The True Value of a Good Financial Advisor—It’s Not About Fees
Updated: Sep 30, 2020
I’m an addict—I’ll admit it. I’m addicted to fantasy football. It occupies an inordinate amount of my time, as I pore weekly over analyses of everything from statistics to injury reports to weather forecasts, trying to get an edge on the upcoming week’s game.
Recently, I discovered a Reddit forum where people write in with their questions about who to start or for whom they should trade. Reading the questions and answers, however, it occurred to me—just who were these readers asking questions of? Random people—just like me—that had no special insight or knowledge. The respondents certainly didn’t provide track records of successful predictions.
The questions were being answered by just anybody—and what’s the point of that? Asking someone who knows no more than you? Who has no training or proven history of being successful? Who may be a 14-year old kid sitting in his basement? There’s no point—none at all. It only serves to lock in confirmation bias or placate our desire for someone else to make the tough decisions for us.
Who you turn to for financial advice matters—a lot. Even more than who you ask for fantasy football advice (yes). And if you’re just asking your uncle, or a friend who seems to know a few things, you’re not asking the right person. In life, you’re playing for more than a trophy and bragging rights—you’re playing for your future and that of your family. It’s not a game—the consequences of doing things right or wrong are monumental, as our financial well-being is second in importance only to our health.
The value of a good financial advisor cannot be overstated. There are myriad ways in which they help improve our lives. The key is to have a good one, and assessing who is truly “good” and who isn't is a very difficult undertaking. For just as a good advisor adds tremendous value, a bad one can do just the opposite; bad advice can have disastrous consequences. Fortunately, AdviceCheck exists to help you determine if yours is good or not.
I’m going to share just a few of the ways a good advisor makes our life better over and above simply investing our money. These examples are not only real, but ones I’ve seen with my own two eyes, during the many years I was a financial advisor.
A good advisor improves our quality of life by:
Answering every financial question that arises
Over our lifetime, we’ll have hundreds, if not thousands of questions about our finances. If I take money out of my TFSA, can I put it back? When? What should I do with my US dollars? How do I maximize every dollar of government programs for my child’s education, and how do I teach them about money? What’s the most tax-efficient way to give money to my children? Can I really afford to retire now? How do I know? How does this work? What's that about?
As with fantasy football, who you ask these questions to matters, and having a knowledgeable, trained, and experienced professional who occupies themselves with these matters all day, every day, to ask these questions to and to teach us is a great gift. You need truthful, accurate, and timely answers to your questions; a good advisor should be your source for those answers. And stop asking your uncle—he doesn’t know.
Helping us answer our NON-financial questions
A good advisor is a trusted advisor on many fronts, not just financial. How should I care for my aging parents? How should I begin transitioning my business to my child? How can I adapt my business during Covid-19?
Good advice from a trusted source has almost immeasurable value. Having an objective third party, who has helped many families through similar situations, to help us make big decisions (and small decisions) is a boon. A good advisor knows us, knows our unique circumstances, and is in the perfect position to be, not just a sounding board, but someone who has lived these issues before with many other clients.
Saving us from ourselves
You’ve heard it said that we can be our own worst enemy. In finance, this can be true in many ways. In periods of irrational exuberance, we can get swept up in the madness, and we want to buy more and more risky stocks that only seem to go up. In the crash that inevitably follows, however, many can be left in financial ruin, or at least severely disadvantaged. Talking us out of doing silly things with our money is one way a good advisor helps keep us on track.
In 2000 it was tech stocks. In 2007 it was resource and China stocks. Today, it appears to be tech stocks again along with the market as a whole. We know how this movie ends, but a good advisor can prevent us from having to experience it ourselves. By sticking to our plan and not jumping at the latest hot thing, a good advisor helps us remain balanced, rational, and calm.
So too when times are scary. In periods where the market has gone down significantly, the temptation to deviate from our plan and sell things at a big loss can be overwhelming. A good advisor keeps us mindful of the big picture and encourages us to overcome our fear and continue to invest appropriately for us.
When things are all going up, we might think we’re great stock pickers on our own, but the truth is often we’ve just been lucky. A professional, institutional-quality approach to investing is more likely to help us succeed than our guesses. And, when our friend has the latest and greatest investment opportunity, a good advisor can help us evaluate it to determine if it really is worthwhile.
They save us money
When dealing with all things financial, there are infinite rules to which one must adhere. Through new legislation, these rules are constantly changing and being updated. A good advisor makes it their business to be up to date on current rules and regulations and helps us structure our affairs in a manner that optimizes our results, as well as maximizing government grant programs.
Whether it’s taking money out of our business, setting up a trust for our grandkids, or deciding when to start taking CPP, they make sure we do things the right way. Concurrently, this helps us avoid doing them the wrong way first, having to pay a big penalty, and then having to do it all over again. Through liaising and coordinating with our accountants, they also help us minimize the taxes we have to pay, ensuring we keep more of what we earn.
These are but a few of the ways a good financial advisor helps us over and above simply investing our money. There are many more, and you ought to avail yourself of them.
There is an incredible focus on advisors’ fees these days. I think more ink is devoted to fees than any other investment topic at the moment—certainly more than that which is devoted to talking about the value of a good advisor. Fees are one part—an important part—but only one part of the calculation of an advisor’s value.
Yes, how much we pay is undoubtedly an area of importance, but so is how much we get. For cost is only an issue in the absence of value, and the only thing more expensive than a professional is an amateur. Yes, there are problems with the structure of advisors' fees, and yes, the fees are often higher than they should be. However, the solitary focus on fees is misplaced and dangerous, for it may cause us to forego other significant advantages a good advisor can bring to bear.
For example, if we pay our advisor $5000 per year, but they help us save $25,000 in taxes by structuring things in a certain way, I think most of us would be willing to make that trade. The trouble is when some of the value they bring is harder to quantify. The examples listed above are very real, and do have financial consequences, but they also help us sleep better at night and feel better about our money. So while fees matter, they’re only part of the equation and the focus should be on all of the value a good advisor brings for those fees.
So go get yourself a good one. Or ask us for help doing so. And good luck in Sunday's games--may the fantasy gods smile upon you.
Jesse Kaufman is the founder of AdviceCheck, which he started to help investors determine if their financial advisors are doing a good job. AdviceCheck provides unbiased, objective assessments of financial advisors and their work so investors can determine if they are on the right path. Jesse is a Chartered Alternative Investment Analyst, Chartered Investment Manager, Accredited Investment Fiduciary, and a Fellow of the Canadian Securities Institute. In 2016 and again in 2017, he was named Best Advisor in the Country for Alternative Investment Expertise at the Canadian Wealth Professional Awards.