Dale A. Walters, CPA, PFS, CFP® (US & Canada)
CEO of KeatsConnelly
The short answer to why someone should hire an investment advisor is the same as for any other service you pay for; either you don’t want to spend the time doing it yourself or you feel that the job can be done better by someone else.
You do not have the knowledge. The first problem is how do you find enough time to gain the necessary amount of knowledge in the first place, and how do you find the time to properly research, monitor and trade your account. It has been my experience over more than 30 years that while you may find the time to read and listen to current commentary on financial and investing issues, hardly anyone outside of the profession has enough knowledge about investing to pass the industry’s lowest barrier to entry, the Series 6 exam. Most people outside of the industry will have a very difficult time getting quality, unbiased information that is based on empirical evidence in which to educate themselves and if they could it would be highly unlikely they would understand it. I am not trying to be insulting; I am trying to be honest with you. For example, I have been in the financial and accounting profession for more than 30 years and have multiple designations, etc. and I readily admit that I do understand the details what the professors are trying to convey in their articles; however we have professionals that have earned the Chartered Financial Analyst® (CFA®) designation. The CFA® designation demonstrates the professional’s experience and high level of training in portfolio management. The CFA® designation is the highest professional designation that can be earned in the investment industry. To learn more about the CFA® designation, click here.
Your time is valuable. I pay people to clean my house, maintain my lawn and maintain my pool. I also hire handymen to do things around the house that in most cases I could do myself. I am sure you hire people to do things for you that you can do for yourself, all of us do. For example we hire people to cook and serve us food, wash our car, etc. So why do you and I pay other people to do things I can do for myself? Let’s take food as an example; even if you eat at home most of the time, there are times when you go out and have others prepare the food. One reason might be you are rushed and don’t have the time or don’t want to spend the time to cook yourself. Another reason is pure economics, I pay someone $30, $40, or $50 per hour so that I am freed up to do work that is worth $100+ per hour. You may be busy and simply feel that your free time is worth more than what you have to pay someone. Lastly, you are gladly willing to pay to know the job is done right.
You have no access to tools, resources or preferred pricing. All specialists, whether they are chefs, mechanics, engineers or investment advisors have access to professional-grade tools or software that is generally not available to the public and if it were, it would be uneconomical for them to buy. Because professional investment managers, known as institutional investors, invest hundreds of millions of dollars and even billions of dollars with custodians such as Charles Schwab and Fidelity, they do have access to such tools and are able to offer lower pricing on trades and other services that an individual investor cannot obtain. Also, many mutual funds offer a class of shares to institutional investors such as KeatsConnelly that have lower management fees, called institutional shares that are not available to the public. Lastly, there are some mutual fund companies that offer their funds only through approved advisors and are not available to the public. Dimensional Fund Advisors (DFA) is one such fund company. To find out more about DFA funds, click here.
We offer perspective. For the same reasons doctors and lawyers don’t take themselves on as patients/clients, investors should not be their own advisors; outside professionals offer a perspective free of emotions. Whether the market is showing signs of “irrational exuberance” or of a “great recession,” a financial advisor is there to talk rationally to you through those stressful times. The key to successful investing is to have a plan and to stick to the plan. While minor adjustments may need to be made, those that get hurt the worst are those that overact and go all in or all out of the market.
We must act as a fiduciary. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty; he must not put his personal interests before the duty. A fiduciary duty is the highest standard of care within the law. As a registered investment advisor, we are bound to this fiduciary duty, whereas your stockbroker is not. As this last sentence clearly points out, not all investment advisors are created equal. Your stockbroker, life insurance advisor or mutual fund salespeople are all simply salespeople and are not bound to a fiduciary duty. Registered investment advisors, such as KeatsConnelly, have regulatory oversight by the Securities and Exchange Commission (SEC) and are required to act as a fiduciary. Attached is a link to the SEC Study on Investment Advisors and Broker-Dealers. Beginning on page 93 of the Study is the discussion on the “Retail Investor Perceptions and Confusion Regarding Financial Service Provider Obligations and Standard of Conduct.” The remainder of the study goes on to discuss the SEC’s recommendation to Congress. http://www.sec.gov/news/studies/2011/913studyfinal.pdf
In summary, you probably do not have the knowledge or the time to gain the knowledge, and even if you did, you do not have access to the tools, resources and preferred pricing that a professional investment advisor would have. Maybe most importantly, you do not have the third-party unemotional detachment that an advisor brings to the table.
It is important to remember that not all advisors are required to put your interests ahead of their own, but registered investment advisors such as KeatsConnelly are required to act as a fiduciary; with your best interest in mind. Also, not all advisors have the demonstrated experience and training of a CFA® credential holder.
All of this adds up to what we hope, but cannot guarantee, is that over time an investment advisor will provide a better return after expenses and taxes than you could provide yourself.
To find out more, go to http://www.keatsconnelly.com/contact-us/ or call us at 800-678-5007.