Is a financial Planner Really Worth their Planning and Investment Advisory Fee?

Published at Mar 13, 2020, 12:00 AM in general by Dr. Brad Klontz

A recent survey indicates that an increasing number of high net worth investors are willing to pay for solid, unbiased, fee-only investment advice and financial planning. This is not really surprising considering the challenges of today’s markets and the economic environment. What is surprising is that there are still some investors who would rather go it alone. They think either that they can do better on their own, or that investment advice is not worth the cost, or both. With the average fee charged by an investment advisor around 1 percent, some investors are asking themselves if it is worth it. They question whether the advice they receive actually amounts to a 1 percent advantage in their investment performance. In other words, could they do better on their investment returns if they didn’t have to pay the 1 percent fee?

On the surface that may seem like a fair question. A fair question until you examine what value the right fee-only financial planner or investment advisor actually brings to the relationship. The real question is whether or not you feel the advice you receive will add at least 1 percent of value to your portfolio and how much it will add to your personal and emotional comfort. If you feel that it doesn’t or won’t add that value, then the answer is obvious. In that case you could probably do better on your own or you may wish to consider a new advisor.

However, we would add one important caveat to that answer. You really shouldn’t ask the question when the markets are doing well. That’s because most advisors, and for that matter, many do-it-yourself investors, generally look good in up markets.

As advisors we are committed to our clients’ overall financial health through our training and practice of behavioral finance and financial psychology. We believe our greatest values that we offer our clients are guidance, reassurance and advice. Our advice is based on their goals, historical data, research, logic and their reason toward making financial decisions. This approach helps to remove emotion from financial decisions. It allows our clients to stick to their financial plan. We believe the creation and execution of a sound financial plan is very important. It helps clients to avoid panic selling and buying at market tops, moves that can have serious implications to our clients long-term wealth. It’s difficult to quantify the monetary value of this benefit, but this is part of our job. As financial planners and investment advisors, we must not just to be of value when the markets are doing well. In fact, Vanguard estimates that just two or three major decisions over a 30-year relationship can make up for the total annual fees paid over the relationship with an advisor.

It is only natural to associate an advisor with investment performance. However, your financial planner or investment advisor is not just managing your investments. Your advisor should be taking into consideration your overall financial picture. Performance is relative to each person’s unique situation. Perhaps a better measure of performance is asking yourself "Am I on track to track to meet my life and financial goals?". This can be accomplished by working with your advisor. It is a time to establish clear goals and set a strategy to meet those goals. With your goals in place you can work with your advisor to execute your financial plan. Your advisor is your navigator, but you are ultimately the driver to achieving financial success. Your Advisor makes sure you have all the information you need. They help you to be aware of all your personal factors. However when making choices you are in charge. They strive to understand your goals and family dynamics. They way that they provide guidance based on that understanding is arguably of more value than just investment performance.

Value of a Financial Planner or Investment Advisors Fee

Adjust your financial plan and investment strategy and provide guidance as you face major life changes such as buying a house, starting a family, career changes, college education, or retirement. Keep you focused on your long-term objectives. Remind you that market shifting macro events of the day that will have no impact on the long term performance of your portfolio. Many investors who fled the market in 2008 still haven’t recouped their losses. Meanwhile many of those who rode the coaster, and rebalanced, or invested more during the market lows have more than doubled their money since then. Determine when and how to claim Social Security benefits. Maximize financial or tax aid when your children go to college. Determine how much life insurance you should have. Much like a good CPA, a solid financial advisor may be able to maximize your portfolio to save on taxes. The tax savings alone could result in a savings above and beyond the investment fees your advisor charges. Use tax planning to determine which accounts to save in during your working years and withdraw from during retirement. Minimize taxes after your death by assisting with the proper beneficiaries titled on your retirement accounts. Review your tax returns to maximize your savings through tax credits and deductions. A truly honest appraisal of the value of investment advice would have to consider how much you stand to lose when the going gets tough. This is a better measure than while everyone is riding the wave of an up market. If a good financial planner or investment advisor can help you with any one of the items mentioned, they could be worth their weight in gold. A really good advisor will typically help provide guidance and resources in the majority of these items. What’s that worth to you?

If you feel your advisor is NOT adding this type of value to your relationship, we would be happy to review your financial plan and provide you with our perspective. Please feel free to reach us at 866-520-4985