What Are You Paying Your Advisor For?

Financial advisors and their clients find themselves in an interesting position these days. I’ve discussed in previous blogs how accessibility to investing has opened up for almost anybody who has an internet connection and some spare dollars. On top of that managed portfolios, robo-advisors, etc. have become super cheap and accessible as well. When I refer to managed portfolios, I am speaking of professional money managers who will invest clients’ funds and charge a fee on the money under management. Robo-advisors are essentially automated managed portfolios that generally have lower fees due to their more hands-off nature.

These things are wonderful for the consumer—gone are the days where folks were paying for stock price quotes over the phone and paying a broker hundreds of dollars simply to place a trade. Now you can login to an app or a website and invest in basically anything you want at the click of a button. Individual stocks, ETFs and Mutual Funds that track the broader market, or managed cookie-cutter portfolios are at your fingertips!

And it’s not just access to the actual investments that has opened up—there’s a plethora of general financial advice out there on social media and other online platforms such as our blog page.

This dynamic has created quite a bit of change in the financial advice industry. If someone can simply hop on the internet to get a general guideline of how to invest and what to invest in, why would they pay a financial advisor to do these things for them? If they can build a portfolio with a few clicks of a button, why do they need an advisor to do that for them at a fee?

Luckily for advisors like myself, I believe there is still a ton of value we can create as financial advisors. I was “raised” in this environment, and I have seen firsthand that there are still a lot of perks to working with an advisor.

Story time! As a young, fresh, ambitious advisor at a big firm I was extremely excited about the prospect of selling our robo-advisor platform to people. What wasn’t there to like about it? It carried zero advisory fees and put clients in an automatically rebalancing, low-cost, fund-based portfolio that would give them broad exposure to the market and help them grow their wealth over time!

I began ambitiously calling clients and presenting this awesome solution to prospects and clients who needed help. This led to my first reality check: people did not go for it nearly as enthusiastically as I thought they would! It was perplexing; while I did have quite a few folks who signed up for it because it made sense for their situation, I got more no’s than I thought.

Some of the more shocking “no’s” came from folks who were paying in excess of 1.5% on their managed money with another advisor for a very similar portfolio. I couldn’t understand why people weren’t jumping all over the opportunity to drop their fees over 1 percent by switching to us!

As someone who wanted to continuously improve my meeting process and conversations with clients I began to review some of the reasons people were hesitant. It mainly boiled down to this: while they would be getting portfolio management at the lowest price point in the industry they often wanted to know how often they would be meeting with me. The reality was, with the way the business was structured, they would possibly never meet with me again! I was technically responsible for thousands of clients in the area we covered, and I simply couldn’t promise them I would be able to meet with them frequently for planning conversations.

I was about to learn the most valuable lesson I would ever learn in the industry in my opinion: as a financial planner the portfolio hardly matters.

Well, it does matter. Obviously as an advisor you are a professional who is tasked with ensuring your clients are invested appropriately for their risk profile and time horizon. What I really mean when I say the portfolio hardly matters is that most advisors (whose objective isn’t to be a stock picker or beat the market) invest their clients’ funds in a very similar manner. Historically speaking, so long as you invest in the broad market, generally through index funds, and manage risk appropriately, you give your clients a chance to capture the performance needed to grow their investments to reach their financial goals.

With that being said, the portfolio is rarely a differentiating factor with financial advisors so long as they have the acumen to put clients in a reasonably balanced portfolio or outsource that to a low-cost professional money manager. Couple that with the wealth of resources available for people to invest in a diversified portfolio on their own and it becomes clear that the portfolio is FAR less important than the value of the strategy and relationship-based advice you bring to the table as an advisor.

So what are those factors? As I’ve mentioned in an older blog, Schwab did a study that determined people who work with a financial advisor to formulate and maintain a financial plan end up with 2.5x as much wealth as those who don’t (Source: https://www.schwab.com/financial-planning-collection/want-to-achieve-your-financial-dreams ). So there is a tangible benefit to working with an advisor, and I wanted to detail where that comes from specifically when it relates to what we at The WealthTenders view as REAL holistic financial planning.

