During strong markets, anyone can make money. During weak markets, everyone gets hurt. For the most part, all ships rise and fall with the tide, financial adviser or not.During strong markets, anyone can make money. During weak markets, everyone gets hurt. For the most part, all ships rise and fall with the tide, financial adviser or not.
So what’s the point of having an adviser?
(I have my own answer to this question and it may surprise you.)
But before we get to my answer, let’s explore the wild and wonderful world of financial advisers and our clients.
1. Financial Advisers are Salespeople.
I know. I’m a financial adviser. We sell products and ideas. We sell baby….we sell.
In fact, most of our training is in sales, not financial planning and not investment management. If you read “How to Become a Financial Planner” you realize this is true. A financial adviser might have specialized training as a Certified Financial Planner (for example) and that does provide education that helps us plan. But we’re still salesmen. We gotsta make a living and that means most of us are going to sell you something if we can. Show me a financial adviser who has been in the business and survived more than 10 years, and I’ll show you a pretty sharp salesperson.
2. We don’t have a crystal ball.
If you really expect your financial adviser to beat the market year in and year out you should get a job as a stand-up comedian because you’re funny – and not in a good way. If your adviser does great is some years, she’ll do crappy in other years. It’s this risk/reward thing you’ve heard about. (Unfortunately, it is the way the world works.)
3. We have feelings.
If you cut us…do we not bleed? If you tickle us…do we not chuckle?
Yes…. we do.
However, and this is a huge one, if we’re any good, we don’t let our feelings interfere with our work.
This is one difference between us and you that explains why the best of us are worth what you pay us.
I’ve been in this business for over 25 years. Do you want to know how many times smart (I mean super smart) clients call me up with ideas that are super dangerous? How about, “all the time.”
When the market is strong, you get greedy. You want to take more risk and that’s a bad idea. And when I say “bad”, I don’t mean it in the Michael Jackson cool way either. I mean, bad as in…really dumb.
Let’s say you work out a 20 year investment plan that ends up with you sipping Sake on some sandy beach when you retire. You look at a number of 20-year periods and see that the historical worst-case is a loss of 40% for an all-equity portfolio. That’s too steep for you so you select a portfolio with less potential risk – and lower historical worst-case losses.
Everything runs great – until the market takes off. At this point, left to your own devices, you get greedy and put everything into the market. The moment you do that, your risk skyrockets and if things don’t turn out, you might get wiped out.
But if you work with a good financial adviser (and listen to her) this won’t happen. She’ll remind you of your long-term plan and bring you back down to earth. Don’t thank us….it’s our job.
4. We know what works.
I’m speaking here about long-time veterans. We’ve worked with clients for decades and we’ve seen every mistake known to man. We’ve seen what happens when people get greedy or afraid. We’ve seen what happens when people try to predict the future or ignore it. We’ve seen what happens when people don’t force their children to be financially responsible.
Tap into our knowledge and experience. You’ve got one financial life. We’ve been part of hundreds of them. No we’re not any smarter than you are. We’ve just changed more financial spark plugs than you have. We know the right wrench to use.
5. We know what’s good for you.
That’s right. You read it right. We know what’s good for you and you don’t.
How many times have you gone to the dentist for a cleaning only to find out you need a new crown? Me too. It might hurt but you’re better off by knowing the truth and taking care of it…right?
The same thing happens in financial planning. You come into the office thinking everything is “wunderbar”. We stick a financial thermometer up your……I mean…in your mouth……and we tell you what medicine you need to start taking.
We tell you:
Which retirement plan to participate in.
How to protect your beneficiaries.
How often to update your trust and what to look for.
How to balance your portfolio.
How to use Inherited IRAs.
6. We aren’t perfect.
We’re just people. The vast majority of us are honest and want to help you. But a few of us aren’t. You’ll have to use your own judgment to find the right person to work with.
As nice and honest as we are, we make mistakes. We work with a lot of people and we forget things. When we do…don’t get angry. Just remind us and be kind.
Bottom line, being a financial adviser is the best small business idea I could think of. I love being in it. Not because I think I make you more money – although I try to do that as best I can. I’m proud of what I do because I help people get what they want out of life with less risk and less cost.
I charge for what I do and I’m worth it.
Recommendation For Building Wealth
Consider at least being your own financial adviser by by signing up with Personal Capital. They are a free online software which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to manage my finances.
Now, I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and where my spending is going. The best feature is the 401K Fee Analyzer which has saved me over $1,000 a year in portfolio fees I had no idea I was paying. Personal Capital takes less than one minute to sign up and is the most valuable tool I’ve found to help people achieve financial independence.
Updated for 2015