forest with trees

One Way a Competent Financial Advisor Can Bring You Value

Sometimes clients ask of their financial advisor: “Why do I need to pay these fees?”

We’re glad you asked.  You should know what the value of a trusted financial advisor should be.

Picture this: It’s 1996 and you have $100,000 to invest. You’re smart, you don’t touch the money for 20 years (including 2 bear markets along with some good years) on a “buy and hold” strategy with moderate risk and return objectives. Given this scenario[1], which outcome would you choose?

  1. $350,000
  2. $200,000

Obviously, we all want option (a).   

Yet, according to the financial research firm Dalbar [source], your neighbors, the average American investor, actually received option (b).

This prompts an interesting question: why do your neighbors settle for so much less than they should have earned?

Click here for more detail on how financial advisors can help empowered families to be like wise farmers.

Yet others go without a trust financial advisor.  As a result, many people invest like emotional screen junkies.

One factor that might account for the poor behavior of the average American investor is looking at the trees yet missing the forest.

What I mean is simple. The two main questions most people seem to focus on are:

  1. Should I pay $26,100 for a competent and dedicated financial advisor? OR
  2. Pay zero and do it themselves (with help from friends, Internet, and famous TV personalities)

While one of these options seems easier on your pocketbook, one has a disappointing outcome.

If you chose option a), you end up paying the $26,000 to a trusted financial advisor BUT reach that desired goal I mentioned earlier, of $350,000. That’s a net total of $323,521.

If you chose option b), however, the outcomes are much different. You pay nothing and rely on the knowledge you are hoping is expert, but only receive $196,970. Your net total now is only $196,970.

See the difference?


In other words, most of your neighbors focused on saving $26,100 yet missed out on an additional $126,500 even with paying for a competent financial advisor.

If the past is any guide to the future (with the potential of more difficult markets ahead and an ageing investor base), enlisting the help of a competent financial advisor may still be valuable.


Enjoy the forest with the trees!


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[1] This analysis assumes a starting hypothetical portfolio of $100,000 invested in a moderate 60% equity/40% fixed income portfolio invested from 1996 to 2016.  It assumes a hypothetical average annual fee for a financial advisor of 1.5% in the “b” case.  The actual fee might vary based on various factors.  Returns assumed in the “a” case consist of the average annual return as measured by DALBAR for average equity and fixed income mutual fund investors proportional to the 60/40 mix.  Data is derived from the Investment Company Institute, Standard & Poor’s, Bloomberg Barclays Indices, and other sources that examine mutual fund sales, redemptions, and exchanges each month.  Returns are compared to the returns of respective indices. The “b” case assumes the total return of the S&P 500 for equities and Barclay Aggregate for fixed income.  Market indices are unmanaged and have no expenses, fees, or transaction costs.  Scenarios are hypothetical, not actual portfolios.  Past performance is no guarantee of future returns.  Source: DALBAR, American Funds, Ambassador Wealth Management.    

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