When it comes to prospective new clients, I love the skeptics. My favorite conversations happen with smart, accomplished people who, at some point in the meeting, narrow their eyes and demand to know exactly why they should hire Capital Investment Advisors (CIA), or any other financial planner, for that matter.
Many of these tough nuts have been managing their own money for years with some success. So, they want to know, what’s the benefit of hiring someone to help oversee their portfolio?
What’s in it for me, they say. What’s my ROI on you, Mister Financial Smarty Pants?
The Smarty Pants answer – about 3% a year, with the right partnership with your advisor, – and potentially the priceless peace of mind that comes from knowing you are on the right path to working towards your long-term financial goals. Want proof? (I’m sure you do!) It’s all there in a large-scale study by Vanguard, one of the world’s largest investment firms.
Skeptics should be soothed to learn that Vanguard understands that not everyone needs a financial advisor. About one-third of personal investors are “self-directed,” meaning they make all the decisions and otherwise maintain their portfolios without any help. These folks have a passion for such work. They follow the markets closely and genuinely enjoy building, tracking and rebalancing their asset portfolio. They have investment accounts with Vanguard, Schwab or something similar. Men are slightly more likely than women to be self-directed.
(I can hear the ladies snickering – more proof that men hate to ask for directions.)
The other two-thirds of American investors use an advisor for some or all of their financial planning needs, including asset allocation, investment selection, retirement planning, tax strategies, or to address issues that arise from a major life event.
According to Vanguard’s research, that 3% Advisors Alpha, or contribution to your returns, comes in three ways: Her insight on portfolio construction accounts for about 1%. The advisor’s help with wealth management tasks adds 1% to 1.5%. The empowerment provided by the right advisor, which includes things like setting goals, establishing an investment philosophy that fits your risk tolerance, and keeping your emotions in check, is good for another 1.5% a year.
These are just some of the specific places a financial advisor can make a notable difference:
Core Investing: This includes asset allocation, keeping investment vehicle costs low without sacrificing return and rebalancing.
Tax-Efficient Asset Location: There are numerous tax considerations involved in deciding how to draw down your retirement nest egg. A good advisor should know all the twists and turns.
Working towards long term goals: Among the many tasks involved in reaching the financial goal line are managing your debt, cash flow, and real estate.
Estate Planning: Titling your properties, selecting beneficiaries, and determining the goals of your will and/or trust are unpleasant but necessary tasks made easier by an advisor’s help.
Tax and accounting services: Managing capital gains versus ordinary income versus tax-free income to minimize Uncle Sam’s bite.
Insurance: Do you have enough? Too much?
Charitable Giving Strategies: How to contribute efficiently and with control.
Family Owned Business Strategies: Guiding entrepreneurs as they operate their businesses and perhaps seek to pass ownership to their kids.
That’s an impressive list. But to me, the empowerment stuff is the most valuable thing we can offer as financial advisors. We empower clients by helping them set long-term goals, charting a course to work towards those goals, and, perhaps most importantly, by helping to keep them on that course through thick and thin.
Staying on track over a period of decades requires that you make rational, fact-based decisions during many inevitable periods of turbulence. The right financial advisor can provide the guidance you need to stand fast when all about you are losing their heads.
Such empowerment can deliver real peace of mind, allowing you to head towards your true purpose and fulfillment knowing your financial house is on a solid footing.
At Capital Investment Advisors, our mission is to help people find happiness in retirement. As part of that work, we strive to help get clients to a place of financial security. Do we deliver a 3% Advisor’s Alpha to our client’s portfolios? Maybe. It could be more – or less, I suppose.
Alpha stems from our focus on helping clients plan holistically for retirement by creating a vision of a fulfilling, healthy, financially sustainable post-career life.
Helping grow your nest egg is valuable. Helping you understand how you want to spend your nest egg – and freedom — is priceless, in my opinion.
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