Do I Need a Financial Advisor?

The financial world is filled with decisions. You might find yourself facing an overwhelming number of options with no clear “right” choice. For example, you might be asking yourself:

  • How much house can I actually afford?
  • How much money should I be setting aside in savings each month?
  • Is there some way I could save more on my taxes?
  • Should I buy or lease my car?
  • Is it better to invest in stocks or real estate or something else entirely?

And so forth. Everyone’s circumstances are unique, so the options and decisions available to you will be different than your neighbor, your boss, or your friend at church. For any financial decision, there is rarely an obvious black-and-white solution that’s always correct in every circumstance. Navigating these waters requires insight into your goals and values as well as the intricacies of the financial world.

That’s where a financial planner comes in. A good advisor can help you grow your wealth by managing investments, helping you with your taxes, offering budget suggestions, and answering other financial questions. But the best advisor can also look at your unique circumstances and provide guidance and perspective that takes the emotional context of your money management into account as well.

How Do Financial Advisors Make Their Money?

One concern you may have is whether hiring a financial advisor makes good financial sense. How does a financial advisor get paid? What incentive do they have to help you grow your wealth? Are they worth the cost?

As with many things, the answer is, “It depends.”

Different financial advisor firms approach payment in different ways. They might:

  • Earn a commission on sales of investments and insurance products.
  • Charge a fee, either as a flat rate or a percentage of the assets under management (AUM).
  • A combination of fees and commission.

When choosing a financial advisor, you’ll need to consider their fee against the value of the services they offer. Studies suggest that, for the most part, the benefits of a financial advisor’s services exceed the cost of their fees:

  • One Morningstar report[1] suggests a 1.5% performance improvement on behavioral coaching alone.
  • Another report, authored by Paul Kaplan, Ph.D., CFA® and David Blanchett, CFA®, CFP®, suggests that wise planning decisions can lead to a 29% increase in income for retirees.[2]
  • Vanguard Advisor’s Alpha® advertises a 3% per year improvement to returns[3] while Russell Investments ABCT claims a 5.12% improvement[4]

Of course, these figures are estimates and averages, and any individual scenario could have a better or worse return. What’s more important than the specific figure is the general trend: a good advisor generates more value than the price of their service.

Arguably, the most valuable benefits of working with a financial investor cannot be so easily measured and quantified. The greatest benefit may be the trusted advice, perspective, and wise counsel an advisor offers during often turbulent times.

Financial Decisions Are Frequently Also Emotional Ones

Proverbs 11:14 states, “Where there is no guidance, a people falls, but in an abundance of counselors there is safety.” This is as true of an individual’s financial plan as for a community’s leadership.

Many important financial decisions are preceded by an emotionally charged event. Sometimes those are positive emotions, like a marriage or birth. Other times they can be heavier feelings, like a death in the family, divorce, or the anxiety accompanying market swings and volatility.

Extremes, both good and bad, lead to emotional fluctuations, and wise decisions are rarely made when emotions are running high. Having someone with technical expertise and experience who is also able to bring some distance and objective perspective to your circumstances is invaluable. Building a long-term relationship with that advisor, knowing they share in your values and understand your goals, offers peace of mind against uncertainty.

At John Moore Associates, our mission is to walk alongside the families we serve, helping them become wise and generous stewards. It’s an honor and responsibility we take to heart.

So is a financial advisor worth it? That’s a question every person will have to decide for themselves. But if you’re looking for a financial partner who aligns with your values and wants to build a long-term relationship, we might be the right fit. Reach out today to our Albuquerque or Arizona office to learn more about our financial planners and decide if we’re right for you.

SOURCES

1 - https://www.morningstar.com/lp/value-of-advice

2 - https://www.morningstar.com/content/dam/marketing/shared/research/foundational/677796-AlphaBetaGamma.pdf

3 - https://advisors.vanguard.com/content/dam/fas/pdfs/IARCQAA.pdf

4 - https://russellinvestments.com/Publications/US/Document/Value_of_an_Advisor_Study.pdf