DIY Investors Who Should Drop All Pretenses And Hire An Advisor: Financial Advisors' Daily Digest

Jul. 20, 2016 2:28 PM ET110 Comments
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SA For FAs


  • For all the anti-advisor DIY rhetoric out there, a simple test might help investors determine whether they might do better with professional help.
  • Eric Nelson crunches the data on outcomes for retirees who try to time the market.
  • Van Eck: low-profile muni bonds are high on drama, and returns, now.

Yesterday's post on "the dysfunctional dialectic between advisors and investors" sparked a tremendous discussion and debate among readers - advisors and DIY investors. Particularly intriguing were comments by "User 28678235," because of the vast experience he had investing a portfolio worth more than $10,000,000. His experience with advisors was unsatisfactory in the main - not worth all the money he was paying them.

I agree with User 28678235. The undeniable reality is that there are advisors and there are advisors. The same goes for investors, some of whom advisors may find intolerable as clients. Same goes for husbands and wives. In other words, some people match and most don't. User 28678235 made the initial mistake, as he admits, of falling for prestige. What mere prestige benefit is worth the six figures in management fees? Was the coffee in the waiting room that much tastier? I jest.

But getting back on point, one reason why some investors, even smart and wealthy ones like User 28678335, might do better with advisors relates to not falling prey to behavioral errors. Highly educated people who are analytic by nature and engaged in professions may be capable of studying markets and comparing P/B or P/S ratios, say, but may not be prepared for just how cyclical markets are. How dramatically does neck surgery change year to year? Probably not as much as the price of a stock. What's the surgery-equivalent of a 2008-style crash? None that I can think of.

For all those reasons, people tend to react and overreact. I've mentioned in this space before that I once met a very successful and brilliant public figure who talked my ear off about how much money he lost in the markets over many years. The fellow was known for astutely covering trends in his area of expertise but fell prey to the emotions associated with every market trend and as a result lost vast amounts of money (both actually and in terms of opportunity cost).

There are many things advisors can do to add value, but in my experience covering the field it really seems that their greatest service is in enabling clients to turn their attention to their families, careers and life passions. Many DIY investors balk at paying for this so-called "hand-holding," but allow me to propose a simple test of its value. If you're getting a decent return over an extensive period of time and enjoying your life like User 28678235, you don't need an advisor. If on the other hand, you sell in panic and miss out on a bull market because you can't bring yourself to get back into the market, then you might be better off devoting your due diligence efforts to finding a good advisor.

Herewith, today's advisor-related links, starting with one that is relevant to our discussion:

Your thoughts, as always, are most welcome on our comments page.

This article was written by

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GIL WEINREICH - Author of "The Mentor," a unique parable for financial advisors and those who aspire to become one. I have worked in the FA arena since 1997, and during that time, the New York State Society of CPAs twice awarded its prestigious Excellence in Financial Journalism award to me for a monthly column I wrote on business ethics. Previously, I reported on international news for Voice of America (where I was awarded a newsroom writing award) and prior to that worked as an editorial assistant at U.S. News and World Report. I live with my wife and children amidst the verdant and vibrant hills and dales of Jerusalem.

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