Allworth Co-CEO Pat McClain breaks down how working with a fiduciary financial advisor can add value to your portfolio - and life.
One of the most important questions I receive at workshops (or via a call to our podcast) is when I’m asked to explain the value that an advisor brings to a client’s financial life.
It is a key question. And the answer is one that a good advisor should be able to both quantify and qualify without hesitation.
But having the opportunity to write about it (rather than answer it verbally) enables me to go a bit more in depth.
What follows are three questions about how a qualified advisor should add real, lasting value to a client’s financial life.
Question #1: Should an advisor be a true, full-time fiduciary?
I’ll start with an easy one, because it seems only logical that the person who is guiding you about how to invest and manage your money should always have your best interests in mind.
But some advisors, while not necessarily acting illegally, do in-fact place their own interests before those of their clients.
For our purposes, a fiduciary is defined as someone who managers assets on your behalf and is in the position of providing you with financial guidance.
And it is actually possible for someone who calls his or herself a financial advisor to only be a part-time fiduciary. This means that sometimes they are putting your interests first, but other times they may be placing theirs first.
The problem with a part-time fiduciary is that you may never know for certain which hat they are wearing at any particular time.
Including oath, accepted standards and practices, and even as required by law, a full-time fiduciary financial advisor must:
Always place your best interests over their own
Avoid conflicts of interest - such as recommending a particular investment product over another product because they get paid more to do so
Provide accurate advice and information at all times
So, how do you tell the difference? If you work with an advisor and you are not a client of Allworth Financial (all our advisors are full-time, 100% fiduciaries), you should ask them. If they defer or hesitate, but say that they are, then ask them to put it in writing.
But make no mistake, there is no gray area here. You should refuse to work with anyone who is not a full-time fiduciary advisor.
Question #2: Is working with an advisor quantifiable?
As all investments contain risk, no one can guarantee you a specific return. But recent, comprehensive studies have shown that, depending on a client’s circumstances, working with a qualified financial advisor adds, on average, as much as 4% or more in returns per year over and above going it alone.1
That 4% can be achieved by braiding three key components together:
First, there’s active wealth management, which includes:
Investment strategies and forward-thinking, tax-smart planning
Ongoing portfolio reviews and analysis
Dynamic portfolio rebalancing
Money saving account distribution strategies
Second, there is comprehensive portfolio construction:
Customized approach and retirement planning (Your investment preferences, risk tolerances, and time horizon)
Asset allocation and alignment (Never try and “time” the market)
Time saving efficiencies (We do the work, so you do not have to)
Third, there’s behavioral coaching, which includes:
Budgeting and spending advice
Long-term perspective support (“Stay invested and stick with your plan.”)
A personalized experience
So, while 4% per year is certainly noteworthy, once you calculate that additional return on, for example, a $500,000 portfolio, year after year for 10 or even 20 years – ignoring any other considerations for a moment – you are looking at a potential increase of several hundred thousand dollars over and above going it alone.
Question #3: Can you qualify the value of working with a fiduciary advisor?
While an overall increase in returns is certainly nice, and while what follows contains some crossover with the above, some of the most important advantages of working with an advisor are in fact qualitative. These can include:
Advice on supportively managing a child who is having problems with money
Debt management guidance ("Should I pay off or refinance my mortgage?")
Educational materials (Like this article, or our podcasts, videos, and checklists)
Family goal setting
Estate planning guidance
Advice on the timing of large purchases
Though not glamorous, I often say that the biggest advantage of working with a qualified advisor is that we are trained to remain unemotional about money. That means that we help keep clients from making mistakes about money from which they cannot recover.
Conscientious advisors believe that they are in this business to help people live better lives. Additionally, most advisors are happiest when meeting with clients and not managing an office. (Which we of course handle for our advisors and partners.)
So, what is the true value of an advisor? Some of it can be found in their passion for helping people achieve their goals. I can think back to numerous conversations that I’ve had with advisors over the years when I have asked someone why it is that they do what they do. To a person, they have said something along the lines of, “I love it when I see the light go on and a client realizes they are going to reach their financial goals.” Or, “When a client comes into the office stressed about money, but leaves laughing and smiling.”
I deeply enjoy what I do and that is why I have done it enthusiastically for over three decades. I feel extremely fortunate to have found a career that helps people live better lives and thrive. And while I’m not certain how you qualify a career that you love, the fact is that all the most dedicated advisors that I admire feel exactly this way, as well.