Author: Laurie Belew, Partner, Advisor, & COO
I have recently had a couple of conversations that served as poignant reminders that not everyone truly understands what we do as financial advisors.
A close friend of mine has started asking more detailed questions about what I do. She has been thinking that it may be time to get some professional, financial guidance. Even though she has successfully managed her own investments for years, she is finding less and less time to dedicate to staying on top of her personal finances like she needs to.
Another conversation was prompted by the adult child of a client. He and his wife recently completed their graduate degrees and are making significant money that needs a purpose. They wonder whether working with an advisor so early makes sense for them.
It is true that quantifying the value of working with an advisor can be difficult. More often than not, people associate investment management as the primary role of and purpose behind hiring an advisor. However, what financial advisors “do” goes well beyond optimizing investment returns.
THE TRUE BENEFIT: A PARTNERSHIP
When working with an advisor, you build a relationship with someone who is helping you explore the bigger picture and how to achieve those long-term goals. Are you on track to achieve the financial goals that will enable you to live the life you desire? Have you addressed financial exposures that could significantly disrupt that plan? While we do focus on finding superior investment managers for our clients, we believe that the value of working with an advisor is more far-reaching than that. Allow me to explain what we, as advisors at FJY, do for our clients.
FUNDAMENTAL KNOWLEDGE LEADS TO BETTER DECISION-MAKING
Investment performance is important, yet it does not have meaning until we connect returns to goals and risks. By helping clients explore and dream, we can determine how much asset growth is needed and how much risk is affordable. In the context of that bigger picture, investor outcomes are better because behavior is supportive of long term goals.
The financial advisors at FJY dedicate time to providing education around the markets and our investment philosophy. We want our clients to understand the sources of return and causes of over- or under-performance. Financial advisors help instill a certain discipline around investing that removes emotions from the process. That is really hard and a big reason why investment and investor returns differ so dramatically. In fact, a 2017 Dalbar study reviewed returns through the end of 2016. For the trailing 10-year period through that year’s close, the US stock market earned an annualized 6.95%, or nearly double the investor return of 3.64%.
A STEP BEYOND MAXIMIZING RETURNS
We are able to provide our clients with access to many institutional investments that would otherwise not be available. In doing so, we can significantly decrease the expense of investing. And while minimizing underlying expenses certainly helps, truly maximizing the overall efficiency of a portfolio requires more. Research has shown that systematic rebalancing improves results in the long run. Some platforms even automate that process for investors. However, we want to be mindful of the trading costs when we rebalance and determine when it is truly needed. We will never know the “perfect” time to rebalance, but we do believe that doing so too frequently can result in capturing short term noise rather than truly capitalizing on market trends.
Another important consideration when evaluating return is tax efficiency. While some managers are agnostic about taxes, we look at the underlying tax efficiency of our recommended investments – both at the asset class and the investment level. Some of our funds even offer a “tax-advantaged” screen in the trading process, which requires traders to be mindful about long term gains, harvesting losses, etc. Further, we look to locate certain tax-inefficient investments in tax-deferred accounts and preserve the taxable accounts for those that are more tax efficient.
FAVORABLE CLIENT OUTCOMES REQUIRE MORE THAN SOLID INVESTMENT MANAGEMENT
We build relationships with our clients so that we can guide them to make the best decisions for them. It is difficult to quantify benefits from avoided mistakes or the costs of missed opportunities, and that is where the true value of the partnership comes from.
From planning for a child’s education to reviewing estate planning to leverage employee benefits and the decisions in between, we are here to ask the right questions, prompt the right conversations, and provide guidance every step of the way.
If you are considering working with a financial advisor, we are willing to help and answer questions, even if you are not quite ready to work with an advisor. At the end of the day, our primary objective is to do what is in the best interest of our clients. Be sure to read our blog: Financial Advisors: What You Need to Know for a more in-depth understanding of what Financial Advisors do.