Prior to entering the financial services industry, I had this notion that financial advisors provided their value purely as stock pickers. That their job was to help their clients “outperform” the market by helping them to select the best-performing stocks. As my experience grew in the industry and as the industry has continued to evolve and grow, this couldn’t be farther from the truth. There certainly was a time when people had to call their stockbrokers to initiate trades with their portfolio, and stockbrokers acted as a gatekeeper to purchasing stocks. Today, however, trading stocks is as easy as picking up your phone and purchasing them through an online broker. In turn, the value stockbrokers provided HAD to change. This article will explore how the modern day financial advisor or financial planner has evolved to provide not only tangible benefits in the form of helping design asset allocations for clients investments but to provide several INTANGIBLE benefits that aren’t as easily prescribed on the surface.
The Tangible Benefits of Working With A Financial Advisor
Asset Allocation and Investment Performance
First, let’s briefly discuss how a financial advisor adds tangible benefits for their clients. The most obvious area where a tangible value is added is through investments. Financial advisors who help their clients design an asset allocation that fits their client’s unique goals and priorities can prescribe a tangible benefit over time. As the investment portfolio realizes interest, dividends, and/or capital gains, it’s relatively easy to show how the portfolio has performed.
Of course, it’s important that the portfolio achieves positive performance over time, however, because the asset allocation was developed with the client’s goals and priorities in mind, the true benchmark should be whether the client is able to achieve their stated goals. Those goals could be anything as large as achieving financial independence, funding a child’s college expenses, or purchasing a vacation home.
Another area where tangible benefits are evident is through helping clients minimize their tax liabilities. For example, if through the financial planning process an advisor recognizes that the client has the ability to contribute to an HSA through their health insurance and they typically have a negligible amount of health expenses throughout the year. The advisor may recommend to max out their HSA contributions. In 2019, an individual is able to put $3,500 into their HSA pre-tax. Meaning, if that individual is in the 32% tax bracket, they’re saving $1,120 in taxes this year!
The Intangible Benefits of Working with a Financial Advisor
The goal of the financial planning process is for advisors to understand what their clients hopes to achieve. What are their current goals/priorities in their life and how can we help achieve them?
With that in mind, through this process, the advisor helps bring clarity to the client’s situation. More often than not, I’d say that clients of financial advisors rarely talk about money outside of the confines of the relationship with their advisor. At least prior to working with the advisor.
Without talking openly about your finances, how can you have clarity around which actions need to be taken in order to make progress towards savings, debt payoff, or investment goals? Having a place to openly discuss finances without judgment provides clients clarity about the path forward.
What good is a financial plan full of action items if you take don’t what’s recommended and actually implement it? The answer is NO GOOD!
It’s easy to get caught up in the hustle and bustle of everyday life, especially when you’re balancing a career, marriage, kids, and hopefully some time for hobbies. An advisor should be there to hold you accountable to the plan that’s ultimately developed to ensure you’re making continued progress.
Whether it’s personal finances and your advisor, your career and your mentor, or life and your spouse, having an accountability partner to keep pushing forward and provide support is a priceless benefit!
Learning about personal finances and investing is a part of the process of working with a financial advisor. Part of the reason I write this blog is to spread personal finance education. I also make educating my clients a key part of my process. By learning more about WHY a financial advisor is making a specific recommendation, clients gain confidence in their own finances. A sense of confidence can help relieve stress or confusion surrounding their financial future.
For example, by automating the majority of personal finances, people know they’re making progress towards their specific goals. It’s not something they have to think about on a daily, weekly, or monthly basis. Their cash flow is automated to 529’s, 401(k)’s, IRA’s, and/or high-yield savings account for their emergency fund.
Learning about personal finances along the way helps build confidence in your future.
Peace of Mind
The last intangible benefit of working with a financial advisor is peace of mind. While the previous three all play into the achieving peace of mind with personal finances, the end goal as a financial advisor is to help clients achieve this peace of mind. This is developed through trust, learning, accountability, clarity, and of course, the technical aspects of financial planning and investment management that an advisor helps tie into a completed financial plan for clients.
Over time, having peace of mind around your finances is the ultimate goal. Knowing that you’re making progress towards paying off debt, investing enough for financial independence, saving enough for your child’s college expenses, and STILL having funds available to enjoy your life today is an amazing achievement.
Having peace of mind enables you to enjoy life without having to stress constantly about whether you’re making progress towards your financial goals.
The Bottom Line
It’s not always easy defining the intangible benefits of working with a financial advisor, however, they certainly become clear once you’ve gone through the financial planning process. Financial planning is very much a tangible, numbers-oriented profession and service. Yet, I’d argue the greatest benefit clients receive is actually emotional, behavioral, and intangible, in the sense a rate of return can’t be applied to it.
If you’re curious how the financial planning process and working with a financial advisor could potentially help you, schedule a free consultation today!
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, BEHAVIORAL FINANCIAL ADVISOR™ and Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. Levi’s been quoted in the New York Times, Business Insider, Forbes, and is a frequent contributor to Investopedia. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!