Are Financial Advisors Worth the Fee?

​Years ago I hired a personal trainer to help with some body building goals. As I worked with him for a few months I saw significant improvement in the way I felt, and the way I looked. After a while I got tired of paying him so I let him go, thinking I could move forward just fine on my own. As you can imagine, over the ensuing months my physical strength and appearance slowly diminished. Eventually I got frustrated and stopped going to the gym altogether.
The trainer did not provide me with any great secrets. He did not give me access to better equipment. But what he did was help me setup a workout plan and then, most importantly, he was there every day to make sure I followed it. When I struggled he pushed me to do better. When I wanted to quit, he encouraged me to keep moving. His guidance, which seemed unnecessary to me when I got tired of paying for it, was all the difference between success and failure in a gym where everything else was equal.
People often debate about the value of financial advisors, and many are confused about what their real role is.  A company that has had a significant affect in this area is the Vanguard® company. With their multitudes of index type investing funds they have opened the door to low cost investing to millions of investors. They pride themselves in their high number of self-directed accounts. In 2018 they did a survey comparing accounts that were run with and without an advisor to determine if advisors had any real value. The results were very interesting. They found that their advisor-directed accounts outperformed self-directed ones by an average of 3% annually. In investment terms that is a very significant difference. *
As the researchers dug into the results they found things such as investment strategy, asset allocation, tax considerations, rebalancing, and tactical structuring of withdrawals being advantages to the advisor directed accounts. But what surprised them most was that half of the gain, about 1.5%, could be attributed to what they called “behavioral coaching.” In other words, as with a personal trainer, the advisors were bringing significant value by just being there to keep their clients moving forward and sticking with their plan.
When my personal trainer was no longer with me, it was easier to skip a day, work a little less, or quit early when the going got tough. In retrospect, the amount I paid him was insignificant compared to the results I obtained with him at my side, even though the equipment was all the same.
Financial advisors are not just there to pick investments, although a wise and well-balanced allocation is a critical aspect of a successful financial plan. But perhaps your CFP®’s most important role is to act like a personal financial trainer, first designing a long-term plan, then standing beside you through life to help you stick with it.