Being There For You

This is what I learned directly from clients when pitching the cheaper robo advisor to someone with an expensive advisor and failing. They would say something along the lines of “But my guy is just…there. He’s down the street, he picks up the phone/calls me back, and I like that”. There’s real value to that! Where does it come from?

· First and foremost, your advisor can help you avoid the blunders that are hugely obvious to an advisor but potentially not obvious to everyday people. An example of this would be accessing your 401(k) funds for something that is not an emergency—this is a very costly move that a lot of people make because they don’t know any better. Anybody who has been saved from such a move by their advisor probably loves them, for good reason!

· Sometimes folks need an advisor who can tell them to lock it up from the most basic perspective—things like budgeting and cash flow planning, for example.

· Debt management is another thing advisors can help with that saves clients money. If you’re putting money in a savings account while you have a high-interest credit card balance, your advisor will straighten you out and save you untold amounts simply by having you pay that off.

· An advisor can help you strategize on how to appropriately access funds in any situation in which you need them. Taking a step back, if you have a current advisor relationship, they should have ensured your money is in appropriate buckets (emergency savings, retirement savings, short-to-intermediate term investments) so you have funds ready for any situation that may arise. One big misstep can be extremely costly, and an advisor can help you save a lot of money simply by being there for you as a thought partner.

· Having someone you trust who is a phone call away hopefully gives you a sense of security regarding your finances.

The Thought Partner

That brings me to my next point—being a thought partner. Financial advisors are often emotional support as well, amongst many other things. The reality is that people feel much better when they have someone they can strategize with.

· We are here to make sure you don’t panic when the market isn’t doing well.

· We formulate a plan with you based on where you are and where you want to be in life, and we work with you over time to ensure you stay on track.

· We can discuss investment ideas you have and work with you to achieve goals such as investing in real estate, for example.

Taxes, Taxes, Taxes

How many advisors out there are doing tax strategy with you to ensure you are not paying too much to Uncle Sam? How many CPAs are out there who will tie your taxes back to your investing and personal finance situation? Taxes are another area where one big blunder (or years of small missed opportunities) can be extremely costly in the long run. Having an advisor who strategizes with you on taxes can save you money in the short and long run. Everyone knows the old adage: a penny saved is a penny earned!

Insurance and Estate Planning

We believe a big value add advisors can provide is helping make sure you are adequately insured. You may be paying too much for insurance, or maybe you have too little insurance and need to beef it up. Advisors can also help make sure your succession plan is buttoned up. This is of vital importance, especially for your beneficiaries. The reality is that when someone passes the LAST thing the family should have to do is deal with a complicated estate situation. Nobody wants that for their family, and having an advisor who helps make sure you are prepared for that situation is extremely valuable in multiple ways. It will help make sure the people you care about are well-situated for the future and that they will not have to untangle your assets while they grieve your passing. It’s morbid to think of, but we all die someday.

The Time Factor

Let’s face it, for most people managing their finances is like a chore. I relate it to running out of soap or shampoo—I always wait until I am completely out before making an extra trip to the store to restock despite knowing I should’ve done that the last few times I was at the store.

Some people may enjoy finance but their work, family, and social life are too demanding to keep up with it. They may be missing opportunities an advisor could help them take advantage of. Either way, having an advisor can help save you time to do whatever it is that you enjoy! Whether that’s taking your dog on long weekend hikes, hanging out with your family, going to brunch with friends, etc., there is value to having someone who is managing your money and staying up to date on the financial climate so you don’t have to.

Here at The WealthTenders we believe the above benefits are the cornerstones of a truly valuable relationship with a financial advisor, and we strive to deliver that value in every client relationship we have. The portfolio gets you the necessary returns, but the true gold is found when you locate an advisor who can help you live your best life through sound strategy. Such an advisor isn’t always easy to find, but they are out there.