THE VALUE OF A FINANCIAL ADVISOR
In an age where information is available in abundance, one might argue that it does not make any sense to pay a financial advisor for services and information that is already freely available.
Supporting this argument even more, is that the experience most people have with financial advisors will be unique, and therefore the quality of advice rendered becomes a subjective matter. This makes it difficult to establish the value of an advisor in a way that can be calculated.
Many reputable firms and academics have wrestled with this exact question; trying to establish whether the value of financial advice is quantifiable within the scope of investment performance.
Looking collectively at the studies that have been conducted on the matter, and specifically one undertaken by Vanguard in 2019, it has been found that a qualified advisor, following the codes of conduct and regulations relevant to the industry, would be able to add an average of 3% to a client’s investment returns.
HOW AN ADVISOR CAN ADD VALUE:
- When we find ourselves in periods of turmoil, we tend to make impulsive decisions based on emotions, rather than sound and researched logic.
- This has been demonstrated countless times during the recent social – and political upheaval.
- Advisors can look at things from a long-term perspective and remove the emotion from the decision-making process, by providing well-researched advice based on facts rather than bias.
- Through efficient behavioural coaching, an advisor can prevent their clients from making reactive decisions that could impact negatively on their future financial position, especially where market-based investments are concerned.
- Without a reliable source to keep us reminded of our long-term goals, and the fact that cyclical market movements are normal, our emotions have historically gotten the better of us leading to capricious decisions whereby we lock-in losses that are extremely difficult to recover from.
- Another way an advisor can contribute to investment returns, is by drafting an investment plan for their clients that is specifically catered to their needs and objectives by following prudent asset management principles i.e. asset allocation, fund strategies, regular rebalancing etc.
- Outside of the realm of investments, qualified financial advisors are well-versed in legislation, taxation and the regulatory environment as it pertains to the financial industry.
- These fields of financial planning often contain numerous pitfalls for the unwary, and it becomes a dangerous gamble to navigate these areas based on superficial knowledge obtained from public sources.
One can only benefit by having a relationship with an advisor with whom you can engage to regularly review your financial portfolio in order for you to regain perspective in troubling times and be reminded of your long-term plan.
Having a trusted professional advisor managing your finances, adds both quantifiable and unquantifiable value to your plan, enabling measurement, advice and adjustment to ensure that your financial objectives are met.
Francis M. Kinniry Jr, Colleen M. Jaconetti, Michael A. DiJoseph and Yan Zilbering, 2019, “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha”, Vanguard Group, Valley Forge, PA