Creating Value as an Advisor

Navigating your client’s opportunities and risk

by Stuart Jones, CFP®, LUTCF and Rudy Rodriguez

People will always ask a financial advisor, in some form or another, “What is the best way to create and preserve wealth?” This translates to their fear of not having enough money or losing their money over time. It happens to be the number one concern expressed by clients when planning for retirement and their long-term financial goals.

The fear of losing money and economic security is as much about emotional security as it is about pure finances alone. This is the reason many people attend financial dinner seminars to try and get some nugget they can apply to their current strategies to help them achieve their goals. What most investors fail to realize is the best way to create and preserve wealth is to seek a financial advisor who looks objectively at the whole picture to help them in their financial journey. Not just an investment specialist, but someone who comprehensively looks at their entire financial life and helps clients manage behaviors.

A true financial advisor is someone who works for the best interest of their clients by addressing the inherent opportunities and threats that go hand-in-hand with financial security – managing client emotions, diligence with saving and investing, risk management planning, elder care planning, tax efficiency, disability protection and estate planning.
Experience has shown that the guidance of a true financial advisor is the difference maker for investors in helping them get ahead and stay ahead of investors who try to go it alone or chase market returns.

Real Value

If a financial advisor can help prevent five big financial mistakes over a client’s lifetime, they will have had tremendous success with that client in creating and preserving their wealth. After making that comment, people immediately ask, “What are the five big mistakes?”

The answer is that they may be different for each investor, and they are unknown until faced with them at the specific moment they occur. They can range from a home mortgage selection that is an improper fit, delayed investing into a company retirement plan, or deciding not to secure insurance until a health crisis makes them uninsurable – to name a few.

To further illustrate this point, imagine a person who is in the market to build a house. They can find some technology to help them design and produce architectural plans to build that house, but did they take into account all the variables needed to actually build the house? Did they account for building codes in their area, did they account for the grade of the land, type of lumber, etc.? A professional architect can make sure that the plans are drawn to exact dimensions and specifications needed to make the house stand against the elements. A general contractor will make sure the plans are followed to produce the exact result needed in the time frame allotted and will coordinate with other professionals in the process. This is the value financial advisors bring to clients in creating and preserving wealth.

A Personalized Process

Just one of the ways financial advisors bring value is through the ability to develop personal customizable strategies for each investor they interact with. The knowledge, experience and reputation of being in the advisory business day after day far exceeds what the average “do-it yourself” investor can deliver for themselves.

Personalizing the process requires financial advisors to understand the emotions of their individual clients. Emotional behaviors are the biggest threat to wealth creation and preservation. When people realize they need help with their behaviors, which are usually driven by emotion, they are more readily open for a professional to help guide them along their financial journey.

Behaviors

As humans, we are emotional beings, so we should not be surprised that emotion tends to drive our behavior. Passion, fear, joy, greed, along with many other emotions, all play into our regular decision-making process. Remember the last time you made a quick decision that you later regretted? It was probably because you were moved emotionally by a situation and made a decision. People do this every day in regards to their hard-earned money. Individual investors often do the opposite of what is required in true investment management – they buy investments when the market is up and sell investments when the market is going down.

One of our main jobs as an advisor is to help them sort through their emotions, understand the difference between emotional and logical decisions and help them make a decision that is based on their goals, not emotion.
King Solomon in the book of Proverbs chapter 12 verse 15 in The Bible says “The way of fools seems right to them, but the wise listen to advice.” There is a reason the wisest and richest man to ever live on the planet had those word to pass on to all of us.

Budget

One of the first ways to help guide clients is to give them a mechanism to have success in their battle with emotional behavior. This is a budget. When people hear budget, they immediately think restriction or being controlled in a negative way. This is far from the truth. A clearly defined realistic budget is a tool that provides freedom when used. It helps to keep daily emotional decisions in check. By keeping our decisions in check, it gives a person the ability to tell themselves yes or no to that emotion because they have already stated their true desires in a non-emotional state with their budget.

The statement from Will Rogers, “Too many people spend money they earned, to buy things they don’t want, to impress people that they don’t like,” is the typical scenario of the majority of American individuals struggling to create or preserve wealth. They do not have a mechanism to check their decisions against their priorities. People create wealth by allocating a minimum of 20% of their gross income to investable assets. With the help of an advisor and a budget, clients can feel more secure.

Having a written budget, which one is committed to being held accountable to, is the way to accomplish this feat. So, after a person controls their spending, they will be in a space to start investing and creating wealth.

Returns/Investing

If someone wants to create wealth, they need to have a logical systematic approach by which they invest. For example, they might sell their holdings because the fear of a global virus or because of a tweet from a political figure. Erratic behavior when it comes to managing money is the reason the average do-it-yourself investor earns far less than the market on a regular basis. The peace and security a well-researched process brings to a client is no longer perceived value, it becomes real value. Clients are willing to pay for that value.

Fees

Many firms and institutions are pushing no commissions or low to no fees – this can exacerbate the do-it-yourself investor mentality. Further, it can perpetuate the thought process that all that matters or should be important is low to no fees. What the average investor fails to realize is that with some funds or platforms there are internal fees that are not shown but do add inherent costs for the investor. Fee compression is a real thing, and it is not going away anytime soon.

Financial advisors need to articulate their personal value proposition, and what they can deliver to their clients on a consistent and repeatable basis. Your perceived value is created by the friction between the actual price of the fee and the perceived price of the fee. When value is realized in the investor’s eyes, the actual price of the fee and the perceived price of the fee are equal. This perception of value from the average investor needs to be addressed. The value an advisor brings outside of returns is crucial in the creation of wealth.

Achieving Goals

While news and advertising can often lead investors to a “do-it-yourself” approach, the proven methodology for creation and preservation of wealth is through a long, close, personal relationship with a financial advisor who understands them, what they are trying to accomplish, educates the client on their financial behaviors, and helps prevent the client from big financial mistakes.

Our job is to help people concisely describe their goals and create mechanisms like a budget to help them achieve their goals through a consistent and systematic process. The value we deliver as advisors to our clients is the key to creating economic security and the preservation of our clients’ wealth.

Securities and investment advisory services are offered solely by Equity Services, Inc., Member FINRA/SIPC, 1050 Crown Pointe Parkway, Suite 1700, Atlanta GA 30338, Main number 770-512-5100. Kinship Wealth Partners LLC is independent of Equity Services, Inc. TC112639(0220)1