Which do you think is more important?
I recently had a conversation with a friend about the cost of working with a financial advisor. He currently uses an advisor at a generic firm and has seen only mediocre returns on his retirement investments.
He argued that he didn’t see the value in paying an advisor to invest in index funds, something he could do himself. It's a valid point and one he has thought a lot about.
However, our discussion made me realize the value of having someone to lean on for advice beyond just investments.
We rely on dentists to tell us how to maintain our teeth, architects to build structurally sound homes, and lawyers to help us understand the law to protect ourselves and our assets. The same perspective should apply when working with a financial advisor.
According to SmartAsset, a 2023 report by Advisory HQ found that financial advisors typically charge an asset-based fee of 1.02% of assets under management (AUM).
But what should this flat percentage fee provide you?
It should give you access to someone who will help you navigate the financial aspects of life along with managing your assets. Clients need guidance on making financial decisions that will benefit them both in the short term and long term.
Michael Kitces, a leading financial planning commentator in the US, provides a great summary of "101 Things Advisors Do to Add Value besides Managing Investments." Here are a few areas I enjoy helping my clients with:
- Asset location analysis/adjustment
- Cashflow analysis
- Life insurance needs coverage
- Tax bracket management
- Retirement lifestyle goal planning
- Financial coaching and support
I encourage you to glance through the rest of them here.
A study by Vanguard shows that partnering with a financial advisor through financial behavior coaching can yield up to a 3% year-over-year improvement in overall financial well-being.
The chart below shows the confidence of those who seek financial guidance from advisors, outside of investment management.
Overall, individuals focused on building a family, pursuing their career, and aspiring to higher success will benefit most from working with an advisor.
My friends and clients seek my advice because it's objective and helps them see the bigger picture that they might be missing. If you or someone you know is seeking financial guidance, my team at Parallel and I would love to serve you.
