Engaging with a financial advisor comes with a higher price tag than simply doing it on your own, and depending on the costs it could be a significant decision. But unlike other professional services like law, medicine, or accounting, the core duties of a financial advisor aren’t as well known. Just as a good doctor is aware of your health history, a skilled advisor understands your financial circumstances and uses that information to provide advice that enhances your financial well-being. But how, exactly, they deliver that value to you may be a bit of a mystery.

We’ll breakdown a few core services that nearly all advisors provide to help you understand the role that a bonified planner can play in improving your financial welfare.

Grasping Your Financial Profile

A financial advisor will typically spend the first onboarding meeting getting to know you, your goals, and your finances. This means asking questions about your assets, debts, income(s), expenses, insurance, financial commitments, goals, your experience as an investor, and even questions about your family structure and the people that depend on you financially. They may not get every little detail in this meeting, but the intent is to develop a solid foundational understanding of the factors that influence your financial standing and decision making.

Buyer Beware: some financial advisors are predominantly salespeople that offer a limited scope of services. It can be hard to tell this sometimes since ‘Financial Advisor’ isn’t a protected title. Anyone can use it, and the inexperienced and poorly trained often do. Seeking out a fee-only planner can help cut down on the salesmanship as this group has no products to sell – it’s advice only. However, simply going through a comprehensive onboarding in which your advisor probes and asks you questions about all areas of your financial world is the best indicator as to whether they are trying to get to know you or simply sell you.

Goal-Based Planning

You will generally work with your financial advisor to reach a series of goals. These goals may center around common milestones like reaching retirement, not running out of money in your old age, minimizing taxes, and paying for college. A good planner will help you determine the most efficient way to meet your goals. And when not all of them are achievable on your preferred timeframes, the planner will help you prioritize and determine what is realistic given your financial constraints.

This is important because your financial decisions are interconnected. Online calculators and DIY tools do a good job answering questions in a vacuum, but most are still lacking when it comes to determining optimal trade-offs between conflicting goals. For example, should you use Roth conversions, charitable trusts, or donor advised funds to reduce your tax liabilities? When is a 529 superior to a brokerage account and to what level should you fund it? If the market corrects and your accounts dip 20%, how much longer will you have to push off retirement and is there anything that can be done about it?

Good planners answer these questions in ways that DIY tools can’t and product salespeople don’t.

Managing a Portfolio

If you use a planner to help manage your investment accounts beyond simply and hourly or project-type engagement, then you’re also gaining a partner to ‘watch the shop’ while you focus your time on the things that are truly important to you in life. Advisors run different strategies that require different portfolio management techniques, but here are a few of the more common investment tasks that are performed by most advisors:

• Developing a suitable asset allocation using broadly diversified funds
• Cost effective implementation (watching for expense ratios)
• Portfolio rebalancing
• Asset location (placing different types of funds in different types of accounts based on tax treatment)
• Behavioral coaching
• Creating a spending strategy for tax-efficient withdrawals
• Total return vs. income investing

The value of these services varies from person to person. You may benefit more from behavioral coaching than someone else, for example. This makes quantifying the value add of an advisor difficult. Nevertheless, Vanguard attempted it in a paper entitled “Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha®”. Their conclusion was that an advisor could add as much as 3%/year in value, though this is at the higher end of the spectrum.

The real premium is paid with your time and anxiety. When the cost of an advisor is less than the sum of those two factors, its time to make a hire.

Everything Else

Beyond this are the smaller and sometime intangible things advisors do to help. They often have networks of other solid, qualified professionals they can refer you to when the need arises (think CPAs, attorneys, insurance agencies, and lenders). They can process complicated transactions on your behalf and spare you from the byzantine corrective measures required when your custodian makes a mistake. They can communicate what’s happening in your portfolio, why, and what to do about it. And they can help you proactively pivot and adapt to changing life circumstances and shifting regulations.

The Bottom Line

You get more of your time back, less stress, and a general improvement in your financial outlook when you work with a good financial planner. But like any other professional service, the value received from person to person and from advisor to advisor is different. It’s natural to have reservations about consulting an advisor, but remember, the first meeting with an advisor is akin to visiting a doctor to share your health status. They want your backstory so that they can guide your health practices appropriately or suggest suitable solutions. A competent financial advisor adopts the same approach towards your financial health.

Schedule a time with us today and take the first step towards improving your financial outlook.