Everything’s going Up – Why do I need an Advisor….
The annualized rate of return for the S&P 500 over the last 5 years is 14% and since 2005 the S&P 500 has averaged 11.24%. It feels like any investment will go up, which isn’t realistic. So naturally the question we get, if I can make money investing on my own, why do I need a financial advisor?
In the 20 years since I, (Rick), have been in the industry, I’ve seen a dramatic change in how business has been done. In the early 1980-late 1990s we were stockbrokers, the gatekeepers of financial information and the ability to buy investments. As online trading and the internet expanded the ability to get access to markets and information, the role of an advisor shifted to financial planning in conjunction with investment management.
In the last 3 or 4 years we’ve continued to see a shift where advisors have an opportunity to add value by supporting our clients in various areas of wealth management, beyond just investing. These areas touch tax planning, estate planning, financial planning, cash flow strategies, lending, insurance, in addition to the service of implementing and acting as a sounding board when the markets get a little crazy.
Vanguard came into our office the other day to discuss markets, products and how they support Advisors.
Yes, much to the surprise of many folks, Vanguard does see value in with Advisors like us and don’t see themselves as a competitor.
They shared the work that they dubbed Advisor’s Alpha, which has been a 25 year project in which they dive into the value being added by financial advisors and full-service wealth management firms and added a potential return on your investments for properly implementing a comprehensive wealth management strategy. The chart below is a highlight of their research which shows potential added after-tax investment returns up to 3% by utilizing these strategies below:
You will note, investment selection may add 1% to a client’s return on an ongoing basis, however tax loss harvesting, tax efficient retirement income strategies and behavioral coaching all provide an equal or greater upside to client returns. Behavioral coaching – which could add 2% or more to your return - is acting as a sounding board when markets get dicey and selling at the wrong time.
Advice, advising and wealth management have changed so much in the last 20 years that the true value of advice goes beyond investing and picking the right stock or bond. While that’s important, true additional value is added when looking at your entire picture. This is why our team puts an emphasis on the advanced planning tools Baird provides and as of May we are one of the top planning teams at Baird as measured by the financial plans, tax return and estate plan reviews we complete for our clients.
*Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action.
Baird does not have any formal relationships or arrangements with any of the External non-Baird Resources listed or suggested above. This should not be considered an endorsement of the products or services offered by these individuals or their firms.
Past Performance is no guarantee of future results. Investing involves risk, including the loss of principal.
For illustrative purposes only. Individual situations will vary. Not intended to be reflective of results you can expect to achieve.