The case for working with a financial advisor
Over the past twenty years, the availability of information and the accessibility of online investing tools have created a new generation of do-It-yourself (DIY) investors. With the S&P/TSX Composite Index returning 7.3% per year (with dividends) during the 20-year period ending 2016, some might question whether they actually need the assistance of a financial advisor to become financially secure.
Why work with an advisor?
While do-it-yourself investing might be suitable for a segment of the population, it certainly isn’t the right choice for everyone. The value of a financial advisor goes well beyond growing client wealth. Financial advisors play a vital role in guiding a client’s financial wellbeing – from helping him or her make the right investment choices to assisting with important life decisions such as intergenerational wealth planning.
Advisors add measurable value
A 2012 study by the Center for Interuniversity Research and Analysis of Organizations (CIRANO) found that Canadian households with four to six years of professional advice had 1.58 times the wealth levels of households with no advice. This factor grew even larger with time.
The follow-up 2016 CIRANO study found that households that decided to invest without the help of an advisor between 2010 and 2014 gained significantly fewer assets compared to those that continued to be advised. The study also found that advised households accumulated 290% or 3.9 times more assets after 15 years than comparable non-advised households.
The right start: Advisors help set goals, develop a plan
A financial advisor can help provide important guidance in helping set a client’s goals – whether that involves achieving an early retirement, growing an education fund, or establishing a regular stream of reliable monthly income. Without defining goals, it wouldn’t be possible to determine the right amount of risk for a client to assume in his or her investment portfolio.
Advisors help navigate investment options
To put the industry in context, in 2016 Canada had approximately 115 fund companies offering more than 3,500 unique mutual fund products. This amount of choice can often be overwhelming. An advisor can help a client narrow down investment options to only those best positioned to serve his or her financial needs and objectives.
Asset allocation experts
The asset allocation decision is a critical factor in investment returns. Yet a client can often take on either too little or too much risk in his or her portfolio. An advisor can help a client strike the right balance between equities and fixed income in his or her investment portfolio.
Making adjustments as life situations change
Changes in job, health and personal situations can change a client’s ability to take on risk. An advisor can help adjust a client’s wealth plan and investment mix depending on his or her evolving life circumstances.
A steady hand to help avoid pitfalls
Finally, a client can be prone to the pitfalls of investor behaviour and psychology – this might include panic selling and chasing returns, or the latest investment fad. An advisor can help a client stay disciplined and focused so that he or she avoids making those knee-jerk, impulsive decisions that can be counterproductive to long-term goals.
Advisors draw on a wide range of knowledge and expertise
In a rapidly evolving financial services industry, a financial advisor must be committed to continuing education in order to advance his or her own proficiency. If needed, he or she can also draw on professionals with different areas of expertise to provide valued counsel. Helping clients achieve their goals and fulfil their dreams is at the core of what an advisor does. While a do-it-yourself model is right for some people, one thing is for sure: financial advisors continue to play an important role in helping clients achieve financial security and success.
Does this sound like you? If you are interested in pursuing a career as a financial advisor, check out our list of advisor training courses.