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The Value of Objective Financial Planning

July 20, 2015
 
(Reprinted from the August 2015 edition of the Bath Country Journal and Richfield Times.)
 
Both Vanguard and Morningstar recently released studies quantifying the benefits of working with a financial advisor. The studies were meaningful and more so addressed the quantitative and not the qualitative benefits. The qualitative are subjective, more difficult to measure, and may vary greatly between clients, but also they tend to be more valuable.
 
Every once in a while, it is a good idea to stop and think about what you get for what you pay. Below is a list of some of the more qualitative benefits you should be receiving in working with a competent, caring, and objective (aka fiduciary) advisor.
 
1) A fiduciary advisor helps protect you from financial salespeople.

It is a touchy issue in the profession whether advisors who put their clients’ interests first should be “bashing the competition,” but in fact, the Wall Street firms that pretend to offer financial planning guidance are seldom looking out for the best interests of their customers and compensation is rarely fully disclosed. When you work with a broker (also known, on the business card, as a “vice president of investments,”) you will likely be presented with separately managed accounts that look like mutual funds except they share their fees with the brokerage firm—never a good sign for the end investor. 
 
2) A fiduciary advisor helps keep track of and make more efficient your financial affairs. 
 
It is common for financial planners to talk with clients who once had a will or trust drawn up, but they are not sure exactly when. Now that you mention it, they are curious about what, exactly, it says. There is an insurance policy in a drawer somewhere, and it may be term or it may be a cash value contract; all the client knows for sure is that he writes a check to the insurance company every year.

In addition, the investments are commonly a hodgepodge of what was sold to the client over the years and based on what the broker was told by his bosses to recommend at different times during the relationship. Or the self-directed investor regularly assembled funds from Money magazine’s ‘best funds list’ with little thinking on the diversification, risk, and expected return of the overall portfolio, which is vastly more important.

3) A fiduciary advisor will stand between his/her clients and the dysfunctional emotional decisions that everybody makes with their own investments.

Do you remember how you felt in 2008 when Lehman Brothers went down, and the U.S. government was bailing out General Motors? Many people sold everything at the bottom, and then waited, and waited, and waited to get back into the markets until it was “safe.” They never dreamed that the markets would go on a six-year bull run that would take us to new record highs. A whole field of study called behavioral finance has emerged showing why smart people do dumb things with their own money. Objectivity helps.

4) A fiduciary advisor helps people identify what is important in their lives, prioritize their goals, and hold them accountable to these goals.
 
The incredibly sad truth is that the vast majority of people in our advanced, prosperous society have not taken the time to figure out what they really want out of the all-too-brief time they will spend on this planet. And because they do not know their destination, they will never reach it. They are, truly, at the mercy of whatever agenda others have for them.
 
5) A fiduciary advisor can help people turn seemingly impossible goals into a routine that can achieve them.
 
Over time, advisors master one of the truly magical lessons of life: that any enormous goal can be broken down into manageable, monthly increments, and achieved by routine and persistence. Clients who have goals that they do not believe they can achieve are put on a schedule that will get them there as a matter of routine.  The point is that the services offered by a good, fiduciary advisor can have enormous value to people who are motivated to enjoy successful, prosperous lives. A fiduciary advisor’s only goal is your success and prosperity, because their interests are aligned with your own.
 
 
Kevin Kroskey, CFP®, MBA is President of True Wealth Design, an independent investment advisory and financial planning firm that assists individuals and families with their overall wealth management, including retirement planning, tax planning and investment management needs.
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