February 1, 2023 | Todd A. Little, CFP®, AIF®
When ski resorts use RFID tags to track everything from which lifts are most popular to finding a lost skier, you realize we live in a data driven world. It is no different when it comes to financial advisors. One of the biggest questions faced by financial advisors is how to measure the value they bring to their clients.
There are actually several studies that have attempted to answer that question numerically. Interestingly, Vanguard – a firm whose mantra is value – asserts that an advisor’s value is roughly 3%. In other words, working with a financial advisor adds 3% each year to the performance of the client’s investments1. Other studies suggest even higher figures with one nearing 5% added value2.
Those studies are fascinating and offer different perspectives. But rather than try to answer that question quantitatively, let’s take a qualitative look at the value of a financial advisor. There are six ways a financial advisor can bring value to a client relationship:
1)Organization – One of the immediate benefits of working with a financial advisor is to help you organize all of your financial information. Not only can they provide you with reports on your net worth, cash flow, asset allocation – and many others – but in many cases they can offer you access to software that will let you update and review the information in real time. Going one step further, a financial advisor can help you simplify your financial picture to make it easier to track.
2) Expertise – It goes without saying that you want your financial advisor to be knowledgeable through both education and experience. There is no shortage of information available today, but you want someone that can tell you what really works and what doesn’t. It’s a lot like going to a doctor rather than diagnosing yourself online.
3) Education – By education, we’re not referring to the financial advisor’s degrees or certifications – although that certainly is important (see above). Instead, how does your advisor communicate with you? Rather than try to impress you with jargon and complex concepts, a good advisor will help you understand so you can make informed decisions. A good financial advisor strives to educate their clients.
4) Principled – Financial decisions clearly come with a lot of emotions. Our financial goals and our ability to achieve them can have significant emotional impact. One benefit of a financial advisor is they are removed from your emotions and can remain neutral. In fact, sometimes a good financial advisor helps you by NOT letting you make an emotional decision.
5) Accountability – Once you’ve established your financial goals, a financial advisor can help you to stay on track. They can encourage you to keep the big picture in mind and not sacrifice long-term goals for short-term distractions. They can help you develop – and stick to – a step-by-step plan to get to where you want to go financially.
6) Confidence – Working with a financial advisor definitely can bring some assurance to an unknown and uncertain future. Indeed, a good financial advisor will guide you through discussions of what to do not if, but when, things go wrong. We started with some data, so we’ll end with some data. According to a study by Black Rock, 76% of investors that use a financial advisor report having a positive sense of well-being3.Contact us to learn more about how Kemp Harvest Financial Group can support your financial life.1 https://advisors.vanguard.com/insights/article/IWE_ResPuttingAValueOnValue2 https://www.advisorperspectives.com/white_papers/2021/06/01/russell-investments-2021-value-of-an-advisor-study/lead3 https://www.blackrock.com/corporate/insights/investor-pulse#forward-financial-advisor