This blog post is a response to this article published on Seeking Alpha.
It's not that points are not valid. They are.
But the piece represents an all-too-common outlook that under-appreciates the ROLE of the advisor.
Sure a share of stock is worth what it is regardless of how you obtained it. Lower fees are better than higher fees, all other things being equal – which they aren’t.
But here’s the point: the primary value of the advisor is NOT in investment content, but in managing the process.
The advisor is a safeguard, a governor, a planner.
"Get a low cost advisor if you need it", he says...
We all need it.
Fine. There are always exceptions. But certainly ALMOST everybody will benefit from a trusted advisor who understands the clients and designs/implements plans that are right for those clients.
If we at MarketPsych Insights were to convert the majestic redwood forest and into pointy sticks in an effort to slay the vampire that is “just buy index funds”, we would run out of stakes by next Tuesday.
Plus no more redwoods. And I’m pretty sure we would get arrested.
The ‘just buy index funds” line of reasoning ignores one crucial fact.
People don’t do that.
If they did, we would live in a nation full of index fund owners, happily riding their way to benchmark-meeting investing returns and future wealth. We aren’t.
I'm not bad-mouthing index funds by the way. They're terrific. But if you want to go that route what gets missed is that you actually DO need an advisor to:
- Buy it for you.
- Keep you in it.
- Add to it over time.
- Integrate into a plan that addresses the real life circumstances of your life –which is the point of doing it in the first place.
I'm overstating things. You may not need an advisor to do that. But you sure as hell probably do.
It's like the fitness industry. People who actually use a nutritionist, personal trainer, physical therapist really do see better results. The comparison is apt, but there are important differences.
Sometimes people “get on a health kick” – an (admittedly) temporary effort to get in better shape. “I’m going low sugar!”, “I’m going organic!”, “I’ve started jogging again!”
Good for you. Beach shape. Bridesmaid dress. My diet starts tomorrow. I get it.
What people should never do is “get on a wealth kick”. Your wealth – financial future and all that depends on it – is not something to mess around with. It requires discipline, planfulness, self-knowledge and a long-term outlook that stretches beyond even your own lifetime. And by the way, your personal journey to financial security is on a treadmill not a path, and the clock is ticking.
Now there's a move toward DIY fitness. Fitbit. CrossFit. Workout videos.
All good stuff. But you still need the guidance, the teacher, the safeguard, the person who helps you keep it all safe, engaging, and relevant. (Which is why robo-advisors are a gift to human advisors - but that’s a post for another day.)
We all agree people should not pay more than they need to.
But for goodness sake, they should not pay less than they need to.
Think about it.
Financial advisors do great work and add value in ways most people don’t even realize.
It’s part of the problem too.