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In everyday life, we utilize the services of a lot of different people, usually for things we could probably do ourselves. Whether it’s going out for a bite to eat, getting an oil change, or anything in between. They are usually tasks that we could do ourselves if we really wanted to.
When it comes to Financial Advisors, I find most people are on one end or the other. They either love having an Advisor or think it’s a waste of money. Not all Financial Advisors charge the same fee, so it’s tough to generalize straight through the industry. But even if you have an Advisor who charges a lot in fees, it could still be worth your while.
Let’s take a look at a few areas that Financial Advisors can really help you with.
Vanguard is one of the leaders in low fee ETF’s, making investing easier, and more efficient than ever. Vanguard has coined a term they call, Advisor Alpha, which looks at how much an Advisor can actually add to the average performance. And their conclusion: Advisors add about 3%.
It looks at things like Portfolio Construction (suitability, asset allocation), Wealth Management (rebalancing, strategy), and most significantly: Behavior. Behavior makes up about half of the value Advisors can add.
Investing is more psychological than anything. It’s a mental game. When markets go down, your gut tells you to sell, but really it’s the best time to buy. When markets get hot, it’s actually the time to take your gains and sell. Best practices and natural instincts are at a constant clash. By acting rationally, you could be in fact actually irrationally, and it could cost you in the long-term. An Advisor who constantly has a pulse on the markets can help you make the best decisions possible, allowing you to not have to worry or stress about it at all.
Even this past year, when markets crashed because of COVID-19, we were in a position to help our clients either deposit more when markets were down or increase their risk tolerance. So when the market recovered, a lot of our clients are way ahead of where they were prior to the crash. A Financial Advisor is really a wealth coach, helping you stay on track of your goals to reach them as efficiently as possible.
I see Financial Advisors as being a relationship you can talk to a little or a lot because there can reasonably be a lot of questions that come up which they can assist you with. Unlike a lawyer or accountant, when the opportunities are (hopefully) few and far between.
Because of this relationship, it’s a great bridge to other professional help. The value of a good and solid referral network should not be overlooked.
If a client comes to me and says they want to buy a house, I know a real estate agent, mortgage broker, life insurance agent, general insurance agent, real estate lawyer, pretty much everyone they would need throughout the process. So the home buyer doesn’t have to spend time looking around or have the chance of having a really negative experience with a professional they are not familiar with.
It seems like a little thing, but having a streamlined system in place can save a lot of time and a lot of money, especially when you’re making a big decision (like buying a house) having more time, and less stress is a big deal. If an Advisor adds to their value by referring other services, that 3% already increases.
As mentioned earlier, not all Advisors or companies have the same fees. There’s a wide range of companies from those that utilize robo services to traditional banks and large institutions. In Canada, Canadians pay some of the highest fees anywhere in the world. You would think fees are generally going down, but it’s the opposite. Despite lower-fee options, average fees are going up. So if you’re paying a lot in fees, expect that trend to continue.
Understanding how your Advisor is paid, how much you’re paying them, and how it impacts your portfolio’s performance is key to justifying your Advisor. It’s important to ask how their fees compare, inquire about any hidden fees, and ask them what value they bring that sets them apart. A happy client is the client most likely to refer and be good for business, so they should be thrilled you’re asking these questions.
Hopefully, you’re going to find an Advisor who brings a lot of value for the lowest fee. It sounds counterintuitive, but there’s no reason to pay almost 3% a year in fees to receive a statement in the mail once or twice a year. It doesn’t make sense, especially when there are so many better options out there.
If you find the right Financial Advisor, it could make a world of difference in your path towards financial freedom and reaching your goals.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.