While technology has made it considerably easier for novice investors to research investment opportunities, the role of a financial professional capable of creating a comprehensive investment plan that leverages their knowledge and skills in service of your short- and long-term financial goals is hardly obsolete. Indeed, a recent analysis by Vanguard revealed that an optimized investment strategy may help a client paying an annual 1% asset management fee realize a 7% average annual rate of return—a not at all insignificant boost.
Here’s a closer look at the role an investment professional plays in your financial life, and why developing a relationship with a skilled advisor may be one of the most important financial decisions you make.
Informed Investment Decisions Combined with Due Diligence
Money can be an emotionally-charged subject for any investor, regardless of how much they can afford to lose. Yet, financial decisions made based on any emotion—whether it’s fear, excitement, hope, anxiety, or greed—rarely yield a positive outcome. The relationship between emotions and money is so complex that an entire field of study, behavioral economics, is dedicated to understanding why humans make inconsistent, illogical, and sometimes self-defeating economic decisions. The key is to gain a degree of perspective that allows you to successfully navigate the conflicting emotions—both positive and negative—that often come into play as you weigh investment decisions.
A skilled investment professional can work with you to build a sound, diversified “big picture” strategy around your own unique set of goals and resources, vetting opportunities and identifying risks. Such a comprehensive investment plan can include:
- Asset allocations that diversify your portfolio in order to manage fees, volatility, risk and maximize returns
- Placing assets in appropriate taxable and tax-advantaged accounts
- Rebalancing asset allocations when needed, based on the agreed upon investment philosophy
- Products like insurance that may reduce risk, and provide asset protection
It can be difficult for investors to identify a holistic approach that can satisfy competing goals without professional advice—how, for example, do you save money to buy a home while reducing debt? Or finance a child’s college education while amassing enough wealth to comfortably retire? There is also an opportunity cost associated with not taking action to accomplish multiple financial objectives, which is why an experienced investment professional will strive to pursue shorter and longer term financial goals simultaneously, protecting dreams against future exposure risks clients may not foresee—say, inflation and tax exposure—and leveraging a variety of vehicles such as trusts, annuities, and insurance.
What to Expect When You Work with an Investment Professional
If you decide to hire an investment professional, be clear about your expectations, including how involved you’d prefer to be in the management of your account. Establish a cadence of communication you prefer in terms of how often you want to hear from the advisor, and how you want to be contacted.
When you meet with your advisor, it’s helpful to bring your financial paperwork, including:
- Investment, retirement and bank statements
- Current pay stubs
- Lists of debts and monthly expenses
- Statements for mortgage, student loans or credit cards
- Your monthly budget (if you have one)
It is also essential that you develop a sense of mutual trust with the financial advisor you ultimately choose to work with—to solicit the best, most useful advice you must feel comfortable candidly discussing your concerns, goals, and resources.
When you meet with an advisor, expect to be asked about your professional and personal life as well as any future plans that may impact your finances—such as starting a family or changing jobs. You’ll likely be asked about your current financial habits and behaviors, too. A worthy, seasoned investment advisor will not “judge” or criticize you for your income, debt, or account balances—the information is simply necessary for them to understand where you are so they can create a plan designed to get you where you want to be.