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Value Creation Blog

The Real Reason You Want An Investment Advisor

Posted by Josh Patrick

realInvestment management has been changing. The options today for how you manage money is growing. The investment process can be reduced to using a computer program if you’re inclined to do so.

What’s the real value of an investment advisor?

I often analyze whether the fees we charge are worth the money you spend. Then, I remember all of the times I’ve helped clients avoid big financial mistakes. The money saved by not making large financial mistakes more than makes up for the fees that I get paid.

The mistakes that clients of mine have almost made are rarely in how they invest money. More often they are in how they were going to use their financial assets.

Let’s look at an example.

A client came to me with all of their investments put in one investment account. There were stocks, bonds and cash all in the same account. She was constantly worried about not having enough money and market swings would really upset her.

I thought this was a really bad way to organize her investments. Not so much from an investment return but from being able to sleep easily at night.

We took her investments and broke them into three different accounts. One was for the next two years which was all cash. One was for the next three years which was a bond investment account. Finally, there was her money she wouldn’t need for more than five years. That’s where we put her stocks.

The total asset allocation didn’t change, but the way she thought about them did. Instead of worrying if the market went down she knew that she had two years of cash on hand. This instilled confidence in her investments.

Our job is to make your life better. More often it’s understanding how you think about your money. If we can help you organize your finances so it’s easy, then we’ve earned our fee.

You’re not an Econ, you’re a person.

I’m not rational about money matters and neither are you. If you were totally rational we could call you an Econ. An Econ is someone who is totally rational and behaves the way economists think you should. Humans just aren’t rational about their financial affairs. We think too much about what happened yesterday. We hate to lose and are unhappy when we don’t win by enough.

There’s a whole school of study on this issue. It’s called behavioral finance. We spend lots of time understanding how humans react. Our job is to help you think through those rough patches the markets throw your way.

Lots of time the real value an investment advisor provides is helping you not do anything. There’s a research company named Dalbar. They’ve found that the average investor underperforms the market by as much as 75%.

An investment advisor can help you avoid this fate many times by reminding you that the bad patch is not going to last forever. And on top of that your investments are positioned to help you get through a volatile market.

Investment management by itself might not the best use of your money.

If the only thing we did was decide where you should invest your money, you could have an argument that we’re too expensive. The fact is we’re a thinking partner. We help you think through what the likely outcomes are with the financial decisions you make.

A good investment advisor is really a financial planner. We help you think about your entire financial situation. We look at you as a whole person not just someone who has some money to invest. That’s the difference between us and an online service.

We get to know you and what your wishes, dreams and goals are. Then, it’s our job to help you achieve the outcomes you want.

At the end of the day the decision is yours.

I know there are lots of options for you. You can call a mutual fund company and they’ll help you choose funds. You can set up an account with an online service that will use a computer program to choose your investments. Or you can work with an advisor who can not only help with your investments but the rest of your financial life as well.

You need to take some time and ask yourself what is it that you want from a financial advisor. If it’s someone who’s going to think through your opportunities and help you stay away from financial land-mines, then having a live person to talk with is a good idea.

On the other hand, if you are confident that you can manage your financial situation without any help, going it alone might be right for you. One thing I can recommend is have a conversation with an advisor who can help you explore all of your options. You’ll make a better decision.

The basics of investing special report

Topics: financial planning, investment management

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