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Financial Freedom Is Merely Organized Common Sense
Value Added Means Something
There is an easy way to make your life harder. It is so easy that it can be done accidentally. The way you do it is to take responsibility for, or to claim credit for, things that are not within your control.
Chris Reynolds, CEO of IPC recently circulated a reference to a column by Rob Carrick that stated the nine essential tools for a do-it-yourself investor. Chris did not challenge them or suggest that they were poorly conceived. He directed his thoughts to his advisers.
“The article got me thinking. If I was an Adviser again, I would make sure that my client presentations – Personal Wealth Management Strategy, Portfolio Management Strategy and Progress Review – all contained elements of these nine essential tools. Instead of just focusing on performance and economic indicators during client reviews, I would try reinforce the value that advice brings to each of my clients through these tools.” (my emphasis added)
As an adviser business success comes from recognizing that value added is what you control and what you ultimately deliver. Performance to date and economic indicators and most other factors are just noise. Making noise an important issue confuses both the adviser and the client and confusion is a poor tactic.
You can find the Carrick article here and the Reynolds Rant here.
For the “do it yourself investor” versus the “adviser’s client” decision, notice that when you are your own manager, you replace two functions. Manager and Adviser. It costs something to replace them:
1) The Money Manager
- Managing money costs your time, and your money for trading, security and compliance fees.
- Managing money is not idiot-proof. Every investor has a portfolio personality. Some of the managed ones are rational, disciplined and purpose driven. Some of the others are barely better than psychotic. Training and experience prevent psychosis.
- There is nothing you can have for nothing. Based on your costs and your training and knowledge shortcomings, can you truly expect to excel by doing it yourself? Rationally, probably not.
2) The Adviser
The adviser does several things for you, but none of them directly affect the yield. They do affect how much money you end up with, however. Money, not yield, is the goal. Good advisers offer:
- Options. Successful people always create more options. You cannot find them all by yourself.
- Completeness. Most people cannot see all their resources, options, and limits soon enough. Nor can they see how these integrate toward a collective goal.
- Computational skill to help you assess options is required. Some clients are arithmetically challenged. It is hard to assess financial choices while innumerate.
- Conscience. Most people are not disciplined enough, all of the time. Everyone needs a second voice.
- Cheerleader. Most people need external support and applause from time to time.
- Communication. You are seldom alone in your plan but you may not be able to communicate it effectively to the others.
Given all this, would it be worth it to pay an adviser 1% of assets annually? You probably are given up the money manager costs one way or another anyway.
For me completeness, options, and conscience would repay that. Looked at another way, if I want to save $1,000,000 in 30 years I need to beat inflation by 2.25% after taxes and save around $950 per month plus inflation. If I pay 1% to the adviser I will need to save about $125 more per month to start. Would you be okay with that?
It is all about cost benefit. When making the value comparison of advice versus no advice, be sure you know what you save and what you give up. TINSTAAFL.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
don@moneyfyi.com | Twitter @DonShaughnessy | Follow by email at moneyFYI
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