The Benefits of Working with a Financial Advocate

Frank Yozwiak

Key Takeaways:

  • Investors who work with a financial advocate are more successful than those who do not.
  • Working with a financial advocate helps take emotion out of the investing equation.
  • We help our clients create, and stick to, their long-term financial plans.

 

For many people, likely most people, the first time they’ll ever see a 1040 is when they file their own taxes for the first time.  Most people never had a class in school on how to balance a checkbook, or how much to save for retirement.  Many students have probably seen Einstein’s famous equation, E = mc2, but fewer have been taught another famous Einstein quote: “Compound interest is the eighth wonder of the world.  He who understands it, earns it … he who doesn’t … pays it.”

 

We all learned information in school that many of us will not use in our day-to-day lives (I’m looking at you, Pythagorean theorem) – and no doubt our developing brains were better off for it – but not many students have a solid financial education element included in their curriculum.  This is one of the many reasons most people can benefit from working with a financial advocate.

 

Note: many people in our industry refer to themselves as financial advisors.  At Ballast, we refer to ourselves as financial advocates (“FAs”).  In our view, we do so much more for our clients than simply manage a portfolio and give advice on which stocks or bonds to buy or sell.  Our goal is to take up the cause of each of our clients’ financial well-being as if it were our own.  We strive to support our clients’ lives by analyzing their situations and helping to plan for the future; by being their partner to evaluate alternatives and create new strategies when the unexpected inevitably occurs; by coordinating with other professionals to ensure every aspect of their financial situations are addressed; and by putting ourselves in their shoes to always be proactively looking for new and better opportunities.   

 

As FAs, we work with investors who are extremely financially savvy, investors at the other end of the spectrum, and the majority of investors who are somewhere in between.  Below are a few reasons why and ways how we provide a benefit for investors of all types.

 

Investors who work with a financial advocate are more successful.

 

Even when taking fees into account, research has shown that investors who work with an FA achieve better results than investors who do not.  For example, Vanguard researched this topic over more than a decade and a half and concluded that those investors who work with an advisor see returns of 3% higher on average than those investors who go it alone.  Russell Investments similarly concluded in a separate study that investors working with an advisor can see returns of 3.75% greater than if they invested on their own.  Managing a portfolio is only a part of the equation.  Being a financial coach and a reliable source of information and experience is also critically important – as expanded on in the next point:

 

Take emotion out of the equation.

 

One of the worst things an investor can do is make financial decisions based on emotion.  We have all heard the stories of the investor who sold everything at the bottom of the crash and is still waiting for the right time to buy back in.  We do not have a crystal ball, but we do constantly monitor the markets and U.S. and global economies to do our best to ensure our clients are well positioned.  We take this responsibility from our clients so they don’t have to sift through all the noise.  In a way, we act as a buffer between emotion and action.  A large part of our job is to make sure our clients understand and are comfortable with potential future changes in the markets so when they inevitably do occur, we have already lessened the impact of the emotional response.  Piggybacking off that idea, as FAs we can help:

 

Prepare and stick to a long-term plan.

 

We help our clients create both short- and long-term financial plans – and stick to them.  Vanguard studied over 58,000 self-directed (i.e., not working with an FA) IRAs between 2008 and 2012.  Their research showed that the investors who made substantial changes to their long-term strategy – even once – saw a hit to their performance to the tune of 8% or more.  As FAs, we help our clients create, understand, and stick to their financial plans.  As life happens and circumstances change, no plan is ever set in stone and beyond revision.  Another great benefit to working with an FA is that we can help anticipate and plan for life events before they happen, and also make strategic (not emotional) changes to your financial plan when the unexpected happens along the way.  Following that thought, we help our clients with:

 

Other more higher-level strategizing and planning.

 

Higher-level strategies and planning such as analyzing the most optimum time to take social security for a specific client’s situation; considering and executing strategies such as converting pre-tax dollars to Roth; and implementing plans for order of withdrawals from different accounts to maximize tax efficiency both in this year and looking ahead to future years.  We also work with great attorneys that help our clients establish estate plans consistent with their financial plans, and great CPAs that help our clients tie all their tax considerations into a nice bow at the end of each tax year.

 

The benefits listed above are by no means an exhaustive list.  In the end, many of the benefits we provide can be summed up as “we help our clients avoid bad decisions and try to capitalize on the best strategic decisions at all times.”  No one can predict the future, and we don’t claim to be able to do that either, but we are confident that we work daily to provide all these benefits to our clients, and more.  Perhaps one of the most significant benefits we provide to our clients is the feeling of comfort in knowing they have a great team advocating for their financial future.

 

 

SOURCES:

Bennyhoff, CFA, Donald G. and Kinniry Jr., CFA, Francis M.; Vanguard Advisor’s Alpha; Vanguard; July 2018;  https://personal.vanguard.com/pdf/ISGAA.pdf

 

Moss, Wes; Is It Worth the Money to Hire a Financial Advisor?; The Balance; updated November 4, 2018; https://www.thebalance.com/should-you-hire-a-financial-advisor-4120717

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