Is Working with a Financial Advisor Worth It?

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The Future of Retirement, the Power of Planning

By Lon Jefferies CFP® MBA

Lon JeffriesHSBC recently published an article titled “The Future of Retirement, the Power of Planning” which compares the circumstances of investors who work with a financial planner to those who invest on their own. The goal of the study was to determine if there is a benefit to working with an investment professional.

The Survey

The survey categorized survey respondents as non-planners, advice-seeking non-planners, self-guided planners, and advice seeking planners.

The Psychological Profile

  1. Non-planners have done nothing by way of financial planning or obtaining financial advice. This group represented 38% of all respondents.
  2. Advice-seeking non-planners are individuals who do not have a financial plan, though they do seek professional financial advice from time to time. They are likely to seek advice about one particular need rather than taking holistic, comprehensive advice. This group made up 12% of all respondents.
  3. Self-guided planners have a financial plan in place but do not seek professional expertise to help them make sense of their finances. Members of this group are likely to be younger, internet savvy, and mid-to-high income earners. This group accounted for 22% of respondents.
  4. Advice-seeking planners have a financial plan and utilize a financial professional to help manage their finances. Members of this grouping are more likely to be approaching retirement or retired, and are typically more wealthy. They made up 28% of survey respondents.

Errors

The most glaring findings of the study is the importance of a financial plan. Those with advisor directed financial plans have nest-eggs that are over four times as large as those without plans. Further, consistently working with a financial planner seems to add significant value; Advice-seeking planners had nest-eggs that were 57% larger than self-guided planners.

Why?

The Financial Engines & AON Hewitt report that investors who manage their investments with the aid of a financial advisor are more diversified, take less risk, and obtain better returns than self-directed investors. In fact, advisor directed investors were found to increase their returns by 2.92% per year after expenses!

Lastly, if you are curious how the size of your nest-egg compares to that of the average American worker, you might be shocked.

Homestead

Excluding the value of a primary residence and defined benefit plans (pensions), 60% of American workers have less than $50k in savings and investments, according to the Employee Benefit Research Institute. Moreover, 79% have less than $100k saved. Only 10% of workers have accumulated a nest-egg of over $250k.

Now, how does this compare with doctors and medical professionals; of today and yesterday. How about you? What about a fiduciary focused Certified Medical Planner www.CertifiedMedicalPlanner.org?

Assessment

Conclusion

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2 Responses

  1. Morgan Stanley Seeks $10M from Harvard Doc Turned Trader

    Insider traders like Joseph F. “Chip” Skowron III MD must be held responsible for the harm they cause their employers, Morgan Stanley lawyers told an appeals court in a bid to recover $10.2 million.

    http://www.fa-mag.com/news/morgan-stanley-seeks–10-2-million-from-convicted-ex-trader-13077.html?section=43

    To which I agree.

    Dr. David Edward Marcinko MBA
    http://www.CertifiedMedicalPlanner.org

  2. Is Working with a Financial Advisor Worth-It?
    [A Life Planning Story]

    Ron was in his 70s when he first came in to ask about engaging my services. He said, “My wife is upset. She’s lost faith in my ability to run our finances.”

    He handed me the latest statement of his retirement portfolio. I had a pretty good idea of what I was about to read. It was October 2002. The stock market was at a low after the dot.com bubble. Most portfolios I was seeing from potential clients were down 20% to 80%, especially those with heavy allocations in technology and startup dot.com stocks.

    To make matters worse, many of those with large losses had panicked and jumped out of the market, basically locking in their losses for a lifetime. I feared that was the case here, but I was wrong. Ron had actually done well. He had a broad diversification of small to large companies, with a nice smattering of international stocks.

    I told him, “Ron, you have done a great job of managing this portfolio. We can certainly lower the volatility by broadening the assets, but I couldn’t have done better on the equity portion.”

    Ron looked at me in disbelief. “Really?” And then he began to cry. No one had ever affirmed his investing skills before.

    Ron and his wife Ruth did become clients. Ron was relieved to turn over responsibility for their investments. Over the years, I helped them with their estate planning, helped them shop for insurance, and made sure that they had enough cash flow to live comfortably. I remember the meeting where we discussed their ability to continue to live independently, which ended in their decision to move to an assisted living center.

    When I met with Ron and Ruth in the summer of 2008, the economy had once again started turning downward. At that time, stocks were down about 15%. Because of its broad asset class diversification, Ron and Ruth’s portfolio was up about 1%.

    Ron, now in his 80’s, mentioned that a recurring kidney infection was zapping his strength. When Ruth left the room briefly, he told me, “I don’t think I’m going to make it through this sickness. I want you to take good care of my wife.”

    I was a bit taken aback by this. Still, I assured him that if he were to die I would certainly take good care of Ruth.

    A month later, Ruth called to tell me Ron had passed away. He had recovered from the kidney infection, but had died from a sudden heart attack. I was shocked, and I immediately recalled his prediction in our last conversation.

    Ruth and I continued working together. Every time we met, it seemed that Ron was present. As her portfolio recovered from the crash of 2008-2009, I would often say, “Ron would be pleased.” I felt a special sense of mission and a deep satisfaction that I was upholding my promise to him.

    A few months ago, at age 92, Ruth was diagnosed with Alzheimer’s. Her children moved her to an appropriate facility, and I never saw her again.

    Recently, Ruth died. Her children asked me to liquidate her account and distribute the proceeds in accordance with her will. I did so with some sadness. My role in Ron and Ruth’s life was over.

    I recently told this story to a friend, who said, “You’ve just described real financial planning.”

    Indeed. Financial planning is about far more than asset allocation, investment returns, and estate planning. It’s about being the torch holder for clients’ hopes, dreams, and well-being. It’s about a relationship that can even extend beyond a client’s lifetime.

    Rick Kahler CFP®
    http://www.KahlerFinancial.com

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