Broker Check









Why work with a financial advisor?

It is a common question and I would assume an even more common thought. "Why do I need a financial advisor?"

Common objections can be the cost, target date funds and/or robo-advisors being seen as better options, or about how they are untrustworthy. I am not here to go through, one by one, any objection and dispute them. A financial advisor is not a necessity for everyone. Yes, you read that right. An advisor just said what he does is not needed by everyone. 

But do you have the knowledge base to ensure that what you are doing is correct? Mistakes in the financial world can cost thousands upon thousands of dollars not to mention years of retirement. If you don't have the knowledge already, how much time are you willing to commit to learning? You can spend decades studying and still not know it all. Markets mutate more than celebrities faces and hairlines. Are you passionate enough to follow this stuff every day? Can you hold it together during the tough times? This is your family's and your future at stake. It should not be taken likely.  

I would like to address what a good advisor can do for you and how the value can often outpace the cost. 

Advisor's Alpha

From the day I started investing 13 years ago, I have been a big fan of Vanguard. They are investor owned. This is a big deal. It means the company doesn't do what is in the best interest of shareowners but rather they answer to the folks who have put their hard earned money into their funds. Vanguard was started by Jack Bogle, a man who felt investing shouldn't only be for the cultural elite so he created a company for the every day investor. They are one of the largest custodians for self-directed investment accounts.

I mention all of this because I think it is interesting to note that Vanguard published a research paper around a term they coined called "Advisor's Alpha." Alpha is a measure used in investing to attempt to measure the performance of a portfolio in relation to a benchmark. Said simply, it measures a strategy's ability to "beat the market." With that in mind, Advisor's Alpha is essentially how much additional return you could get by working with an advisor versus not working with one. Vanguard concluded that an advisor can add about 3% net returns (after taxes and fees) to a client on an annual basis. This is an average so some can be above and some below. Don't believe me? Here is the link.

A company like Vanguard giving advisors this sort of credibility is the highest type of praise I can think of. 

Calculating What This Value Means

The value of an advisor can vary person to person. It can depend on their current holdings, their age, their knowledge level, spending habits, income, family members, profession, and probably a bunch I am missing. This is why I am a firm believer that cookie cutter advice and plans will only get you so far. Will they get you positive returns? Sure, but let's take a look at what 3% higher returns can get you. 

Let's use an example of a 22 year old who wants to put money away for retirement. For simplicity's sake, let's say they begin investing $500 a month for a total of $6,000 a year. I realize this may not be realistic for some but on the whole I don't think this is an outlandish amount of money. If we assume they continue this trend until they are 60 (38 years) and have a 6% rate of return, they end up with $815,425. Not bad.

Now, what if we use the same scenario but increase the return to 9% per year to account for the estimated 3% increase from working with an advisor. With these numbers they would have $1,695,778 at age 60. A total dollar difference of $880,353! More than double!  

Like any approximation, the actual amount of value added may vary significantly, depending on the client’s circumstances.

How Advisor's Add Value

The research by Vanguard does a great job of segmenting what they believe are the most important components that an advisor can bring. I am going to pick a few of my personal favorites to go over here. 

Cost-Effective Implementation

Does working with an advisor cost money? Yes, it does. Does hiring someone to build your house cost money? Yes, it does. When someone provides a service to you, it only makes sense that it would cost money. The question is if the value you receive is worth the cost.

For investors, my personal opinion is that people place a large importance on an advisor's base fee but don't understand the true cost of working with a financial advisor. Do they have a set-up fee? Are they fee-based, fee-only, or commission-based? What are the expense ratios for the funds they are putting you in? Do the funds have front-end load or back-end load fees? A good advisor will strive to develop plans that are mutually beneficial including having an cost-effective strategy that can still have solid returns. 

Behaviorial Coaching

Behaviorial Coaching

We aren't robots. We are humans with real emotions and when it comes to money, our emotions can get the best of us.

Imagine you are within two years of retirement and suddenly your portfolio is down 20% from a year ago. What do you do? Most people would naturally want to get out of the market and put their investments into something safer. By moving your assets you are locking in this loss. What if the market were to then go up 10% in the next month? Now what do you do?

This is a common scenario and one where an advisor can provide extreme value. They are well versed on time-tested strategies that maximize your chances of hitting your goals. They also constantly look forward to ensure that you avoid situations where your emotions can get the best of you. 

Asset Location

Asset Location

This references the common question around what to do when you have some of your holdings in taxable accounts versus others in tax-advantaged holdings. If you have a goal for how much you want to invest, where should you invest it? Are bonds better in taxable or tax deferred? Are index funds or actively managed funds better in a retirement account?

Advisors are able to create plans for these situations to ensure minimal taxes including avoiding short-term capital gains and investing in tax efficient funds over time horizons. 

Withdrawal Strategy

Withdrawal Strategy

Much of investing literature is focused on building wealth and finding the quickest way to do so. Of equal importance (sometimes more) is how to draw money out while avoiding costly mistakes. 

How much, where, and when you pull from your accounts can have far-reaching effects into the future. When you have money spread across multiple types of accounts, where do you draw from first? Should you pull from your Traditional IRA or Roth IRA first? How can you minimize Required Minimum Distributions (RMDs) on your tax deferred accounts?

All of these decisions have tax consequences. An advisor can understand them before they are made. 

The Other Benefit: Your Time

Time is finite. We only get so many days on this earth and many of those are used up with activities we are forced into doing. What is left is precious. 

Investing is time consuming. Markets are constantly changing, new funds/products are released every year, taxes change nearly every year (this year was SECURE Act 2.0), and even the most seasoned investors make mistakes from time to time. It is possible to do all of this on your own, but at what cost? Where will you find the time? Less family time? Less sleep? Less time for hobbies? Enlisting the help of an advisor can keep your current time allotments intact.