What鈥檚 the value of good advice?
When it comes to your investments, it could be worth your retirement.
Over the years, various 鈥渄o-it-yourself鈥� firms have suggested people can retire significantly wealthier if they remove the cost of their advisor. Based on two hypothetical investment portfolios with the same rates of return, it considers the difference in growth, with one paying an advisor 鈥� typically about 1 per cent 鈥� and one not.
Here鈥檚 why that argument doesn鈥檛 hold up.
What鈥檚 omitted from this analysis is the considerable value advisor offers the client.
鈥淲e take time to really know our clients 鈥� their unique goals, circumstances and personality. We spend a lot of time on financial planning, tax and estate planning, and behavioural coaching 鈥� sometimes being a sounding board and other times a voice of reason to clients and their families,鈥� says Tanya Wilson, a 琉璃神社-based financial advisor with Raymond James.
鈥淲e also strategize with clients鈥� accountants and lawyers, help business owners build succession plans for retirement and conduct family meetings where my clients鈥� executors and beneficiaries can learn more about their duties and realities.鈥�
The real value of qualified advice
鈥淲hen markets are going well, low-cost options sounds great. But what happens when markets turn downward and volatility comes into the picture?鈥� Wilson asks.
In late March, with COVID news drastically affecting markets, many DIY investors faced crashing investing websites and long call centre waits. 鈥淧eople desperate about their life savings were scared, with no one to talk to, and were desperate for that human advice. Decisions made during times of fear can seriously impact long-term financial success.鈥�
Independent studies from sources like Morningstar and Vanguard have quantified the value of investment advice at between 1.5 and 3 per cent per year, delivered through strategies including asset allocation, rebalancing, behavioural coaching, tax and estate planning and financial planning. In markets like what we鈥檝e seen in 2020, the value is estimated at closer to 5 per cent.
鈥淲ith so much news and information coming at investors, I help clients navigate this and concentrate on what鈥檚 important,鈥� Wilson says. 鈥淢y clients have enjoyed considerable peace of mind through this market correction knowing my team is here. I鈥檓 very proud of and how well my clients have dealt with one of the scariest market crashes we鈥檝e seen in our lifetimes.鈥�
RELATED READING: Why emotions and investing don鈥檛 mix
For Wilson, an investment strategy is based on a personalized financial plan 鈥� a roadmap for our behaviour.
鈥淢y clients are less likely to make emotional mistakes when they can see the long-term plan, and know we鈥檝e planned for all contingencies. This financial plan helps my clients avoid being lured off course.鈥�
Professional advice can also help tilt a portfolio to become more tactical based on market events. Adding more exposure at certain times in the market cycle and removing exposure at other times can help increase chances of success.
Finally, Wilson and her team also work hard to help clients minimize the taxes they pay. 鈥淣o different than working with an accountant, the direct tax savings are often significant and more than offset the cost of that advice,鈥� Wilson says.
鈥淎ll in all, I believe the biggest risk to an investor鈥檚 long term financial well-being is the threat of outliving their money. A financial coach to help stay on track and reduce this threat is well worth the small cost of that advice.鈥�
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RELATED READING: Why a comprehensive financial plan is vital in volatile times
Tanya Wilson is a financial advisor with Raymond James Ltd. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The view and opinions contained in the article are those of the author, not Raymond James Ltd. Raymond James Ltd. member of Canadian Investor Protection Fund.
