Reasons to Hire an Advisor
There are several important reasons why consumers outsource planning and investment work to financial professionals
The Professional Alternative
You can invest assets by buying CDs:
- However, simple strategies do not produce adequate returns over longer time periods
- Most of the return is eroded away by taxes, inflation, and income distributions
- In fact, you could end up with a negative
Higher returns require exposure to investment risk. This risk creates the need for financial advice from a competent professional
Your Time
Millions of consumers don’t have time to invest their own assets:
- They are busy with their professions, companies or retirement activities
For the other consumers, investing their own assets isn’t the best use of their time:
- For example, Dr. Smith can make more money in surgery than he can doing his own investment work
- The solution to outsource work to professionals who have full-time responsibility for helping you achieve your financial goals
Your Expertise
Very few consumers have the special knowledge necessary to manage their own assets. They don’t have:
- Specialized education and training
- Years of investment experience
Their solution is to hire financial professionals who have the knowledge they need to achieve their financial goals:
- Thousands of hours of education and training
- Degrees and certificates
- Years of investment experience
Your Financial Goals
- Realizing financial hopes and dreams is the primary reason why consumers hire advisors
They believe advisors increase their probability of achieving the following goals:
- Quality education for children
- Improved lifestyles during working years
- Higher standards of living during retirement years
- Financial security late in life
Outsourcing Investment Work
Consumers outsource investment work to financial advisors. Examples of the types of work include:
- Developing financial plans and strategies
- Developing market outlooks
- Allocating assets by investments class
- Selecting managers or investments
- Managing portfolio risk
- Analyzing and reporting performance
- Updating investment strategy
Investment Horizon
Simple asset strategies don’t work when you have long investment horizons
For example, you and your spouse retire at age 65 and one of you lives to be age 95:
- You have a 30 year investment horizon during which your strategy has to compensate for fluctuating markets, income distributions, inflation, future tax rates, and lump sum distributions
Disciplined Investing
Another reason to hire a professional is discipline. Consumers frequently make emotion-backed investment decisions that produce bad results. The two mistakes are:
- Selling at market bottoms (they should be buying)
- Buying at markets tops (they should be selling)
Financial professionals don’t get emotionally involved with client assets – it’s a business
Advisor discipline produces better results over a variety of market conditions
Comparative Results
When consumers say they produce better results than advisors they are usually comparing their returns to lower quality sales representatives who sell investment products
Consumers rarely produce better results than high quality professionals
Control
You have no control over:
- The volatility of securities markets
- Investment results that are impacted by fluctuating market conditions
- Economics variables that are difficult or impossible to predict
You do have control over the quality of the advisor you select
- You should use an objective selection process that reduces your risk of bad advice and increases your probability of achieving your financial goals