What is the Purpose of a Good Financial Advisor?
Many of you reading this letter are clients of Red Oak Financial Group, of which we thank you for your trust and confidence. Some of you have come across this letter and work with an alternative financial management firm, and others may not have a financial advisor at all. You will note that the title of this memo is “What is the Purpose of a Good Financial Advisor?” and that is deliberate. There are many good advisors available to partner with, but unfortunately the low barrier to entry in the industry yields multiples of that number in “bad” ones. So, what is the purpose of a good one?
“Faithful guardianship”
A universal expectation of a financial advisor is faithful guardianship over your assets. Accordingly, the most important characteristics you should never compromise on are trustworthiness and integrity. As the client, you have sacrificed and worked for your assets over years, if not decades, and partnering with a respectable team or person is paramount. While there could be an advisor that is “bigger,” “smarter,” or “flashier,” choose the one you trust categorically.
“A financial advisor is not a hedge fund”
What a financial advisor (generally) is not is a hedge fund or mutual fund. Engaging a financial advisor goes far beyond asking what the last 3 to 5 years of historical returns shaped up to be. Financial advisory is goal-based advice, relative to the individual, couple, or family that employs them. It is not an investment product, but a constantly changing, ever iterative relationship that zigs when you zig and zags when you zag.
To make this more concrete, Red Oak, like many financial advisory practices, has hundreds of clients. Clients are made up of different ages, different upbringings, different financial acumen, different tolerances to risk, different needs for risk, and different goals. That is not an exhaustive list, but suffice to say no two clients are ever the same.
While Red Oak possesses core holdings based on independent research of the economic frontier, the relative mix of those underlying holdings in a client portfolio is always clientcentric and risk tailored to meet their objectives. Further under that hood, clients will often retain positions of this holding or that holding unique to solely them. The comparisons to returns get complex, so while a fair question, it is a tricky one.
“Meet your goals with a plan”
So, then what is the point of a financial advisor if not to simply make you large sums of money? That is a point, just not the only point. The primary purpose of utilizing a good financial advisor is to help you meet your goals with a plan.
If your goal is to build up account balances to the nth degree, aggressive investing may be appropriate. However, if the next sentence you speak resembles “but I also do not ever want to see volatility in my accounts” then further conversation is warranted. Reward does not come without risk, and it is the financial advisor’s mission to help you find that balance.
“Understanding the story of you”
There are financial advisors and there are financial planners. Those terms are often used interchangeably and often can mean the same thing. To me, a financial planner is always a financial advisor, but a financial advisor is not necessarily a financial planner.
A financial planner (or advisor who practices planning) is someone who zooms out and takes a holistic view of your entire financial existence. Since your financial life always intertwines and affects your personal life, it can be summed up as understanding the story of you. Once the planner understands what makes you happy or sad, thrilled or anxious, and your goals and nonnegotiables- then it is time to zoom in. The objective is to take all of the puzzle pieces of your life and fit them together to produce the finished picture that you want to see. It is your Mona Lisa, and the financial planner is going to help you paint it.
“Value”
Outside of maximizing returns on invested capital, which Red Oak keenly pursues, what does good financial planning add in terms of value? The list can be infinite, as financial questions are never too small or large, but education planning, retirement income strategies, tax efficiencies, and estate planning are a few critical examples amongst many.
“You are not partnering with a product, but a person”
Sometimes people might ask, “is now a good time to call my financial advisor?” Or maybe reason, “I’ll wait until the markets improve to reach out to a financial planner.” These are understandable conceptions, but fundamentally flawed ones. There is so much to strategize for in the story of you, and a “toppy” market is not valid reasoning to avoid purposeful action. Remember, a financial advisor/financial planner is not a mutual fund manager. A good financial advisor will help you create a diversified, well balanced and risk calibrated portfolio to achieve your goals. Different times call for different tactics, which is where the ever zigging and zagging comes to fruition year in and year out. You are not partnering with a product, but a person.
Just make sure you partner with a good one.
Dave
