In my July 15 blog (What Do Advisors Really Do Anyway?), I wrote that, in my view, professional financial advisors provide three major benefits to their clients:
1) They protect their clients from making “emotional investment mistakes.”
2) They protect their clients from being over charged and/or being subjected to undo risk by the financial services industry.
3) They protect clients from making rash life choices that will undermine their financial futures (divorce, business partnership dissolution, career change, etc.).
Upon reflection, I probably overlooked at least one additional benefit: to help clients approach their finances with a comprehensive plan. But even though a financial plan is, in most cases, essential to helping clients reach their financial goals, I believe that many financial planners make a mistake by overstating its importance.
For example, I recently received the following email from financial advisor Russell Rivera, president of Voice Wealth Management in New York, in response to that July 15 blog:
“I wanted to clarify what commenters Derek Tinnin and Elliott Weir are thinking. In a sense, you and Derek (and Elliott) are having the discussion on two different levels. They are working [toward] a world where the planner is separate from the investment advisor. However, they seem to understand that planners are investment advisors. This is likely, in their minds, the problem.
I am in the midst of taking my Capstone course for CFP certification and asked our course leader about your recent blogs. In class, he worked on the general assumption that planners do not/should not also take the investment manager role for incentive/conflict reasons, and to elucidate the planning value separately.”
I believe that Mr. Rivera accurately restates the position of those two commenters and his instructor, as well as that many of today’s flat-fee advocates. Comprehensive financial planning is a great thing (and as I noted above one of the key values that financial advisors can deliver to their clients). But it’s just a tool, not an end in itself.
Financial security is attained by growing investment portfolios, not by the plan itself. (It’s as if doctors decided to call themselves “vital statistics monitors.” While vital statistics are an important tool in medicine, they are only one part of good medical care–and not the part that people are interested in.)