Why You Should Have a Financial Advisor
by Brad McMillan Commonwealth Financial Network
Writing my last few posts, about the real possibility of lower returns over the next few years, I got to thinking about how financial advisors add valueâand how a skilled advisor can really help investors advance toward their financial goals.
Full disclosure: Iâm talking my book here. (Thatâs Wall Street slang for talking up something I already own.) I work for a firm that supports financial advisors, my job consists of helping those advisors help their clients, and many of my friends are advisors. I fully admit Iâm biased, but bear with me.Â
In yesterdayâs post, I encouraged investors to think about and address the problem of potentially lower future returns, and offered a few ideas for getting started. But how many people will do the research and take action? My guess would be not very many. Most of us are simply too busy with the day-to-day to worry about risks that might not show up for a decade or more. Wow, thatâs complicated. I'm probably okay. It can wait.
Trouble is, once it canât wait, itâs too late.
Personal trainer or exercise DVD?
At core, a financial advisorâs job is to keep you on track toward your financial goals. He or she is a coach who helps you do the right things and (perhaps more important) avoid doing the wrong things. According to a Vanguard study, advisors can add about 3 percent per year to client returns by helping them allocate assets, rebalance appropriately, and stick with the program when times are tough.
Lately, thereâs been a lot of talk in the financial advice industry about so-called robo-brokersâonline programs that allocate assets and rebalance them on a regular basis. Sounds like what a financial advisor does, right? Not quite.
If we think of a financial advisor like a coach, then a robo-broker is more like a set of exercise routines on DVD. It might work just fine for motivated people who have the time and energy to focus on exercise, but for most of us, thatâs not enough. We need a personal trainer to customize the exercise program for our body type, personality, and fitness level. In the event of an injury or a change in lifestyle, a trainer can adjust the routine and help us get through it.
Thatâs a lot more valuable than a DVDâand a lot more effective as well.
Taking care of health and wealth
A personal trainer helps you optimize your body, both for today and tomorrow. If youâre healthy and fit, you enjoy life more now and stand to have a much better life as you age. Many people who exercise and eat right, with an eye to their current and future health, would never abandon that discipline. At the same time, they may be ignoring their finances, which could have just as much effect on their future lives as their health.
What about cost, you ask? Financial advisors are very affordable for most people. If you can afford a health club membership, you can probably afford an advisor. Beyond that, the benefits should more than justify the costs. If, for example, youâre paying 1 percent to get an additional 3-percent return, that looks like a good deal. At half that return, it still makes a lot of sense.
Yes, even I have an advisor
You might think, doing what I do, that Iâd neither need nor use a financial advisor, but you would be wrong. In fact, Iâm meeting with an advisor for estate planning this week. I regularly consult with Commonwealthâs internal investment staff about my own portfolio. Although I live this stuff, I still benefit enormously from the expertise of Commonwealth staff and advisors. If I benefit, I suspect you would as well.
For many people, managing their own finances just isnât feasible. If youâre one of those people, you owe it to yourself to look into getting a good financial advisor. (And, of course, it should be a Commonwealth advisor. As I said, I'm biased.)
In any case, donât let it slide until itâs too late.
Commonwealth Financial Network is the nationâs largest privately held independent broker/dealer-RIA. This post originally appeared on Commonwealth Independent Advisor, the firmâs corporate blog.
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