What is the real value to hiring a financial advisor, and who uses them? What is the value proposition? What makes one car with four doors and wheels worth $300,000 and other $30,000? Although we might have an answer, the answer differs from person to person.
People use financial advisors for many reasons. Some use them because they absolutely need them, others because they want them. Paying a fee for advice and guidance to a professional who uses the tools and tactics of a CFP™ (CERTIFIED FINANCIAL PLANNER™) and an experienced Registered Investment Advisor who is a fiduciary can add meaningful value compared to what the average investor experiences.
Many middle-class investors are anxious about their finances and are not interested in learning the details of managing their money. This anxiety often results with money left on the sidelines because they don’t know what to do or are afraid of making mistakes. That means earning a fraction of 1% at the bank when the Dow Jones Industrial Average (DJIA) is up over 25% in the last 12 months.
There are others who are interested in learning about investing and may want to hire an advisor to “look over their shoulder.” They want to hire an “investment coach.”
A third category are people who hire professionals because they are busy doing things that are more important to them: building a career or a business, being with family, or living an active retirement. They hire an expert to manage their money the same way they hire a lawyer for estate planning, a CPA to prepare their taxes, and a doctor to keep them healthy.
A fourth category is people who were making their own investment decisions but ended up making a huge financial mistake. This leads me to a story about a really smart, highly paid high tech executive who is very knowledgeable about investing; but he hired an advisor:
It’s not because he lacks the knowledge or interest, obviously. Rather, he figured out he had behavioral blind spots and understood he was at risk of great financial loss. He’s paying someone just to take that risk off his plate.
Determining your goals, controlling risk, managing portfolios well, and knowing your limitations – knowing you have “blind spots” – has led many smart people to hire an advisor.
Vanguard, the hugely successful purveyor or no-load mutual funds (that appeal to do-it-yourselfers) estimates that a financial advisor is worth about 3% net in annual returns. They attribute this to the seven services that a good advisor provides:
- Creating a suitable asset allocation strategy.
- Cost-effective implementation.
- Rebalancing
- Behavioral coaching
- Asset location
- Spending strategy.
- Total return versus income investing.
If you have an advisor but he is not meeting your objectives, ask us for a second opinion. If you don’t have an advisor but may want one, we offer a free one-hour consultation to see if we are compatible.
Investment Views 
Market reacts to French election, tax cuts and earnings
The stock market had two back-to-back days with the Dow Jones Industrial Average (DJIA) up over 200 points. On Monday the market was reacting to the first round of elections in France.
The French election for President is often a two step process. If a candidate gets over 50% of the vote in the first round of voting he or she is declared the winner and becomes President. If no one gets to 50%, the two top vote getters face a run-off election which decides the Presidency.
In the first round that just ended, the candidates of the major French parties that had run the country for decades did not make it to the run-off. Instead, Marine Le Pen (usually described as “Far Right”) and Emmanuel Macron (usually described as a “centrist”) were the two top vote getters. They will face off on May 7th with the winner becoming President of France.
Macron, age 39, received 23.8% of the vote while Le Pen scooped up 21.4%. Macron formed his own party, splitting off from the Socialists. Macron is best known for marrying his teacher, a woman 25 years his senior.
It is generally assumed that Macron will win the next round with the French establishment uniting against Le Pen who wants to stop immigration and wants France to pull out of the EU. The results of the balloting caused a relief rally in expectation that France will stay the current course and remain in the EU.
The Tuesday market action was driven by exuberance over the Trump administration announcement that they were proposing a reduction in the corporate tax rate from 35% to 15%. If this passes, next year’s corporate earnings would be higher.
On the earnings front some of the big names in the DJIA reported better-than-expected earnings. Caterpillar, McDonald, Du Pont and Goldman Sachs were the biggest beneficiaries.
Stay tuned.
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