3 Ways a Financial Professional Adds Value
By Tom Wall
Head of marketing content for MassMutual’s financial professionals, with 17 years of experience educating professionals and clients.
Regrets. Bad decisions. Missed opportunities … have you considered the cost of choices — financial, educational, romantic — you’ve made throughout your life?
Whether it’s the major you chose in college, the career you started off in, or the partner you settled down with, we all have made decisions in life that, in hindsight, we may wish we had decided differently. We might have even had advice from loved ones, mentors, or other influential people — people with experience and perspective — that we wish we had listened to a little more closely.
A financial professional helps you have a conversation with your future self, so you make the financial decisions today that future-you will be thankful for.
Indeed, a financial professional can help you achieve that better future by:
- Helping you save enough.
- Coaching you through ups and downs.
- Being your quarterback on money matters.
They are able to do this because of experience working with clients across the age spectrum and a deep understanding of the financial issues that will present themselves differently over time. They can help discuss what you’ll likely care most about decades from now and steer your decision-making appropriately today.
“I think the place where financial professionals lend the most to a relationship is in the initial fact-finding stage,” said Tom Henske, a partner at Lenox Advisors in New York City. “While most clients come into this part of the process thinking it is as simple as providing a balance sheet to their financial professional, where the true value occurs is understanding why things have been set up the way they have.”
Working with a professional is not free, however. Depending on whom you work with, you may be charged an annual fee based on your invested balance, or they may earn a commission on products they recommend, the cost of which is embedded in those products’ fee structures. Which begs the question, is it worth it? Or, should you try to do it yourself?
“Most clients could do the work that we do, but most don’t have the time, the interest, or the expertise to do it themselves,” according to Brock Jolly, a financial professional with Veritas Financial in Vienna, Virginia, and treasurer of the National Association of Insurance and Financial Advisors (NAIFA). “In most cases, clients don’t know what they don’t know, and their current plans have inefficiencies and risk management strategies that need shoring up.”
Much like you wouldn’t attempt electrical work on your home without extensive experience, attempting to plan your financial future without professional help may be unwise. Short-term savings on fees can quickly be eclipsed by costly long-term miscalculations.
Regardless of your financial acumen, financial professionals generally add value in three ways:
Helping you to save enough
How much you need to save for big goals like retirement is a difficult number to nail down. Determining that number requires one to make assumptions about market returns, future expenses, timing of events, continued good health, employment, etc. Without a crystal ball, all you can do is make a best guess at how things are likely to play out, and then routinely check and adjust based on how reality unfolds – sometimes dramatically differently. Major events like market shifts, periods of unemployment, divorce, having children, and others can materially change how you should approach your finances.
“We know that some of the variables will change the eventual output you see in your plan,” said Henske. “This is an exercise similar to when you took your kids bowling when they were young. You put up the ‘gutter bumpers,’ and when they rolled the ball down the lane, it inevitably went too far left or right, but you set up an environment where it eventually gets to the end and hits the pins.”
Wondering how you can possibly save enough for the future with all the financial demands of the present? “An essential value of a skilled professional is helping clients find the money to put toward their goals and insurance strategies,” said Jim Ginnane of Planned Futures Financial Group, LLC, in Amherst, New York. “In many instances, we can help people find the money by adjusting how they presently are spending/saving/investing. It requires a high level of expertise to enable a client to improve their future without additional money out of pocket.”
Coaching you through ups and downs
Some financial professionals have described their role as similar to that of a therapist, helping clients stay the course during emotionally charged market downturns or managing risk in times of financial success.
Famous in the financial services industry, an annual investor survey conducted by research firm Dalbar sheds light on how bad behavior can cost someone. For example, over the last 20 years ending with 2019, the average equity fund investor had returns of 4.25 percent, while the S&P 500 index returned 6.06 percent.1 The explanation for that gap is market timing, with investors acting irrationally by making greater investments while stocks are performing well (and therefore more expensive) or selling during market downturns (when stocks may be relatively cheaper). Doing nothing and staying the course has proven time and again to be a winning strategy over attempting to time the market.
“We had a client who was ready to sell everything she had invested on March 5, 2009,” Jolly shared. “We convinced her not to at one of the roughest times in stock market history, as the market was down over 50 percent at that point from its highs in 2007. She followed our advice; the market turned around on March 9, and between March 9, 2009, and the end of 2019, her portfolio value had nearly tripled.”
