Safeguarding Your Investment Assets: Financial Advisors' Daily Digest

by: SA Gil Weinreich


Mark Hebner: Having an advisor when times get tough is ultimately an insurance policy against yourself.

Bob Dannhauser, CFA on what might be the only retirement spending rule you’ll ever need.

With admirable clarity, David Merkel, CFA analyzes what’s new in yesterday’s FOMC statement – a “nothing-burger,” he concludes.

Perhaps the biggest frustration I see out in Advisor Land is the difficulty professional advisors have in communicating their value.

Because they are financial advisors, and therefore the subject is money, discussions are typically framed quantitatively. For that reason, it is natural for many investors to automatically assume that the advisor is subtracting from their return on investment - and if the advisor cannot break out of that quantitative frame, that is how he or she will be seen, even if that's not the case at all.

In a highly recommended article on the site today, advisor Mark Hebner writes that, rather than seek alpha, investors might be seeking a better investment experience. He lists 10 steps to achieving this. I quote from step No. 8, which is to partner with an advisor:

The biggest value of working with an advisor is having someone to help control your emotions. Let's face it, when times are turbulent our emotions will often trump our logic, leading to devastating financial decisions. Having someone there when times get tough is ultimately an insurance policy against yourself.

I thought his insurance analogy was particularly apt. Many financially savvy people are willing to plunk down a lot of money that is "wasted" - that is to say, you hope to lose the premium and not have the house burn in a fire, for example. So why not protect your investment assets if you are (and you know who you are) a portfolio pyromaniac, as some investors are?

(Yes, there are investors who are adept at controlling their emotions and investing successfully on their own. But it is a fact that many wealthy and intelligent investors shoot themselves in the foot repeatedly, as we discussed last week.)

In this regard, I thought of a couple of interviews I read with Santa Clara University behavioral finance professor Meir Statman. He's not an advisor and not an industry spokesman - just a scholar whose research compelled him to the same conclusion Hebner adduces. In one interview, he had this to say:

Paying someone 1% a year to keep you from making 1.5% worth of mistakes can make a lot of sense.

And in another, he said this:

Clients are their own worst enemies. They come to advisors to tell them when to buy and when to sell, and what to buy and what to sell. But that's not what advisors can do-period. Advisors cannot beat the market. But they can prevent clients from doing really stupid things.

It's an interesting perspective, coming from someone who's studied the matter rather extensively. Statman, like Hebner, is essentially saying that the advisor serves as something of an insurance wrapper on your investment assets (I say "something of" since, to be honest, one must acknowledge that advisors don't guarantee an exact value, as do insurance companies.) Peace of mind, anybody?

Your thoughts, as always, are welcome in the comments section.

Here are links for advisors on today's SA:

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