What’s the True Value of Financial Guidance? Carmichael Hill

If you’ve done any searching on the internet, you’ve probably seen the advice to minimize your financial planning and retirement fees as much as possible. Many outlets for financial explanations and information recommend paying as little as possible to maintain your accounts. In general, many sources recommend a passive, uninvolved investment strategy that minimizes all costs for account management and financial planning.[1]

This isn’t bad advice, but it is incomplete. The obvious logic here is that the less you spend the more you keep, and that extra you hang on to can compound for decades to increase your wealth. Morningstar, a fund rating company, has written about the link between fees and performance for years. Cheap funds, or at least cheap relative to their peers, frequently outperform their peers (go figure)! Vanguard has built an entire business around dirt cheap passive funds. Investment performance matters, but financial advice is much broader than that.

Staying tax efficient, for example, has nothing to do with how much your IRA returns. Nor does determining the optimal age at which to retire or to start drawing from Social Security. Your fee and total performance also say very little about the mistakes you may have avoided along the way by seeking out qualified counsel, and they certainly can’t speak to the time you get back in your day when leaning on an expert for help.

Quantifying the precise value of a good financial planner is hard. Different investors require different sets of services, and different advisors charge different levels of fees. Nevertheless, Vanguard took a crack it when they published Putting a value on your value: quantifying Vanguard Advisor’s Alpha®. They identify seven core services that nearly all financial advisors offer and attempted to quantify the value of each one of them. They range from things like cost-effective implementation and rebalancing to behavioral coaching and spending strategies. The analysis suggests that a good financial advisor may be able to add 3% or more each year in value, though this number is a moving target. For some investors and advisors the quantifiable value added may be far less.

As a personal aside from this author, I have long believed that the most valuable commodity is time, and that you are buying a lot of it when you choose to work with an advisor. Yes, you’ll also benefit from the perfunctory portfolio and planning things that advisors *theoretically* know how to do better than you. But you’ll also get more time back in your day to focus on the things that excite you and genuinely matter in your life. You can stop trying to be an investment whiz. No more online calculators with contradictory results, unexpected processing errors and hiccups with brokerage houses, and the unanticipated stress that comes with wondering if you’re actually doing it all correctly. Use your time to take your kids and grandkids out to dinner instead.

This isn’t the kind of thing that tallies up neatly in an “is it worth it” type of analysis, and it certainly goes beyond the scope of the Vanguard paper. Great financial advice is as qualitative as it is quantitative, and what you determine its worth to be is subjective and personal to you. If you are curious about what an advisor can do for you personally and whether it’s worth the cost, then reach out and give us a call. We can set a complimentary consultation to allow you to get a sense of the kind of client-focused work a financial advisor can do, and you can decide for yourself if you think a financial advisor is worth it.

 

REGULATORY DISCLOSURE

Carmichael Hill & Associates, Inc. is a U.S. Securities and Exchange Commission Registered Investment Advisory firm. Registration does not imply that the SEC has endorsed or approved the qualifications of Carmichael Hill or its respective representatives to provide any advisory services. Advisor does not render or offer to render personalized investment advice or financial planning advice through this medium. Advice can only be given after:

  1. Delivery of a disclosure statement by advisor to client.
  2. Execution of our Investment Advisory Agreement between the client and the advisor.
  3. Initial payment of the planning fee or investment advisory fee by the client to the advisor.
  4. Advisor will not solicit or accept business in any state in which she or he is not properly registered or otherwise qualified to conduct business by virtue of a state “de minimis” exemption.
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The information in this web site is based on data gathered from what the Advisor believes are reliable sources. It is not guaranteed as to accuracy, and does not purport to be complete and is not intended as the primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The identification of specific funds and model portfolios is being made on the assumption that the investor would participate in that investment or portfolio on a long-term basis and only after consulting with their investment advisor to determine their needs and tolerance for risk. With respect to any such identification, there can be no assurance that the fund or model portfolio will in fact perform in the manner suggested.

The results do not represent actual trading due to the timing of the clients’ trades and their trading costs. They may also not reflect the impact that material economic and market factors might have had on the advisor’s decision making if the advisor were managing the clients’ money. Investment and portfolio results may be different than the results the advisor’s discretionary clients achieve due to the timing of trades and the market conditions.

All references that might be made to an investment or portfolio’s performance are based on historical data and one should not assume that this performance will continue in the future.

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