The Good Advisor

Robin Powell

WHAT ARE PEOPLE paying for when they seek out a financial planner? Where’s the real value? The answers may surprise you.

Financial planners typically tout their advice on asset allocation, retirement planning, cash flow analysis, insurance, wealth protection, estate planning and so on. But is that really the benefit they bring to consumers?

Consider an entirely different business. When you take your car to get serviced, what are you paying for? Brake repair, transmission diagnosis, tire rotation, oil change?

Actually, what most people want is a car that gets them safely, reliably and efficiently from A to B. They want the car serviced in good time, they want a fair estimate of what it will cost, an itemized bill, and a guarantee on parts and repairs.

Likewise, the value of a good financial planner—at least in the eyes of most clients—will often differ from the advertised services. To be sure, asset allocation and portfolio advice are important components. But these are just means to desired ends.

What people are paying for, in the final analysis, are guidance to help them meet their goals, peace of mind, a sense of security, a feeling that someone has their back and an assurance that they’ll be okay whatever the world throws at them. People value having a sense of structure about their financial life and a grasp of the choices available to them.

The technical tools that a financial planner employs—knowledge of the tax system, what drives investment returns, the role of diversification, rebalancing techniques—are without doubt critical components in delivering those desired outcomes. But they aren’t what people are paying for.

In fact, good financial planners will play a number of pivotal roles for their clients, none of which is found on the typical job description. Here are seven of those roles:

  • Guide. Most people know what they want or, at least, know what they don’t want out of life. What’s often missing is a sense of how they can get there. A planner provides an independent plan, showing possible pathways and the tradeoffs involved in each.
  • Teacher. Many people’s sense of what drives investment returns comes from the day-to-day noise in the financial media.  It’s all about investment products and short-term returns. A good planner shows clients what drives long-term returns and connects this to their life.
  • Coach. It’s easy to make financial resolutions—to save more, to spend less, to grow wealth, to leave a legacy. It’s not so easy to keep them. At their best, financial planners will ensure goal accountability, keeping clients on their desired path and talking them off the ledge in anxious times.
  • Organizer. Our lives are busy. Jobs and family commitments leave little time for dealing with the minutiae of insurance, portfolio analysis, rebalancing, cash flow analysis and so on. A good advisor takes care of this complexity and frees you to focus on what really matters to you.
  • Filter. The problem right now isn’t gathering enough information. Instead, we’re overloaded with the stuff. The challenge is finding the right information for us in a form we can digest. A good advisor becomes a trusted source and an information filter.
  • Counselor. Few big choices in life are simple. There are always competing imperatives. Planners who can help you cut through the noise and focus on your underlying values are worth their weight in gold.
  • Sentinel. The best financial planners are not only looking at your circumstances as things stand today, but also what might be coming over the horizon to change all that. And they are mindful of your legacy—the welfare of future generations and how your wealth can keep working beyond your lifetime.

These seven roles aren’t exhaustive. There are other valuable services that a planner provides. But it gives you a taste of the sophistication and depth available.

Again, to use our car mechanic metaphor, good financial planners aren’t simply trying to fix your car, but rather they’re looking to ensure you and your family reach your desired destinations safely and reliably, while enjoying the journey along the way. That’s where the real value lies.

Robin Powell is an award-winning journalist. He’s a campaigner for positive change in global investing, advocating for better investor education and greater transparency. Robin is the editor of The Evidence-Based Investor, which is where a version of this article first appeared. Regis Media owns the copyright to the above article, which can’t be republished without permission. Robin’s previous articles include No Need for ProphetsDeath by Lifestyle and Take CourageFollow Robin on Twitter @RobinJPowell.

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2 years ago

I find that personal finance is much like nutrition and exercise in that, although the details can be mind-bogglingly complex, the core basics are rather simple. Michael Pollan has said that the field of nutrition can be summed up in seven words: “Eat food, not too much, mostly plants.” The parallel in personal finance was stated by Morgan Housel: “Live below your means. Invest, diversified, with a 10+ year horizon. Expect and accept volatility. That’s 90% of finance”.

I think that financial planners can provide a lot of value for many people. Fee-only financial planners in particular offer good value, because people often need specific advice at particular points in their lives. But I also think that most people can get by without a financial planner if they take the time to educate themselves on the basics of finance and consult with CPAs, insurance agents, lawyers and the like from time to time. And a close friend or family member can provide accountability for free.

Jonathan Clements
Jonathan Clements
2 years ago
Reply to  Thomas

I agree that people can successfully manage their own money — if they’re willing to put in the work and they’re self-disciplined. But with all due respect to Morgan Housel, whom I admire, I would be careful not to conflate portfolio management with personal finance –or with what a good financial planner can do for you. There’s so much more to managing money than saving and investing — and those two elements are far less than 90% of finance. We also need to make sure we have the right insurance, buy the right-size home, get the right estate planning documents, figure out when it makes sense to pay down debt, when to claim Social Security and so on.

2 years ago

Fair enough. Fortunately, most of the information to make those decisions is available for free on sites such as this one. If you are sufficiently wealthy, it makes sense to get a financial planner because your time is valuable enough to justify paying for help. But for for people who have a lower net worth (which is probably the majority of Americans), I’m dubious that that the fees are worth it.

Rick Connor
Rick Connor
2 years ago

I agree with all of these roles. In my experience, lots of people don’t take the time to educate themselves, or wait to the last minute, or when its too late. The best FP I know also provides a lot of advocacy for her clients, some of it pro-bono, This may not have been the most lucrative part of her work, but it has provided something invaluable – a reputation for integrity and trustworthiness. That reputation has allowed her to grow to over $100M AUM by word of mouth,

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