As a financial planner, I’m frequently asked this logical and humbling question by prospective clients, Why do I need you? The people who ask this question are smart accomplished folk who are often well on their way to amassing a retirement nest egg. They know there’s a ton of info about investing available on the internet and elsewhere, including in a book that I wrote.
So, again, why do they need my services? For the same reason that professional athletes still have technique coaches, and symphony members still take lessons. No matter how much money is at stake, or how financially savvy you are, there are still benefits to working with a professional who can point out growth opportunities, head off mistakes and ease your burden. Here are some of the advantages of working with a financial advisor:
Saving time and stress. Financial advisors are an excellent resource for those who want to outsource the time-consuming, emotionally taxing work of managing their retirement portfolio. Financial advisor typically cost around 1% of your assets per year. Many investors who outsource the management of their retirement investments consider that a bargain given how much time and stress they save.
Discipline and dispassion. Another significant value of hiring a financial advisor comes from what Vanguard refers to as the “Advisor’s Alpha.” Vanguard defines this as, “The benefit and wisdom of not allowing near-term market actions to result in the abandonment of a well-though-out investment strategy.”
Some of the most intelligent human beings on the planet become emotional and irrational when dealing with their own money. A financial planner takes a more dispassionate professional view of his client’s investments and thus can serve as a firewall against poor decisions driven by fear, greed and other emotions.
Coaching for the new investor. Yes, there is an infinite supply of how-to-invest information available, but everyone’s situation and goals are different. When it comes to setting up your long-term retirement savings plan, there really is no substitute for sitting across from a seasoned financial professional and crafting a strategy that works best for you. How much should you be saving every month? What types of assets should you hold in your accounts? How much should you be putting in your 401k? Where should your money go after that? An IRA? Roth IRA? Are you eligible to set up a SEP? Should you? You could, of course, figure out all of this on your own, but why do that when expertise is so affordable?
Personal shopping for assets. There’s an almost endless number of investment options for retirement. A financial planner can help winnow those options for people who struggle with analysis paralysis, or who just aren’t interested in dedicating the time needed to understand all of their choices. A fee-based financial advisor is your best choice, as they do not receive commissions from marketers of mutual funds and other investment vehicles. They instead are paid by the client, usually receiving a fee of about 1% of the assets they manage for that investor.
Jedi tricks for veteran investors. You might be pretty decent at managing your investments, but you don’t do it for a living. A financial planner’s experience and on-going training gives her more insight and a bigger toolbox than a non-professional.
They know how to strategically invest in ways that maximize the investor’s returns using such ploys as such as tax loss harvesting. Have you ever harvested a tax loss? Any idea what that even means? Working with a financial planner will make you an even better investor.
So, do you need a financial advisor? No, you don’t need one. You can certainly DIY your financial future. Then again, you don’t need a professional to re-do your master bath, either. But most of us still see the benefit in hiring skilled, experienced tradesmen to see that tricky and time-gobbling task through to successful completion. Doesn’t your retirement deserve the same level of attention and skill?