Is the role of a financial advisor to pick the best investments for their clients? What about making sure a client’s asset allocation matches their risk tolerance? While these are certainly important aspects of the job, they tend to represent the baseline expectations a client has when entering an advisory relationship. Where an advisor really distinguishes him or herself is on the advice and service side of the relationship. Here are a dozen ways a good financial advisor will add value for their clients:
- Help their clients avoid costly mistakes – Refinancing a mortgage can help save thousands of dollars in interest. Moving from checkbook giving to supporting your favorite charities with appreciated securities can stretch your philanthropic dollars much farther. Money mistakes come in many forms, some serious, some trivial, but it’s YOUR money and you should want to maximize its value to you and your family. A good advisor will help you discover ways to make your hard-earned money work harder for you while avoiding mistakes along the way.
- Point out blind spots and hidden risks – Are you the sole breadwinner in your family? What’s your plan if you become disabled and aren’t able to work anymore? Do you have disability insurance? Do you have enough life insurance? Do you have a will or have you done any estate planning? These are just a few of the blind spots and hidden risks we help uncover during the financial planning process. Full disclosure: P&A doesn’t sell insurance or do estate planning, but we know people who do.
- Simplify their clients’ financial lives – The financial services world is complex and getting more so with each passing year. A good financial advisor will seek to simplify any financial decisions you may face and explain financial concepts in plain English to you. Having a trusted advocate in your corner will help to relieve the burden of facing these decisions on your own.
- Minimize fees and expenses for their clients – Higher fees typically result in lower performance, so seeking to minimize expenses and fees can result in a better bottom line for you. Some advisor business plans place more importance on this aspect than others. It’s important to know how your advisor is being compensated.
- Act as an emotional surge protector for their clients – This is perhaps the area where an advisor can add the most value. It also encompasses some of the other items listed here. Emotions and money don’t make a great cocktail. It’s far better to separate the two and be one of those rational economic beings your high school economics book talked about. Easier said than done, which is why you hire someone else to worry about your investments on a daily basis.
- Be a financial advocate for their clients – An advocate is someone who goes to bat for the person they represent and always looks out for and fights for the best resolution for them. This means always putting the interests of the client first.
- Help clients maximize their net worth – While investment performance is important, a good financial advisor will help a client grow their net worth in many other ways. There are numerous ways to save on taxes, stretch your charitable dollars further, manage your debt load, save for a college education, and as we mentioned earlier, avoid making money mistakes.
- Help clients maximize their life worth – Balancing saving for the future with enjoying the present is sometimes difficult. Okay, it’s difficult most of the time. But the point of saving and investing is to put yourself in a position to have options. This could mean a retirement lifestyle of leisure, a career change to a lesser paying more personally rewarding line of work, or just the peace of mind knowing you can do what you want to do in life.
- Keep their clients focused on the big picture – There’s a quote we’ve all heard about not seeing the forest for the trees. In the world of investing, the trees are represented by short term market movements, while the forest is analogous to the long term. If you’re early on in your career and the market tanks, you should be happy that you’ll get to take advantage of it and invest money at cheaper prices. You’ll do that, right? If you’re nearing retirement, remember you won’t need all your savings and investment money the day you retire, or for the next 10 years. Markets will recover. If you’re in drawdown mode, focus on what you can control (see below).
- Preach persistence and patience – Two of the most important qualities when it comes to being successful in anything, these definitely apply when investing. Persistence to continue investing in good markets and bad (the perception of each is often opposite from what it really is) and the patience to have a long term perspective will reward you immensely.
- Help their clients understand what they can and can’t control – You can control how much you spend and you have influence over how much you earn. You can’t control what the market does. You can control how you react to market events, both bull markets and bears. You can control your financial goals. Did we mention you can’t control what the markets do?
- Help their clients understand that time IN the market is more profitable than timing the market – If you own the market and continue to own the market, you will be successful at investing. If the stock market scares you at these levels, there’s a high likelihood it will scare you more at much lower levels. The problem with market timing is that it’s easy to get out of the market, but very hard to get back in. Choose a strategy and stick with it.
This list isn’t meant to be all-inclusive. These dozen ways merely scratch the surface of what a good advisor can do to help you reach your financial goals.