An Advisor Justifies His Fees: Financial Advisors' Daily Digest

by: SA For FAs


David Merkel, CFA, thinks everyone needs good financial advice.

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Jeff Miller surveys the best data and analysis for the new week.

I'll translate a joke I saw about doctors to financial advisors:

The advisor hands a bill for $5,000 to the client, who reacts in horror. "$5,000!?" The chagrined advisor says, "Fine. Let's just call it $3,000." The client reels: "$3,000! I can't afford that!" After the advisor's offer of $1,000 meets similar dismay, he protests: "Why did you come to me if you can't afford my services?" to which the client replies: "When it comes to my wealth, I want only the best."

Whether it's health, wealth or any other highly valued good, we all want the best. But the reality is that we can't all afford the best. Some investors feel this advice gap, others not at all and still others not only don't feel it but don't consider financial advice a legitimate profession. What I find particularly interesting is how advisors feel about it. For some, it's doubtless seen through the lens of "business is business," whereas others try to help investors whom they cannot afford to take on as clients in various ways.

These issues, and others, come to the fore in David Merkel, CFA's article "Everyone needs good financial advice." Viewed from his side of the table, i.e., as a financial services professional, Merkel thinks everybody needs advice, and that it is worth the cost. His lament is that he cannot provide it to those who cannot afford it. Writing a blog is his way of giving something to those who cannot afford to hire him. And for those who do hire him, Merkel seeks to add value beyond the basic service of asset management.

This issue of how advisors provide value comes up often enough, for example in this article on studies - such as those by Vanguard and Morningstar - seeking to quantify an advisor's value. Studies are great to give you a big picture, but Merkel's description underscores that what investors get depends ultimately on the personal qualities of the advisor they hire. Besides selecting and managing investments, Merkel says he has analyzed portfolios and manager performance; helped clients through job changes and salary negotiations; evaluated the pluses and minuses of insurance companies and their policies, and suggested alternatives; offered advice on assets held elsewhere, on whose advice he earned no fees; advised on real estate acquisitions and business plans; advised clients to prioritize their own businesses or pay down debt rather than invest with him.

Other advisors' lists will vary to a greater or lesser degree. But I think the bottom line, which is implied rather than stated, in Merkel's list is that investors are buying an advisor's judgment and integrity. You're getting a good deal if the advisor can set you on a path to financial success that you might not otherwise stay the course with on your own; if he can add value in certain high-impact areas such as your business or your job; and if he puts your interests firmly first - as in the example of declining to invest your money better used to pay down debt.

Not everyone who calls himself a financial advisor meets all these qualifications. But the services of those who do offer wise counsel and demonstrate good character are worth their price - for investors wanting only the best.

Please share your thoughts in our comments section. And here are today's advisor-related links: