Measuring the Benefits of a Financial Advisor

For most clients, the value of their relationship with their financial advisor is crucial to their financial success. Some of this can be quantified, other benefits cannot.

Benefits of a portfolio tailored to a client’s situation

Regarding the benefits of a portfolio tailored to the needs of clients, Daniel Stieff, Financial Advisor with Pacific Financial West in Westlake Village, California says, “My clients are busy with their own lives and rely on me to look after their portfolios for them. I regularly communicate ideas and opportunities with my clients that match their goals and objectives. Oftentimes, this includes making recommendations of individual stocks that Wedbush’s Research department favors. Including individual equities can enhance returns above portfolios that are overly diversified with only mutual funds and ETFs.”

A portfolio tailored to the specific needs of a client based on their situation can help them manage downside risk, while offering the potential returns they need to achieve their financial goals.

Types of services clients can expect when working with an advisor

When working with the right financial advisor, clients get the benefit of working with someone who immerses themselves in not only investments, but all aspects of financial planning. A good advisor uses investments as a tool to help their clients achieve their financial goals. Moreover, they take the time to understand their client’s goals, their values and their risk tolerance in formulating the right investment strategy for them.

Scott Smallman, Wedbush Managing Director, Investments in Seattle, Washington says, “The biggest value we can provide to clients is aiding in their understanding of their financial situation and how their investments can aid them in meeting their goals. Frequent communication is a key element of making this happen. We need to make sure that we remember that while we live finance every day, that our clients don’t and giving them reminders of what is happening in their portfolios can help them become better investors and better clients for us.”

Measuring the benefits of working with a financial advisor

Often the benefits of working with a financial advisor are not just based on numbers. According to Meaghan McKenzie, Wedbush Managing Director, Investments in Seattle, Washington, “This is how my clients measure the benefits we provide:

  • Reaching out and contacting clients proactively, not the client calling, leaving a voicemail and waiting for the advisor to return at a later date.
  • We take the time to learn what is most important to the client about their family, not just their investments/account.
  • It’s like the old saying “People don’t care how much you know until they know how much you care.”

Several studies have attempted to quantify the value added by using a financial advisor. A study by Russell Investments put that value at 5.2% or more annually. A study by Vanguard Investments put the value added at about 3%.

The Russell study incorporated several factors into their calculation including the asset allocation and tax advice provided by advisors. They help investors overcome tendencies towards behavior that can lead to poor investment and financial decisions. Their overall expertise helps clients mesh investing with their overall financial situation.

Types of services financial advisors provide

Financial advisors generally provide services over and above just investment management. Advisors generally provide services that can include:

  • Overall financial planning
  • Retirement planning
  • Tax planning
  • Estate planning

Moreover, many financial advisors focus on providing advice to certain types of clients. These niches might include groups such as those 50 and over in or nearing retirement, doctors and medical professionals, employees of a large company in their area, women who are divorced or widowed and many other niches. When looking for a financial advisor be sure that they have experience working with clients with your particular needs and in situations similar to yours.

How do advisors enhance client returns?

Advisors can enhance client returns in a number of ways. This can include investment selection as well as an asset allocation strategy that includes a regular rebalancing regimen.

Moreover, advisors can enhance client returns by helping clients take the emotional component out of investing. Advisors have the expertise and experience to help their clients look past the moment and stay invested over time in a fashion that will help them reach their financial goals.

When evaluating a financial advisor, be sure to ask a lot of questions. Understand their investing approach. Do they offer a full array of planning services or just investment management? How are they compensated? How can they best help you?

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These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.