Elite and professional athletes have coaches. Athletes have the knowledge and skills to train and play their sports on their own; however, coaches give them unbiased feedback, provide perspective, encourage them to do more, notice their strengths and areas for improvement, refine strategies, and typically has specialized knowledge and training.
Bo Hanson, a four-time Olympian and coaching consultant, says that effective coach-athlete relationships are underpinned with trust and respect, which develop over time. He says, “Creating this relationship means coaches need to truly understand their athletes. What makes them tick?” He adds that when athletes feel as though you are trying to learn more about them, they feel valued, which makes them want to contribute more to their own success.
The same is true of effective advisor–client relationships. Although you might have the ability to do your own financial planning, finding the right advisor can potentially improve your performance, reduce stress and save you time. The key is finding the right advisor for your situation. This should be a partnership, so finding a right fit is key.
In coaching, in life and with investing, experience matters. It is not about predicting, forecasting or using advanced analytics, because it’s impossible to predict what tomorrow will bring for the markets, economy, world events, etc.
For an individual investor, it’s not the bus you see coming that hits you; it’s the one you don’t see. An experienced advisor can help you prepare for situations like a catastrophic illness, long-term care or a market downturn. The true value of an advisor is most evident when things happen that we have not anticipated.
What to Look for in an Advisor
You will be sharing extremely personal details about your financial situation, dreams and goals with your advisor, so it is important to work with one you trust and feel extremely comfortable with. Here are some questions to ask when you are interviewing potential advisors to work with:
- First and foremost, do you feel that this person listens to you and understands you and what’s important to you?
- Does the advisor have experience in working with clients like you? A PGA golf coach is not a good fit for helping a football player. Likewise, if you are nearing retirement, it is wise to choose an advisor who has helped many people retire well.
- What type of education, accreditations, and licenses does the advisor have?
- Does the advisor work as part of a team or on his or her own? If the advisor doesn’t work with a team, what happens if he or she leaves the business or is out of town when you need help?
- How is the advisor compensated? Does he or she earn more when you do well, or is compensation based on transactions?
- What type of independent third-party recognitions has he or she received?
- Does the advisor have the time to provide you with the attention you need and deserve?
The “Advisor’s Alpha”: Improved Performance Often Offsets the Cost of Hiring an Advisor
Some people resist seeking out the help of an advisor because it costs money to work with a professional advisor versus doing planning on your own. However, in the right situation, the cost can be more than offset by what you save in time, income tax and even in net returns.
Financial advice typically costs 0.5 percent to 1 percent of your portfolio per year. But Vanguard, one of the world’s largest investment companies, has concluded that there is a quantifiable increase in return from working with a financial advisor. Vanguard calls this advantage the “Advisor’s Alpha.” When certain best practices are followed, the result can be an Alpha in the range of 3 percent per year. Vanguard has been examining this topic of how much value financial advisors add to client portfolios for 15 years.
A separate study by Russell Investments, a large money-management firm, came to a similar conclusion. Russell estimates that a good financial advisor can potentially increase investor returns by 3.75 percent.
Of course, that number varies, and the 3 percentage points come after taxes and fees. This return varies each year and according to client circumstances.
Finding the Right Advisor Team Is Worth the Time and Effort
A better return is just one tangible measurement of the value a financial advisor can provide to you as you navigate the unfamiliar and challenging road to retirement. The right financial advisor also provides you with increased confidence, less anxiety, an accountability partner and a knowledgeable coach during retirement planning.
Finding the right advisory team (aka coaching team) is a process that can take time; however, once you get it right, the partnership can be for life. It is definitely worth your time and effort to interview several potential advisor teams and select one you can see yourself working with for the long term.
While other firms focus on investments and markets, The advisors at Carver Financial focus on you and your vision. We will help you define the goals that are important to you, implement a plan and then review your progress and make adjustments as needed.
Using this holistic approach, our team of financial advisors looks at your needs, objectives, risk tolerance, tax- and estate-planning needs, and overall vision for your future. As your needs and vision change over time, our team works with you to update your planning. This process is a partnership with you. Our team will meet with you for annual reviews and between scheduled meetings with any recommendations. Different advisors and teams have different approaches. Finding the right fit is the first step.
It’s not just beginning investors who need advisors, just like it’s not just beginning athletes who need coaches. In fact, the more complex your financial situation, the more you could benefit from working with a knowledgeable advisor team. We hope you will call on us to partner with you to help build your best future possible.
Randy Carver is the president and founder of Carver Financial Services, Inc., and also a registered principal with Raymond James Financial Services, Inc. Having been in business 30 years, Carver Financial Services, Inc. is one of the largest independent financial services offices in the country, managing $1.6 billion in assets for clients globally, as of July 2020. You can reach Randy at firstname.lastname@example.org and check out the firm at carverfinancialservices.com.