Full disclosure: I’m talking my book here. (That’s Wall Street slang for talking up something I already own.) I work for a firm that supports financial advisors, my job consists of helping those advisors help their clients, and many of my friends are advisors. I fully admit I’m biased, but bear with me.
In yesterday’s post, I encouraged investors to think about and address the problem of potentially lower future returns, and offered a few ideas for getting started. But how many people will do the research and take action? My guess would be not very many. Most of us are simply too busy with the day-to-day to worry about risks that might not show up for a decade or more. Wow, that’s complicated. I'm probably okay. It can wait.
Trouble is, once it can’t wait, it’s too late.
At core, a financial advisor’s job is to keep you on track toward your financial goals. He or she is a coach who helps you do the right things and (perhaps more important) avoid doing the wrong things. According to a Vanguard study, advisors can add up to 3 percent per year to client returns by helping them allocate assets, rebalance appropriately, and stick with the program when times are tough.
Lately, there’s been a lot of talk in the financial advice industry about so-called robo-brokers—online programs that allocate assets and rebalance them on a regular basis. Sounds like what a financial advisor does, right? Not quite.
If we think of a financial advisor like a coach, then a robo-broker is more like a set of exercise routines on DVD. It might work just fine for motivated people who have the time and energy to focus on exercise, but for most of us, that’s not enough. We need a personal trainer to customize the exercise program for our body type, personality, and fitness level. In the event of an injury or a change in lifestyle, a trainer can adjust the routine and help us get through it.
That’s a lot more valuable than a DVD—and a lot more effective as well.
A personal trainer helps you optimize your body, both for today and tomorrow. If you’re healthy and fit, you enjoy life more now and stand to have a much better life as you age. Many people who exercise and eat right, with an eye to their current and future health, would never abandon that discipline. At the same time, they may be ignoring their finances, which could have just as much effect on their future lives as their health.
What about cost, you ask? Financial advisors are very affordable for most people. If you can afford a health club membership, you can probably afford an advisor. Beyond that, the benefits should more than justify the costs. If, for example, you’re paying 1 percent to potentially get an additional 3-percent return, that looks like a good deal. At half that return, it still makes a lot of sense.
You might think, doing what I do, that I’d neither need nor use a financial advisor, but you would be wrong. In fact, I’m meeting with an advisor for estate planning this week. I regularly consult with Commonwealth’s internal investment staff about my own portfolio. Although I live this stuff, I still benefit enormously from the expertise of Commonwealth staff and advisors. If I benefit, I suspect you would as well.
For many people, managing their own finances just isn’t feasible. If you’re one of those people, you owe it to yourself to look into getting a good financial advisor. (And, of course, it should be a Commonwealth advisor. As I said, I'm biased.)
In any case, don’t let it slide until it’s too late.