We all make constant decisions throughout our day about the value of various goods and services. Most of the time, we make quick decisions without complete information and with very little thought. This is out of necessity, but it is crucial to slow down and make time for the important things.
Quality Advice and Service Does Have a Cost
In order to make a value (cost/benefit) decision, you obviously need to know the cost. This is easy at the grocery store or any other place that has a price right on the item. When it comes to working with an advisor, many people have no clue how they pay or how much they are paying. If you ask your advisor about fees and they are unwilling or unable to explain, you should seek out an advisor who can.
That doesn’t mean that it will always be easy to understand. One reason I like using managed accounts is that they are more transparent. I can tell the client exactly what the management fee percentage is and why it is that percentage. Every monthly statement has the fee listed as a line item. I make a point to proactively discuss costs with clients so there is no uncertainty, and I also explain why one investment is recommended over another when there are cost differences.
Internal costs of portfolios should also be considered. If individual stocks are held, there is no internal cost. ETFs typically have a very low internal cost. That doesn’t mean you should never use mutual funds or other investments that have additional costs, but it is important to be intentional about what you are getting in return.
If you are engaged in Comprehensive Financial Planning, there will be a cost based on the complexity of your planning needs.
What You Get from Your Advisor
There are countless benefits of working with a financial advisor, and it can look different based on your specific needs.
You don’t know what you don’t know! I believe the biggest benefit is identifying potential pitfalls or opportunities that you weren’t even aware of. This may be tax strategies, estate planning needs, insurance shortfalls, retirement income streams, and so much more. While it is important for individuals to be as educated as possible, recognizing the need to work with professionals to provide advice is crucial.
Advisors also often serve as a calming voice that prevents making emotional decisions. Most people have heard the line “be greedy when others are fearful and be fearful when others are greedy”, but human nature can take over and drive people to do the wrong thing at the wrong time. There’s a reason that behavioral finance is a major focus in the industry. It can be hard to quantify, but staying the course even through choppy waters can prevent major mistakes. It is so much easier to do this if you have a clear financial plan.
Ameriprise uses the confident retirement approach, and the financial planning tool gives clients a “confidence score”. No one likes to see their account balance decrease when the market is down, but if your confidence score remains high, it can be comforting to know you are still on track to meet all your financial goals. There’s even a section called “what are you afraid of” where we can demonstrate that if something negative like high inflation or a reduction in Social Security income were to happen, you may still be able to accomplish your financial goals. And if you’re completely off track, we can demonstrate what changes are needed to help get you back on the path to financial freedom!
How to Get the Most Value
Proactive service is something you should expect from your advisor. I’m shocked by how often new clients tell me that they haven’t heard from their advisor in many years. For me, every managed account requires an annual review, at a minimum. Every client of mine has a service model tailored to their needs and preferences. If your advisor doesn’t proactively reach out to you, seek out an advisor who will!
You may have heard the saying “you can lead a horse to water, but you can’t make him drink”. While it is not wise to blindly follow advice, the greatest advisor in the world can only do so much. It is up to you to take the needed actions. It is important to regularly attend your meetings with your advisor and consider their recommendations. If you think they are just trying to sell you on products that are not in your best interest, then you should find an advisor that you trust. Once you find a competent, qualified advisor that you can count on, the relationship will deepen over the years and the value will be obvious!
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