I get the same response every time I tell someone I am a financial adviser. They all ask “what stocks should I invest in?” Once I explain to them that I don’t know what the next big stock will be, they all give me that look that says “well, then what does a financial adviser even do and how can it help me?”. Most people don’t actually ask the question out loud but they do wonder about it. These conversations have inspired me to write this article.
Financial Advisers provide value in 4 main areas.
- Monetary Value– This value is the extra dollars and cents that you get by working with a financial adviser.This could be the extra money that the adviser earns for you or the money he saves you by by helping you avoid financial mistakes. Some examples could be the tax savings from efficient tax planning strategies, the money saved in a student loan repayment plan, the extra return you earn on your investments (from efficient asset allocation, not stock picking) or from a host of other things. Some people have saved/made thousands, and in some cases, millions of dollars by using a financial adviser. Believe it or not, I believe this is the least important of the 4 areas. Don’t get me wrong, the $ value is important but it is not even close to the end of the value that an adviser can provide.
- Time Savings-Advisers (at least good advisers) spend thousands and thousands of hours honing their craft. It is their full-time job to find and implement strategies to get the best results for their clients. That being said, a financial adviser does not have the ability to do anything that an individual could not do for themselves. You don’t need an adviser to use the same strategies that an adviser would use. The problem is, it would take an immense amount of time and energy (and sometimes sophisticated software) to research and implement all the same strategies. You’d have to be a very committed DIY-er to get the same results. That being said, some of us are nerds about personal finance (like me) and we wouldn’t dream about letting someone else have all the fun building our financial plans. For most of us however, it is often a better investment of our time to focus on what we are good at. For example, a dentist would make a much better return on investment if he was filling teeth with the time he would have spent on financial planning. The same goes for me as a financial adviser. It doesn’t make sense for me to try to learn how to fill my own cavities when I can hire a specialist to do it for me. I can focus on what I am good at and the dentist can focus on what he is good at.
- Accountability Partner-The tax system has a built-in accountability program. If you don’t pay your taxes, the IRS will pay you a visit. Therefore, most of us pay our taxes. The consequences for not doing financial planning are not near as in-your-face but often are just as severe. There is no government agency to remind you to invest for retirement, get enough life insurance to protect your family, or save for your kids’ college in the most tax-efficient way. This is where a financial adviser comes in. They not only give you advice about how to do things the right way but they also make sure that the things actually get done. For example, we all know what we’d have to do to be fit and health, but how many of us actually do those things consistently. A financial adviser ensures that the necessary steps are taken now to give us the freedom that we desire in the future.
- Peace of Mind– For most, this is the most valuable part of working with an adviser. It can be incredibly stressful to just wonder if you will have enough for retirement or if the stock market drops tomorrow what will happen to your life’s savings. Although an adviser can not guarantee a completely blissful and comfortable life, it can bring immense comfort by having a professional helping you through life’s unpredictable moments. Even for a DIY-er, it is often very comforting to just have another set of eyes on your financial plan.
Also, it is important to keep in mind that all financial adviser are not the same. Some are just insurance salesmen who use the adviser title. Others are just stock brokers. For unbiased advise, look for a fee-only comprehensive adviser that shares the same values as you. I hope this article helps and good luck on your financial journey.