First of all, I would like to preface this with the fact that not all advisors are equal. You have those out there that call themselves financial advisors but really may only sell insurance. While it’s important to do your research on the designations they hold, they also don’t have to hold 20 different designations to be considered a good advisor. There are plenty of great advisors out there but there are also those whose sole focus is gathering as many assets as possible in order to increase their management fees. It’s not enough to meet once a year and to send lengthy market updates full of nonsense to the average investor. Most of the time, it is the intangible things that set the best advisors apart from those who are just after your assets. Here are some ways a good advisor can add value.
Focuses On Clear Communication
The simpler the message the better. Warren Buffett says he writes his shareholder letters with his sisters in mind who don’t know a lot about finance. If your advisor is providing simple, relevant information tailored to you, your mind will be put at ease. “Here is what the market did. Here is how your portfolio is positioned and how it performed. Here are the risks we see. Here are where you are in terms of reaching your goals.” Speaking in complexities to prove one’s financial acumen only can leave you feeling confused and overwhelmed.
Sets Realistic Expectations
Unfortunately, financial advisors cannot predict the future, however, what they can do is set realistic expectations. Reviewing your current asset allocation, your advisor should be able to educate you on past, present, and future risk and return characteristics on your portfolio. They should also be able to run you through a variety of what-if scenarios to help you determine how your portfolio would react to a variety of different market conditions.
Points Out Blind Spots
Financial goals are really about your life, not money. A good advisor will help you identify the things that can truly add value and can help you avoid the obstacles that could pose a potential hazard to reaching your goals. Once the gaps and potential opportunities are identified, they help you close those gaps and take advantage of the things that will help you achieve your goals.
Simplifies Your Financial Life
The financial services industry becomes more complex each year with new products, changes in tax law, and new theories. A good advisor will narrow down the best choices for you and explain them in terms that make sense to you. Knowing that you have a trusted advocate in your corner will lessen the burden you have in making the right choice.
Helps You Understand What You Can Control
Unfortunately, you can’t control what the market does day-to-day but there are things you can control that will give you a better outcome. For example, you can control how much you spend and you have the power to negotiate a raise. You can also control how you react when the markets do something rather unexpected. A good advisor can coach you through a variety of scenarios helping you understand what changes can be made as well as potential hazards that can be avoided.
Keeps You Focused On The Big Picture
The market is full of short-term fluctuations and depending on where you are in terms of your investing journey, your advisor will help you tune out the noise of those talking heads on TV. The key to investing is patience and persistence and during those times when you may feel like jumping ship (when maybe it is not truly appropriate), a good advisor will remind you of your goals, make sure you’re still on track to reach those goals and will help you remove any unnecessary risk. These are a number of ways a good advisor will add value but it also comes down to personalities. You will be more successful if you’re working with somebody that you’re truly comfortable with and trust. After all, a financial advisor will know some of the most personal details of your life from your income, spending habits, health issues, and even family dynamics. I always recommend a “get to know you” meeting beforehand to make sure they will be a good fit for you and that you are both on the same page for the type of service and treatment you’re looking for in a client-advisor relationship.