Is a financial Planner Really Worth their Planning and Investment Advisory Fee?Submitted by Occidental Asset Management, LLC on November 19th, 2016
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, which is not surprising considering the challenges of today’s markets and economic environment. What is surprising is that there are still some investors who would rather go it alone, thinking 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 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, at least 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 or personal and emotional comfort. If you feel that it doesn’t or won’t, then the answer is obvious – 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, and that is 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 committed to our clients’ overall financial health through our training and practice of behavioral finance and financial psychology, we believe one of our greatest values that we offer our clients is guidance, reassurance and advice based on their goals, historical data, research, logic and reason toward making financial decisions. This approach helps to remove emotion from financial decisions, allowing our clients to stick to their financial plan. We believe the creation and execution of a sound financial plan helps to avoid panic selling and buying at market tops, which are 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, 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, but should be taking into consideration your overall financial picture. Performance is only 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 to establish clear goals, set a strategy to meet those goals and working with your advisor to execute your financial plan. Your advisor is your navigator, but you are ultimately the driver to achieving financial success.Understanding your goals and family dynamics and providing 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 rather than the 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, while those who rode the coaster, 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 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, not 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. But, a really good advisor will typically help provide guidance and resources to the majority of the items discussed. 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.
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*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by OCCAM LLC and Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2016 Advisor Websites.