The wild fluctuations in investment markets may have thrown you off balance. The value of your investments has likely changed (in both directions) significantly in the past two months. How do you figure out if the ups and downs in your accounts are in line with what you should expect or if you should make some change? Everyone needs some form of counsel. Some have successful friends or relatives who can be that independent opinion. Others get together in investment clubs, whether formal or informal, to provide a reality check. And many retain a financial advisor. But is it worth it?
We have all seen them, the advertisements for investment services focused on cost and how much could be saved if you didn’t work with an advisor. These commercials are hard hitting. Working with an advisor costs money. If all else is equal, that cost can have a significant impact on the value of your investments. Cost, in the absence of value, matters greatly. We are in the midst of a crisis and it is at times like this that an advisor can play a particularly important role in supporting, reassuring and guiding clients. It can also be at times like this that people who aren’t satisfied with their advisor, who aren’t getting value for the cost, realize they need something different.
In the book Bank on Yourself – Why Every Woman Should Plan Financially to be Single, Even if She’s Not we included a chapter with everything you need to know about working with a Financial Advisor. This chapter wasn’t in the concept of the book. Rather it was included because our focus group participants were adamant that we needed it. They insisted they wanted to know things like what different types of advisors there are, what experience and education or designations they should look for, questions to ask advisors, and how much it costs to work with one. In the book we acknowledge “not everyone needs every type of professional. Some people have the natural interest and inclination to ’do it themselves‘ on matters such as filing their own tax returns, managing their own investments or making their own financial decisions. In some cases, doing it yourself is the right choice and can save you money.” But not everyone has the natural skill and ability, the knowledge or the desire to do it themselves. For these people, they realize they don’t know what they don’t know, and the cost of not knowing can be exceptionally high. Research has found that those who work with an advisor consistently realize the following benefits:
- They grow more wealth - 2.73 times as much in fact (according to research by CIRANO)
- They have more confidence in the finances
- They experience less stress
This year’s Value of an Advisor study by Toronto based Russell Investments Canada has calculated that the value an advisor who provides comprehensive wealth management (investing, financial planning, tax efficient strategies, etc.) to be 2.88%, up from 2.79% in 2019. Russell isn’t alone in calculating the value of advice. Vanguard Group, the leader in low cost investing, released a study Putting a Value on Your Value: Quantifying Vanguard Advisor Alpha, which calculated the value an advisor adds at about 3%.
Hopefully your advisor is adding value. Hopefully during this crisis they have been able to reassure you, provide confidence in your plan and investments, have listened to what is most on your mind, and where appropriate offered sound counsel. Periodically evaluating your relationships is prudent. Saving money by doing it yourself may be the right strategy. Or maybe its time to interview advisors. Our book can help you evaluate your options. If you have not yet bought your copy and just want those guidelines as a sample, I am happy to send you that chapter free. Simply email firstname.lastname@example.org and we will send you a free copy of the chapter: “Working With Your Advisors”. One way or another, this crisis has impacted everyone financially. The most productive way forward may be to get the right advice to help you repair, rebuild and move ahead.