Financial advice revolves around money, and the affluent individuals that most financial planners work with have a good-sized chunk of it, which means the conversations often turn quickly to investments, and how to manage them effectively. As a result, a lot of time is often spent on investment portfolios, asset allocation, and decisions about particular investments, including whether to implement them with passive or active strategies.
Yet the reality is that the value of financial advice extends far beyond just a focus on investment returns. In this guest post, Bob Seawright explains what he thinks are the top benefits to financial advice, beyond just the investment selection and the passive/active debate. The value ranges from advisor insights about taxation and tax efficiency, to helping clients through a long list of their behavioral biases, to all the other parts of financial planning that matter besides just the money itself.
In a world where many financial advisory firms have become increasingly investment-centric, hopefully this will be a helpful reminder of all the other value that financial advisors bring to the table. For those who have maintained a more comprehensive focus to their financial advice all along, this may still be useful as a good recap of the benefits that your clients enjoy by working with you! Happy reading!
“Active investors, in the meantime, really can’t say anything. There isn’t a single empirical datapoint backing up the idea that an investor is financially better off paying someone to pick their stocks for them. There are other considerations in favor of active managers – mostly emotional ones involving elbow-rubbing, fancy lunches and alerts – but we’ll leave those aside for now.”
Putting aside the actual substantive argument (my views, including why I advocate some active management, are here and here), advisors routinely tell me that if they used index funds, their clients wouldn’t need their services, consistent with the Dilbert cartoon above. I disagree vehemently. Here’s my top ten list of reasons why.