I was reading an article this week which pointed out that the number one reason people don’t hire a financial advisor is because they are afraid of the costs. This surprised me simply because there are millions of people who are already paying fees to an advisor and if there wasn't any real value our industry simply wouldn't exist. So, I started thinking. Perhaps, these people just don’t see the value that a financial advisor actually brings to the table beyond managing their investments. Frankly, I don’t blame them, our industry evolved from brokers whose only focus was on selling investments. And one of the only tangible expressions of our services client’s actually receive is their account statements, the sole purpose of which is to show their investments and performance. In today’s world anyone can open a discount brokerage account on the internet and buy low-cost exchange traded funds similar to the ones we use in client portfolios. But that’s not where the real value is with working with an advisor. So, below I came up with a list of the benefits of a financial advisor. Consider it a Financial Advisor Value Proposition.
What a financial advisor does:
- Knowing which investments to purchase and in what combination so your portfolio fits your situation. This is what we call a “low-cost, tax-efficient, globally diversified portfolio.”
- Knowing which type of accounts to open and fund based on your situation. I.e. can you open a tax sheltered account? If so, which type; deductible, non-deductible, Roth, back-door Roth? How do you utilize your employer sponsored account (401k/403b/Pension)? Do you need a trust account? How do you title those assets? After you know which accounts you need, which ones do you fund and in what order. Or when retired, which accounts do you draw from first and when?
- Integrating tax planning and tax preparation with your investments and overall plan, employing tax-loss harvesting and asset location strategies as well as saving you money when filing your taxes.
- Knowing when and how to rebalance your accounts. Preserving the asset allocation designed specifically for your situation. How much do you let your accounts “drift” in order to keep costs down and also take advantage of momentum?
- Helping you analyze and determine the best course of action with Social Security, ultimately increasing your income during retirement.
- Knowing how much to save and finding creative ways to save more without sacrificing your lifestyle.
- Avoiding panic selling and euphoric buying (buying and selling at the wrong times).
- Knowing how much and what type of insurance you need and avoid over-paying for it (life, long-term care, umbrella liability and more).
- Knowing how to get the most from your employee work benefits (non-cash compensation can make up over 40% of your total compensation).
- Knowing the best way to save and pay for your children’s college education
- Reviewing and analyzing alternative investments such as real estate or starting a small business.
- Knowing how much house you can buy and then knowing the best way to set up your mortgage or analyzing your current mortgage to see if a refinance makes sense.
- Helping design your estate plan to protect you and your family, while you’re healthy, after you are no longer able to manage your affairs, and finally, after you pass away.
- Having the knowledge, expertise, and time to get all the above done not only once but on an ongoing basis. Each of these financial decisions need to be reevaluated as you, your spouse, your parents, and your children’s lives change and evolve. Health, job status, income, marital status, births, deaths, relationships, tax law changes and many other life events are all reasons to monitor and update your plan.
I’m sure I've missed a few of the benefits but the ones above probably strike you as highly valuable. Consumers don’t always think of them because our fees point directly to the value of their account. As a result most people think that the growth in account value is the only measure of value they receive. It's unfortunate but that’s the way the industry has trained consumers. So, how much is our advice really worth? It’s different in each case but I think it’s at least fair to say that the value extends far beyond the account statement.
If you are under the assumption you can’t afford an investment advisor, I’d argue you can’t afford to not have one. In fact, it’s easy to see how just one piece of advice can be worth 10 years of management fees.
If you want to see what we can do for you schedule a meeting or give us a call.