The value of financial advice
The real significance of this is that you can have a finance professional take care of one of the most important jobs in your life (funding your retirement) for very little, if any, real cost. This can even be the case for those with smaller portfolios.
However, for many people the main problem is getting started and the cost is often seen as too high or the adviser focus can seem a bit too much on their needs rather than the client.
A major reason for this, unfortunately, is that increased regulation and monitoring has meant advisers have moved to a fee-based model and away from the commissions of yesteryear. This is a good outcome but it has meant advisers have had to increase entry costs which, in turn, has led many potential clients to see these costs as too high. A proverbial Catch 22.
It is because of this sort of conundrum that firms have undertaken long term studies. The outcome from their work is that a WIN/WIN opportunity exists for all.
However, this benefit isn’t just from better investing, though that will often be the case. It’s the more holistic approach that wins the day. The following areas are those that will generate this positive outcome:
- Suitable asset allocation
- Cost-effective implementation (expense ratios)
- Behavioural coaching (Vanguard Investments found this to be the most significant contributor because there are some tasks people struggle with such as budgeting and expense management. Behavioural coaching addresses this issue).
- Tax efficiency (An example here is where an investor with a modest portfolio lost more than $250,000 in value over a 10-12 year period because they thought the three stock brokers they used were looking after tax related issues. They weren’t! If the planner had been involved sooner the outcomes would have been significantly different.)
- Total returns versus income investing.
Finally, the concerns many potential clients have over the cost of financial planning means they delay getting help early enough which, in turn, threatens the very retirement outcomes they want to achieve.
PlannerWeb / AcctWeb