A common criticism of financial advice is that the cost of the service inherently guarantees a sub-optimal return on investment. Professional financial advisors probably grit their teeth when hearing the claim that they do not add value. Those making such charges tend to be do-it-yourself investors with or without experience working with an advisor. By and large, though, surveys typically show that investors who do rely on financial advisors are happy with the service.
On the other side of the equation are investors who genuinely do want a professional financial advisor to help with serious long-term financial planning or to put some distance between them and their money, but who find that high-quality advice is inaccessible. It is not uncommon for top-notch financial advisors to limit their services to clients with at least $1 million in assets. For all their protestations that they are true professionals with value to offer, such advisors do not extend their services to all comers, saying they cannot afford to do so given the high costs and risks of doing business today.
Thus, investors who don't want to pay fees and advisors who require fees meeting a minimum threshold help define today's marketplace realities. Advisors can thus serve the wealthy, and the non-wealthy can look to cheap, automated services ("robo-advisors") - or human advisors without high minimums (who may be as good as or better than high-minimum advisors).
In this respect, the financial advice marketplace resembles other marketplaces. Wealthy people are more apt to have the need for, say, lawyers in business and estate matters - while the non-affluent use more affordable DIY options or lawyers putting out their shingles to the masses. The medical profession serves the public more broadly albeit through complicated insurance-company and government intermediation - and even with that the non-affluent have fewer options.
This situation is far from ideal. Financial advisors who want to help investors who cannot afford them can consider volunteering their time and efforts through organizations such as the Jump$tart Coalition.
But until the vehicle is established to extend the reach of professional financial advice, advisors who earn their livelihood by offering financial services should not let critics undermine their confidence in the value of their offering. A century ago, Woodrow Wilson - a highly educated man and the only president to have earned a PhD - remarked: "I not only use all the brains that I have, but all that I can borrow."
Even if the president, prime minister or monarch is the smartest person in the room, he or she does not know everything and benefits from advisors. Military leaders require counselors with geopolitical and tactical fighting experience and everything in between. It is self-understood that the more burdened you are, the more you require the assistance of trusted others. People who thus have the responsibilities of running a business and participating in family life could benefit greatly by handing over responsibility for managing their wealth to a trusted financial advisor.
But to earn that trust, advisors need genuine breadth and depth of financial knowledge, which it is quite possible to miss in their training. Their business education may consist of classes in corporate finance rather than personal finance; their employer may require more training in sales than in financial planning, and what financial training they do provide may pertain only to the investments that can be sold or wrapped into a fee-based managed account. Clients may come to the advisor for the stocks and bonds, but may be more apt to stay when they find out it comes with advice relevant to taxes, insurance and major purchases such as a home, college and cars.
Advisors who can communicate that their expertise and execution can lead to higher lifetime wealth, greater financial security and less hassle on the investor's part thanks to the advisor's implementation likely have a solid value proposition to offer affluent clients.