This is a question often posed by investors of every category, be they large, small, individual, sophisticated, those with concentrated positions and even sometimes institutional ones.
The reasons to have a competent investment advisor on your team are almost as many as there are types of investors. However, in many individual and family situations it really boils down to simply the common sense need for discipline, guidance and a second opinion. The investment environment can be a highly charged emotional landscape to operate in, filled with many, many choices, temptations, opinions, numbers, hot tips, etc. and much too involved for any one person to fully analyze on their own.
The goal of a competent investment advisor should, first and foremost, be to remove as much emotion and speculation from the investment process as possible for the client. Investing in this day and age is complicated enough. Many former widely accepted beliefs regarding investments and risk and return have virtually been thrown out the window by the financial crisis of 2008. The only rule that truly remains and has survived the test of time is diversification – perhaps boring but true. And while even diversified portfolios took a hit in 2008, they did much less so than non-diversified ones.
Your advisor should therefore assist in setting investment guidelines and objectives appropriate for your personal situation and then help construct well diversified portfolios populating it with major asset and sub-asset classes that have a low correlation to each other (this means assets that don’t move in lock step with one another). Your advisor should then periodically review your portfolio to ensure that it remains appropriate given your personal situation and the guidelines previously set.
So the next time you question what you are paying your investment advisor or are reluctant to hire one because of perceived cost, the value of your advisor should not be measured in what absolute returns they have achieved for you, (preferably though what risk adjusted returns they helped achieve), but rather whether the advisor has prevented you from getting into hot water, kept you from making abrupt speculative decisions, has helped in keeping your goals and objectives on the straight and narrow, and like a good physician has provided you with a valuable second opinion and has helped manage your emotions in a turbulent investment world.
Over the last years, as the financial, legal, business and economic landscape has become exceedingly complex, more and more clients come to desire a comprehensive wealth plan. Clients are often seeking the assistance of a trusted advisor, such as an investment advisor, CPA/Business Manager or even an attorney.
The motivation to initiate this process are manifold and are usually the result of a particular life occurrence or realization, retirement, sale of a business, taxes, divorce, marriage, birth of a child, concentrated wealth issues, illness and incapacitation, family conflict, legacy and multigenerational concerns, establishment of a new business or financial windfall, etc. or just simply a bout common sense. Setting and achieving financial goals can be the fulcrum of any wealth management strategy and can lead to a greater sense of security, confidence, and even personal freedom about one’s financial future.
The wealth planning process for wealthy individuals and families in today’s complex world is multifaceted including not only quantitative concerns but initially really focusing on qualitative and philosophical questions. This is referred to as the Values Based Planning portion of the wealth plan where many questions of intent and desire are openly addressed. These conversations can be lengthy as they may involve the “buy in” of spouses, children, business partners, trustees and others to finalize a vision.
However, once this vision of the values based planning portion is finally articulated, the next step is to review what is possible within the realm of a client’s actual financial situation. This is where matters of asset allocation and investment management, wealth transfer, insurance, charitable contributions, etc. are determined. Finally, the process moves from establishing values and financial objectives to setting a strategy, implementing solutions, and continually reviewing the progress.
All the while and within this process, it will be the financial advisor or business manager who will be crafting and ultimately providing you with a comprehensive financial plan document that includes asset and cash flow forecasts, budgets and even a so-called “Monte Carlo” analysis for various assumptions and contingencies.
It has been our experience that clients who have taken the step to move forward with a comprehensive wealth plan find themselves in a much stronger position to deal with the unexpected and most importantly have a greater sense of security and confidence about their future.