Have you hugged your Adviser today?

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Harbour Wealth-01Being a Certified Financial Planner/Wealth Manager at Harbour Wealth is the ‘easiest’ hardest job in the world.

The easy part being that if you can build strong, solid relationships and hold up your end of the bargain in terms of meeting the expectations of your clients, you can keep them for life. Plus, you derive the most wonderful feeling of satisfaction in being able to help each and every client, steering them in the right direction to their own personal versions of financial freedom. The hard part of the job being that you deal with people and the markets, both of which can be irrational and illogical at times, often the same times! That’s when your ability as an adviser is truly tested; can you be the calming ‘behavioural economist/psychologist’ that is required to prevent your clients from making bad mistakes when emotions are running high?

For me personally, and us here at Harbour Wealth, it’s a very easy discussion to have to describe our value proposition, or justify our advice fee. The value we add, sometimes referred to in the industry as “Adviser Alpha” or “Gamma” extends far past the quantitative and qualitative research of asset allocation and fund selection.

It’s about the broader field of financial planning for our clients, such as: encouraging the right behaviour in terms of paying for insurance to protect their income and assets, no matter how frustrating that can be, committing to a dedicated and consistent savings and investment strategy each month, and establishing realistic and manageable goals. Sometimes we need to don the hats of marriage counsellors, debt counsellors and psychologists, we will do whatever it takes! Ultimately it is our job to influence and if needs be, change our clients’ behaviour.

We need to constantly possess the energy, passion, knowledge and emotional discipline to keep our clients on the right path, no matter how many diversions and storms are thrown our way.

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In a world where analysis is key and everything, including liking your mother in laws profile picture on Facebook, can be reduced to numbers; Vanguard (one of the world’s largest and most respected investment companies) and Morningstar (global research company) attempted to quantify the value added by Financial Advisers. They were trying to ascertain whether an adviser who charges a reasonable fee (0.50% to 1.00% p.a.) provides enough value to justify that fee.

Morningstar focused on the value of good decision-making in terms of its impact on retirement income. They ran a very extensive study, monitoring a variety of metrics, concluding with the finding that clients ‘improved outcome scenario’ – care of their financial adviser – returned 22.6% more relative to the ‘naïve investor who chose to go it alone’ i.e. Invest directly. Vanguard opted to quantify the value add of best practices in wealth management, as opposed to just beating the market. You can see the information they measured in the table below, which details their analysis. Their concluding remarks were that the value added by good advice can greatly exceed the fees. In fact, the total potential value added is about 3% in net returns! Said in another way, if you are paying your adviser an ongoing advice fee of 0.5% p.a., the potential return you could be making because of them is six times that amount!

harbour2So, the question that I leave you all with is simple.

Have you hugged your adviser today?

Is he/she constantly adding value to your life, extending far beyond the tasks of simply selecting funds and life insurers. Do you feel that you are in safe and secure hands regarding your personal goals and journey to your financial future and that of your dependents? If the answer is no, you deserve better, open your eyes look around. If the answer is yes, take a moment to sit back and acknowledge the important role your adviser plays in your life and that of your family and business and pat yourself on the back for partnering with an Independent Financial Adviser whose interests and desires are perfectly aligned with your own.

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Sources:
  1. Alpha, Beta and Now… Gamma written by David Blanchett, CFA, CFP (Head of Retirement Research at Morningstar Investment Management) and Paul Kaplan, Ph.D., CFA (Director of Research at Morningstar Canada) August 28, 2013
  2. Putting a value on your value: Quantifying Vanguard Advisor’s Alpha written by Francis M.Kinniry Jr., CFA, Colleen M. Jaconetti, CPA, CFP, Michael A. DiJoseph, CFA, Yan Zilbering and Donald G. Bennyhoff, CFA. Initial Concept in 2001, further research in September 2016.