Gaining Financial Insights with Steve Klosterman, AIF®, Regional Director
Last year, only 35% of Americans worked with a financial advisor, while a whopping 77% reported feeling anxious about their financial situation. One thing that can help ease this stress is working with a financial professional to get your savings goals on track. While many people think they can manage their own money, and it’s possible, wealth managers can help guide you through all the ups and downs of your financial life.
As a seasoned advisor with over 30 years in the industry, here’s what I wish all investors knew – whether you’re going at it solo or hiring an advisor:
Why hire a financial advisor?
If you’re considering managing investments on your own, or perhaps you have in the past, you’re probably wondering why you’d even need a financial advisor.
A client once told me, “You are worth your fee just for preventing me from doing the stupid things I would do without you.”
There’s a difference between making and managing money, they are not necessarily interchangeable. Advisors have incredible experience at managing money, and as we say at Halbert Hargrove, “Integrating your money and your life”, and both are fluid.
Advisors are also experienced in evaluating investment options. Most people don’t have the time or expertise for that. Reading the fine print is critically important. If you do, you get informed, if you don’t, you likely get an unwanted education!
Not only are you paying for an advisor’s expertise, but you’re also freeing up your time. Delegating to a fiduciary advisor means you can spend your time with your family, friends, and doing other things you love to do.
What investors need to know:
In my many years as an advisor, I’ve seen some consistent investor mistakes made in the past. In short, here are some important things to keep in mind.
People are their own worst enemies when it comes to managing their money. This is called “behavioral finance” – they make emotional financial decisions. Advisors can be objective and aren’t as emotional about your money as you are.
There are virtually no guarantees in investing. However, at least from a historical perspective, the guarantee is that you will have a bad year at some point! Risk is a function of time; most investors have too short of a time frame in mind when investing. Historically on average, it’s one down year in four. If you look at the single down year, it appears to be a loss, but looking over 5-10 year time periods shows a different result. All returns are “beginning and end point sensitive”, so tied to the timeframe being measured.
When you consider that, fluctuation in the market is not a loss! History doesn’t repeat itself, but it rhymes. Every downturn is idiosyncratic, but the outcome is the same. Historically, bear markets drop over 30% on average but take just 19 months on average to recover.
A caveat to the above of course is when you are spending from the portfolio. Those spent dollars do not stay invested and enjoy a market recovery. At HH we help clients differentiate “wants vs needs” and cut back spending when warranted.
My final tip is to avoid reading market and economic forecasts. As famed economist John Kenneth Galbraith said, “The only function of economic forecasting is to make astrology look respectable!” As Warren Buffet said, “Charlie (Munger) and I firmly believe that near-term economic and market forecasts are worse than useless.”
How to hire a financial advisor
If you decide to hire a financial advisor, there are some critical things you should know before deciding who to trust with your hard-earned money.
For starters, there are different types of financial advisors. An investment fiduciary is required by law to always do what’s in a client’s best interest. First ask two questions:
- Do you, the individual advisor, receive any compensation related to my portfolio from any third party (e.g., money manager, mutual fund or ETF provider, etc.)
- Even if you do not, does the firm? If both of those answers are not “NO” then there are conflicts of interest!
Aside from investments, your advisor can help with many things, including retirement planning, insurance needs – life, disability, umbrella policies – college savings, etc.
They can also be an excellent first call on just about anything because a good advisor will point you in the right direction, and often to the right person that can help.
As an advisor, I’ve met with my clients’ children to talk about career paths and how to network post-college. That’s not a part of my duties, but I consider it an honor to be a trusted source of information for my clients’ families.
Final thoughts on
Once you find the best person or team to work with, listen to your advisor and trust them. Realize that you can’t know what your advisor knows from their years of experience, just like they wouldn’t understand all of the knowledge you’ve gained from your own career. Trust them to help you make the right decision and stick with them. You’ll need at least three years to assess the relationship from both an investment and wealth advisory standpoint.
If you’ve done your due diligence properly in vetting an advisor to work with, you should have confidence that your fiduciary advisor is knowledgeable, objective, and cares about you.
As you can see, hiring a financial advisor has benefits, just as hiring any other professional would. Breaking it down simply, there are only four things an advisor can do for you:
- Make you money.
- Save you money.
- Reduce your risk.
- Save you time.
A good fiduciary investment advisor can usually help you with all four. The result is what you deserve and will give you financial peace of mind.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.