The Flinchum File

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Who Needs A Financial Advisor Anyway?


I have a wonderful client who lives in a very high-end retirement facility.  During our last meeting, she told me about her many friends who don’t have a financial advisor and try to manage their nest egg with certificates of deposit.  They are just trying to reduce their expenses, as any financial advisor would recommend they do.

They see investment management as the sole function of financial advisors.  Why incur the cost of a financial advisor if you’re only investing in certificates of deposit?  Fair question, indeed!

A highly-respected industry leader of mutual funds is Vanguard, who has a well-deserved reputation for controlling costs.  They did a recent analysis of the value of financial advisors,  Of course, there is an investment management aspect to it, but that ignores the value brought by asset allocation, asset location, rebalancing, and the all-important behavioral coaching.  Vanguard’s analysis showed a 3% average annual improvement in portfolio returns by using an advisor.  My client’s friends would be heart-broken to learn they were short-changing their returns by so much each year.

I do take issue with two aspects of Vanguard’s analysis.  First, it ignored the value of estate planning.  A seemingly little thing like making sure a person’s nest egg is titled properly can add enormous value.  Second, it assumes the reduction of risk has no value — really?

Nonetheless, the value of their analysis is that it documents that financial advisors do add value.

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