The Value of Financial Planning

Why should I hire a financial advisor? That is the big question many people will ask at some point in their life. It’s a big decision and should be well thought out.

In the past, an advisor’s main value-add was investments. The question then of whether it’s worth hiring an advisor depended on the size of your investment portfolio. However, a new breed of advisors has emerged offering fiduciary comprehensive financial planning. Advisors that offer this expanded service stretch their expertise far beyond investments and create a lot of value for their clients in other realms of personal finance. This means an individual just starting their career can benefit from financial planning along with the multi-millionaire.

I think there are 6 different ways an advisor adds value.

Monetary value

The most straightforward way an advisor adds value is by earning or saving an individual more dollars than that individual would have earned or saved on their own.

An advisor may recommend a portfolio allocation that ends up earning higher long-term returns and includes lower fee investments. They could convince a client to stay disciplined with their portfolio allocation when markets are volatile. They could also recommend strategies to lower a tax bill or reduce insurance premiums. Or, they could recommend refinancing a debt that lowers overall interest expense.

Financial planning is unique in that it is a service that often pays for itself. Many times, an advisor will cover their fee multiple times over in monetary value-added.

This is what most people are looking for when they initially seek out an advisor. However, there are many other, less discussed, ways an advisor can provide value.

Organization

There is a mental burden to disorganization in general, but it’s especially true with our finances. Trying to keep track of a lifetime of financial accounts can be exhausting. An advisor can help you consolidate old accounts (bank accounts, investment accounts, 401ks, etc.), and see everything in one place. They can shed light on spending and saving, and automate the process when it makes sense.

Bringing order and direction to a scattered situation can alleviate stress and clarify the big picture.

Accountability

We have probably all set goals that ultimately get forgotten about. I have pages of New Year’s resolutions waiting to be crossed off. Life happens and tasks get de-prioritized by the countless other things going on in our lives. An advisor can make sure this doesn’t happen to your financial goals.

Money is still a taboo topic. Most of us don’t openly discuss the details of our finances, even with our closest friends. That means there is nobody there to help keep us accountable to what we want to accomplish. An advisor can step in and provide that accountability.

Peace of mind

One of the most common pain points I hear from people I talk to who are looking for an advisor is that they don’t know if they are on track. Are they saving enough? Is it going to the right places? Will they be able to accomplish their goals? What should they do next? A good advisor will listen to an individual’s unique goals for the future and guide them to it.

Sometimes that means encouraging a client to save more so they can hit a financial goal. Equally as valuable though is the advice to the over-saver. An advisor can give permission to the over-saver to go on the vacation they thought they couldn’t afford, or take a year off work, or take a lower-paying job that allows them to spend more time with family.

When you consider all the places your money could go to accomplish all the various goals you have for the future, it can be paralyzing and often leads to inaction. But having a plan in place that lays out what’s possible and a specific roadmap to get from A to B alleviates the pressure. Peace of mind may not have a direct dollar benefit, but I would argue it is much more valuable.

Time

Time is our most valuable resource. With the plethora of information available on the internet, we can DIY just about anything, given enough time. But is that how we want to spend it?

An advisor allows you to outsource a lot of the time-consuming financial tasks to a trained professional. Things like investment research, trading, rebalancing, and overall financial planning.

You can skip reading through the latest mutual fund prospectus so you can spend more of your time on the things you value most.

Protection/risk control

Some of the most important elements of a financial plan are protecting against the unknown. There are certain risks in all of our lives that if they materialize, could be devastating to our finances (on top of other areas). An advisor can help identify those areas and protect your finances from them.

Insurance, estate planning, and diversification are all risk control measures that should be standard in any financial plan. An advisor can tell you what risks you need to protect against, and which ones you don’t.

Why do I need a financial advisor?

While advisors have traditionally been thought of as simply managing investments, the value proposition has evolved. Forward-thinking advisors now offer comprehensive financial planning. There is often still a direct monetary return on investment, but the overall return includes more than just dollars and cents. Ultimately, a good financial planner can apply their expertise in personal finance to a client’s specific circumstances in order to help them achieve their goals for the future.

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