What does a financial advisor do?

What does a financial advisor do? Do I need a financial advisor? You’re not alone if you’ve asked yourself these questions.

Like many other industries, the financial advice industry has evolved much over the years. The internet is largely responsible for the shift in consumer preferences – gone are the days where the only way to get investment advice is by picking up the phone and calling your broker (or, them calling you with the latest and greatest stock tip that’s “sure to be a winner”). With information being so readily available through the internet, what does a professional financial advisor do? And taking it one step further, have you ever asked yourself – “do I need a financial advisor”? After all, you might be wondering why you’d want to pay someone for advice when you can just ask google for free.

Not everyone needs a professional financial advisor. There is plenty of free information out there for the “do-it-yourself” crowd. However, as we’ll discuss below, you may stand to gain several benefits by deciding to work with a financial advisor, and oftentimes they provide services beyond managing your investments – services that can address your entire financial picture, not just one aspect of it.

  1. Help you cut through the noise.

As we mentioned above there is a lot of financial advice available for free on the web. From personal finance websites, to social media, news outlets, and blogs, the choices are almost unlimited. But how do you separate the good advice from the bad? It is a trade-off, because as we’ve seen through the rise of social media, not everything you read online is true. And if that advice looks good on the surface, how can you be sure it is genuine and even applicable to your personal situation?

Think of it this way – googling a DIY home improvement project usually leads to only a few possible solutions, and generally different sources will lead to the same conclusion. Not so for online investment advice – trying to google personal finance tips often leads to a mind-numbing list of contradictory advice or even worse, leads to inauthentic sources who are more focused on making money than offering genuine advice tailored exclusively to you.

When it comes to something as serious as your financial future, being presented with seemingly endless options can leave you in a state of mental paralysis. It is simply human nature to react one of two ways when faced with too many choices – 1) avoid making a decision altogether, or 2) make an impulsive, rash decision just to get it over with.

A financial advisor can help you block out the noise, translate financial jargon, and use his or her professional experience to create a financial “game plan”.

 

  1. Can help reduce anxiety.

Money is the second most common source of stress among Americans, according to a 2017 American Psychological Association survey. Money ranks even higher than both work and health-induced stress! And a 2010 Gallup study even found that making a lot of money still does not keep folks from being stressed out (meaning both the rich and the poor can be anxious about money). This is not to say that the underlying financial anxieties are the same across different income levels (i.e. struggling to pay for basic necessities versus watching your stock portfolio take a hit during a bear market) – the takeaway is that the thing that stresses out almost all Americans across the board is money.

That same Gallup study found that what reduces financial anxiety the most is the perception that you have enough money (i.e. financial security). This is where a financial advisor can help. An advisor will take the time to learn about & assess your situation, develop recommendations to address your needs, and help you put those recommendations into action and keep you on course – or in other words, help you design and implement a financial plan.

A real financial plan will address the things that keep you up at night, and provide actionable steps to alleviate (where possible) those sources of stress. Knowing where your finances stand and what you need to do to stay on course can work wonders and help give you peace of mind.

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  1. Provide objective, fact-based advice.

Investors often make decisions based on a feeling of what a company or the market will do. But when it comes to your family’s long-term financial health, do you really want to hang your future on just a feeling?

With investing it is generally best practice to strip away emotion and make decisions based on sound, objective principles. Unfortunately, this is very hard for most people to do on a regular basis. Advisors, being humans themselves, are not immune to emotional thinking – but the good ones can use a blend of industry knowledge, professional experience, and cutting-edge technology to develop, and stick to, a disciplined investment game plan for your family. Advisors are able to take an independent, third-party view of your finances and give you honest feedback and solutions.

 

  1. Skilled advisors do more than just picking stocks.

Beyond investing your money, a skilled advisor can add value in any number of ways including:

  • Tax planning – helping you keep more of your hard-earned money by factoring taxes into the equation
  • Behavioral coaching – avoiding the pitfall of buying high and selling low.
  • Estate planning – helping you know where and how your money will be transferred after you die
  • Retirement budgeting – getting the most from Social Security and knowing how to most-efficiently create income during retirement
  • Insurance planning – helping protect your family from the unexpected

 

  1. May help boost long-term returns.

In a recent research paper entitled “Capital Sigma: The Return on Advice“, Envestnet Quantitative Research Group found that hiring a professional advisor can add up to 3.0% in value-add to investors’ returns over the long term. It’s not just Envestnet that came up with these numbers, either; similar studies from Morningstar and Vanguard also concluded advisors can add roughly 1.5% to 3% in value. This added value is derived primarily from an advisor’s skill in blending all the services and skills discussed above, skills that are curated through years of educational training, industry knowledge, and professional experience in managing other peoples’ finances.

FINAL THOUGHTS

Beyond the numbers, partnering with the a financial advisor could mean less stress, anxiety, and more free time to pursue your passions. Not everyone needs a professional financial advisor. But if you find yourself in the camp where managing finances is stressful, or you want added help in areas such as taxes, insurance, estate planning and retirement planning, then hiring an advisor likely makes sense.

If you’ve made the first step and think working with a financial advisor is right for you, we’d encourage you to next read our blog “How do financial advisors get paid?“. Not only should you know what services your advisor provides, you should also know how he or she is compensated for providing them!

Disclosures1

1Taylor Hoffman is an SEC registered investment adviser with its principal place of business in the State of Virginia. Any references to the terms “registered investment adviser” or “registered,” do not imply that Taylor Hoffman or any person associated with Taylor Hoffman have achieved a certain level of skill or training. Taylor Hoffman may only transact business in those states in which it is registered /notice filed, or qualifies for an exemption or exclusion from registration /notice filing requirements. For information pertaining to the registration status of Taylor Hoffman or for additional information about Taylor Hoffman, including fees and services, please visit www.adviserinfo.sec.gov. The information contained herein is provided for informational purposes, represents only a summary of the topics discussed, and should not be construed as the provision of personalized investment advice or an offer to sell or the solicitation of any offer to buy any securities. The contents should also not be construed as tax or legal advice.  Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. This document contains information derived from third party sources.  Although we believe these third party sources to be reliable, Taylor Hoffman makes no representations as to the accuracy or completeness of any information derived from such third-party sources and takes no responsibility therefore. Taylor Hoffman is not a Public Accounting firm, and the information contained herein should not be construed as tax advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their tax advisor for more specifics. Taylor Hoffman is not a law firm, and the information contained herein should not be construed as legal advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their attorney for more specifics.