Human behavior has been identified as so important in investor results that a field called “behavioral economics” has emerged, sitting somewhere between the field of psychology and financial planning. Two pioneers of the field, Daniel Kahneman and Amos Tversky, have conducted research on and written about the biases and heuristics that drive our decision making. Explaining this research that began in the 1970s and eventually led to a 2002 Nobel Prize in Economic Sciences, their book “Thinking, Fast and Slow” describes concepts like recency bias, where our minds remain anchored in recent events, obscuring our view of risks that history has demonstrated possible.2 Another groundbreaking outcome of their work was the introduction of “prospect theory,” which demonstrates how people avoid losses and seek sure wins, which is counter to behavior that has historically served one well in the stock market. With this research as a backdrop, many modern financial professionals seek to recognize inherent biases that may stand in the way of proper plan execution.
Vanguard’s Advisor’s Alpha framework researched the value added by a financial professional. Because financial professionals help investors implement numerous best practices and methodologies, Vanguard concluded that, for many investors, the behavior coaching of a financial professional helped them to realize greater returns than they might have by going it alone.
Another popular study from Morningstar addresses retirement income planning, which seeks to help retirees optimally spend down assets and maximize lifestyle. This can be a challenge, involving a number of factors, as many of today’s retirees rely heavily on invested assets instead of the pensions of prior generations. A financial professional can help investors with incorporating these factors into their retirement planning, who otherwise might underspend their assets due to their fears of running out of money.
Your quarterback for financial plays
A financial professional generally has knowledge in a wide variety of subjects, such as investments, insurance, tax planning, legal matters, business planning, and family dynamics. While each of these fields have experts of their own, coordinating advice between them can be daunting, with potentially conflicting recommendations standing in the way of progress.
“Unless your last name is Rockefeller or Buffett, you’ve probably never had your stockbroker, insurance agent, mortgage broker, CPA, attorney, bookkeeper, and financial planner all in the same room,” said Jolly. “Our job is to serve as the intermediary on many of these functions and to provide oversight as appropriate, ensuring that all components of your financial planning work together.”
Sorting through the myriad investment options and strategies available can also make an investor’s head spin. Even with thorough research, one may be left wondering if they’re missing opportunities or acting in the most efficient manner. The primary difference between many forms of saving is the tax treatment of the financial vehicle being used.
“It is common knowledge that investment diversification is a smart strategy to build a retirement portfolio. It is equally important to have tax diversification — some tax deferred, some taxed as capital gains, and some tax free,” said Ginnane.
A financial professional is uniquely positioned to ask the right questions and help ensure that all strategies are working in tandem toward common goals. Henske explains that “clients sometimes need to hear themselves speak out loud to really understand what's going on inside their own head. The simple act of saying things aloud helps them realize the gap between the work they've done on their plan to date and where they actually want to be.”
Finding your person
In the end, a financial professional can help you determine how to secure your future and protect the ones you love. Oversights often won’t become evident until catastrophe occurs, and bad decisions can stunt the growth of an otherwise solid strategy. As with other endeavors in life, having an objective third party in your corner can help you make decisions you otherwise may not have considered.
“There have been countless times in my career that I have helped someone take action toward something they would not have done on their own. If we cannot motivate clients to take action, our efforts are nothing more than an academic exercise where the client learned something but did nothing to improve their situation,” explained Ginnane.
To find a financial professional that’s a good fit, do some due diligence. Given recent world events, most financial professionals are equipped and delighted to arrange a short introductory video conference. Look for recognized industry credentials and involvement in the community. Ask about their team, as many will work as a part of a larger group of specialists — much like your primary care physician has specialists in their network to lean on. Seek to understand how they operate. Some will offer ongoing advice for a fee, while others focus on helping you to implement products as part of your planning.
“There is no do-over in retirement,” says Henske. Engaging with a financial coach early in the game can make all the difference in the end.
Don’t have a financial professional? You can find one here.
1 Dalbar, “2020 QIAB Report,” March 31, 2020.
2 Daniel Kahneman, “Thinking, Fast and Slow, ” 2013.
3 Vanguard, “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®,” February 2019.
4 Morningstar, “Alpha, Beta, and Now…Gamma,” August 2013.
Provided by Lenox Advisors courtesy of Massachusetts Mutual Life Insurance Company (MassMutual)
The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.
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