Is an Investment Advisor Really Worth an Investment Advisory Fee?
By Mark Wendell
Wise people understand the popular axiom: Price is only an objection in the absence of value. This idea applies especially well to the Investment Advisory world. As an investor, what are you willing to pay for genuine, educated, unbiased, fiduciary-fee-only investment advice? What is surprising is that there are still investors who would rather go it alone by trying to use the ‘do it yourself’ approach or by using a computer automated ‘robo’ approach, thinking they can do better on their own, or that investment advice is not worth the price, or both. With the average fee charged by investment advisors between one and two percent annually, some investors are asking themselves whether the advice they receive actually results in an advantage in their investment performance. In other words, could they do better on their investment returns if they didn’t have to pay an investment advisory fee?
On the surface that may seem like a fair question, at least until you examine what value the right fiduciary-fee-only investment advisor actually brings to the relationship. The real question is whether or not you feel that the advice you receive will add at least the fee paid in value to your portfolio.
While anytime is a good time to evaluate the worth of an investment advisor’s advice, it is especially important to do so during difficult economic times. Here’s why:
*A good investment advisor will have positioned your portfolio with proper diversification to withstand increased volatility and reduce the downside exposure. A well-thought-out, well-diversified, strategically allocated portfolio will usually decline less than the stock market indexes, and less than a comparable portfolio index, and this fact will contribute positively to your long term returns.
*A good investment advisor will keep you focused on your long-term objectives rather than on short term market shifts that will have little or no impact on the long term performance of your portfolio. Many investors who fled the market in 2008 still haven’t recovered, while those who stayed on the roller coaster market certainly have gained substantially.
*A good investment advisor will help you avoid the many common mistakes investors make: like trying to time the market, like chasing performance, like trying to pick the winners, and like moving a portfolio from aggressive to conservative and back again. These mistakes can cost investors a significant portion of their portfolio value.
*A good investment advisor will always have your best interests and long-term objectives in mind by working as a fiduciary-fee-only advisor, which will free you of the time, energy and worry spent trying to manage your portfolio on your own, and that could be priceless.
*A good investment advisor will take into consideration your entire household situation, including how your investing goals and your portfolio strategy may impact your tax matters and your estate plan. Does your investment advisor occasionally offer to review your estate plan and offer suggestions for the purpose of educating the trustees and/or family to prepare for a smooth transition? Does your investment advisor offer to talk with your CPA and Estate Attorney to discuss your estate plan and offer assistance in preparing your estate for an efficient administration by the successor trustee/executor when the time comes?
A truly honest appraisal of the value of investment advice would have to consider how much time and money you stand to lose when the going gets tough, not while everyone is riding the wave of a market rally or an economic boom. If a good investment advisor can help you in any one of the five ways described above, they could be worth their weight in gold. A really good advisor will typically help you in all five ways all the time. What’s that worth to you? Can you really put a price on the value they bring to your long term results? Should you really object to their price if you consider the value they are able to bring to your table?