smart ways to manage your wealth, but it can be difficult to navigate that complex landscape by yourself. That’s where financial advice can be so helpful.
http://www.ayers.com.au
Financial Advisors are IMO one of the top 3 scams in this country.
If you search the stats on a baseball player’s performance you can find his past yearly batting avgs.
If you try to do that for Financial Advisors all you will find is how many $$ under management
(times 1.6% annual advisory fees).
I have concluded their firms don’t want you to know the performance of their players on the field.
My advise is to avoid financial advisors.
If you were an NFL coach, would you sign a contract with a quarterback not knowing his past record?
In point of fact, an increasing number of advisory firms ARE making fully GIPS-compliant performance track records available these days. See https://qa.kitces.com/blog/is-gips-compliant-performance-reporting-becoming-a-new-ria-differentiator/ for some discussion fo the trend.
Of course, that only captures investment-related “results”, and not any other positive impact of comprehensive financial planning advice regarding retirement plan, income and estate tax planning, etc.
– Michael
DLB – I bet you don’t have a pot to piss in….LOL
My husband and I have started worrying that we aren’t using our money in the best way we could be. For this reason, we are thinking about getting a financial planner, so we really appreciate this information. I like how you point out that it is important to look for someone that has a good goal formation. I imagine that will help you see what the end point will hopefully be with your finances. Thanks for sharing this! http://www.skdocpa.com/services/advisory-services
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Where is the rest of this article? I don’t see the top ten reasons.
Nice post! Thanks for sharing this useful information, I think It is quite hard to make a long-term and short-term plans to manage financial wealth by assessing future risks when you lack in knowledge. So, hiring a financial advisor is a good decision in this situation, they are experienced in this field and have good knowledge of money management, they can provide us with innovative financial strategies and investment options and retirements plans for future.
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Interesting & informative blog! It will be difficult to manage finances when you lack understanding. So, in this circumstance, employing a financial advisor is a good idea. Because they are skilled in this sector and have a solid understanding of money and finances. You can contact GuardianWealth, your independent financial advisor to help you in attaining financial independence.