Financial Advisor or no Financial Advisor?

I was recently asked to write an article that would identify whether or not a financial advisor was worth the cost. Here is my response:

Investors are emotional beings. We focus on our gains too much when markets are running hot. We become exacerbated when our losses appear to be too large during market declines. As a result, investors behave badly and experience returns that are far below the index averages. More importantly, these bad decisions affect our ability to retire on time and at our desired income levels, put our children through college without having to take loans, and prevent us from funding our daughter’s big wedding plans. The benefits of having a fresh set of eyes on our financial plan are incredibly valuable. 

Here is our challenge: can we find a financial advisor who is competent at applying the strategies needed to execute a comprehensive financial plan and can we trust there are no conflicts of interest when addressing their compensation? Think about how much was just asked. Financial planning is challenging to both the advisor and the investor. Today’s investor demands the ability to understand the data as well as the advisor, which is no easy task. Most financial planning outputs are delivered in a spreadsheet format, which is a difficult method to inspire strategic thinking. In January 2020, Real Intelligence LLC will deliver a free app to anyone who is seeking a more organized method of analyzing this data by graphing it. This method is called Dynamic Mapping. The graph will create a boat that will either be strong and full of billowing sails or it will be dead in the water with slack sails. This method of calculation and output will help both the advisor and the investor make strategic decisions to improve outcomes. Most importantly, it will help remove the temptation to take risks when risk doesn’t need to be taken! If the advisor can help the investor manage the “known” risks of market movements by aging the portfolio according to the timing of the distribution event in the financial plan, then both the advisor and the investor can better prepare for unknown risks like unexpected unemployment or a long-term illness. 

Very wealthy families often rely on a good financial advisor to help them direct an outside team of professionals like the accountant, property and casualty risk managers, estate planning attorneys, etc. Again, finding the advisor who is willing to spend the time on managing these resources, without consideration of a commission, can sometimes be challenging. However, the benefits to the family are great. Very wealthy families often seek three important value propositions from an advisor like this: Wealth Preservation in multiple ways (limit investment losses, reduce taxes, and reduce potential liabilities from frivolous or fraudulent lawsuits), restore time for busy people to work hard and play hard, and do so with incredible privacy and discretion. These conversations are often less about topics like retirement or tuition expenses and are more about fulfilling the family’s purpose. These conversations go deep into the multi-generational challenges that exist in every family and often include philanthropic strategies. A great financial advisor is a critical element to delivering an exceptional experience during such deeply emotional conversations.

Real Intelligence LLC is committed to the training of financial consultants who can address each of these concerns in partnership with investors. The Dynamic Mapping app will be a great tool for investors who choose to either do the financial planning calculations on their own or with their financial consultant. The conversations that come from the strategic thinking around the output should be very intelligent and objective. It is important to note that the app is simply a fancy calculator and there is no easy way to replace valuable training and experience from a capable financial advisor.

(Jeff Mount is the President of Real Intelligence LLC. Jeff’s 25 years of experience as a wholesaler to financial advisors in the investment advisory profession have given him perspective into the qualities needed to define good financial advisors from those who are less effective.)