Benefits of a Wealth Consultant

Michael Bronstine

1. Act as a barrier between their clients and their client’s own behavior and investment mistakes

These mistakes can come in many different forms. They may be small mistakes that go unnoticed or ones that you look back on as the “Big Mistake”. The true enemy of investing is the “Big Mistake” and you never know when it might come. The truth is we are all irrational with our money to some extent and it’s been proven by many research studies that it is hard to separate our emotions from our money.  Wealth consultants act as an emotional circuit breaker, helping separate client’s emotions from their money. They steer clients away from the impulse to chase returns or run for cover in volatile markets. Some planners may even specialize in behavioral coaching, where they teach clients the psychology behind managing their money.  Remember, individual financial success is not driven by the performance of the market or investments, but by the behavior of individual investors.

2. Provide direct time-savings

What would you do with more time? I’m willing to guess you’d fill your time with something that would bring you joy or a peaceful mind. Just because I’m a wealth consultant doesn’t mean I would enjoy doing finance stuff with my free time either! I don’t know anyone that would. A wealth consultant serves as someone who you can offload and delegate work to that you’ve either been putting off or flat out don’t enjoy doing. By doing this, you’re essentially buying time! As written in Time for Happiness (Harvard Business Review), studies have shown that buying yourself time will make you happier.  Now let’s say you choose to not buy back your time. Consider how long it would take you to do your research, find the right (non-misleading) information, and be confident in your solution and direction. The reality is what could take a wealth consultant a few hours of paid time could very well take their client days. Just like every profession, there is a lot of background knowledge that is helpful while doing research on a question you need answered. Just being “aware” of potential options, outcomes, and traps is invaluable because it provides context.

At the end of the day, the client must ask him/herself was this worth my time? What else could have been achieved with this same time? (i.e. Start a business, learn a skill, spend quality time with friends and family, plan the trip you’ve been wanting to take, etc.). If you add up the time and energy spent learning and implementing, the worrying and the record-keeping, how much would that be worth to you?  Remember, while we may not be able to extend our days, we do have the opportunity to buy time that we wouldn’t have had before. And yes, these are opportunities that exist for all income levels.

3. Capitalize on opportunities and mitigate losses

Not including all the irrational decisions that we mentioned previously, there are numerous mistakes that can be made purely since people don’t know what they don’t know. And who’s to blame them! Not everyone gets excited to read up on new tax laws or read a textbook on all the interconnectedness of financial matters. Wealth consultants have the necessary background and knowledge in the latest laws and market offerings to recognize weaknesses in a client’s financials that the average Joe wouldn’t recognize. They also use this background knowledge to recognize financial opportunities that arise for clients. Since wealth consultants know what to look for, they can spot financial trends and act accordingly.  Left alone, investors often make choices that impair their returns and jeopardize their ability to fund their long-term objectives. This benefit of not allowing current market conditions to force the abandonment of a well-thought-out investment strategy can be underappreciated in the moment.

4. Deliver tailored portfolio construction and on- going maintenance

First, consider the obvious benefits that come from proper asset allocation, disciplined rebalancing, strategic cash flow management and tax planning. While each of these warrant a separate article, they are common terms. Let’s instead consider the “top-down” vs “bottom-down approach to investing. While bottom-up investing places an emphasis on recent performance and market trends, the top-down approach starts with the client’s goals and constraints. For instance, not every millennial wants to place a high priority on retirement savings like previous generations. Maybe you want to maximize your lifestyle now and seek experiences that you can grow from and take with you. A wealth consultant can help you prioritize what is important to you and help formulate an investment strategy that is focused around you, such as your goals and appetite for risk. It’s also important to recognize the gap of an investor’s returns over time versus various indices. Look at the chart below:

You can see that over the last 20 years, the average investor returned an annualized 2.6% when the market (the S&P 500) returned 7.2%. That’s a 4.6% difference! You may ask why? The average investor doesn’t stay invested. Instead, they do some form of timing the market or stock-picking and in turn miss out on the returns they would have received by simply staying put. As the chart shows, the average investor would have been better off investing in essentially any of the above investments! However, people are enticed by what’s hot, in fear that they may be missing out. Studies have even shown that four and five-star mutual funds (high-ranked) have historically had worse performance going forward than one-star funds (low-ranked). When considering that past performance plays a big factor in assessing these star rankings, the reasoning behind these results makes sense. Remember, past performance is no guarantee of future results.

5. Ensure collaboration between your “team” of advisors

How often if ever do your current advisors communicate with each other on your behalf?  If like most, the answer is rarely or never.  How can your accountant take advantage if he doesn’t have all the information?  How does your insurance advisor know if you increased or decreased your mortgage? How do the 3 different investment advisors know where your capital is being invested if nobody is sharing the information? The negative effect typically shows up in errors made and missed opportunities to capitalize on tax efficiencies.  The truth is, the lack of collaboration puts the responsibility on you, the client.  The real question is “are you qualified and inclined to do it properly?”

6. Act as an accountability partner

“I never worry about action, but only inaction.” – Winston Churchill

For the most part, we all know what we should do. We know that the keys to being healthy include proper dieting, rest, and working out. Personal finance is the same way. There are key ingredients to being financially fit, but few of us follow through with it. A wealth consultant can act like a personal trainer for your finances: providing you with an assessment of where you’re at currently versus where you want to be, write out a plan for execution, and hold you accountable. Consider the cost of inaction the next time you think about your finances.

     7.  Sell advice, not products

Next time you are speaking to someone claiming to be an advisor, ask them how they are compensated. If it’s attached to the individual products they sell, you should be scared. There are “product salesman” disguised as financial advisors who don’t understand what they are selling but do know they can make money selling it. As a rule of thumb, if you are being sold an annuity or cash-value whole life insurance product, get a second opinion. You’ll save money and won’t regret it.  Wealth consultants should diagnose before they prescribe. Imagine yourself going to see a doctor due to illness, the doctor walks in and immediately prescribes you an over-the-counter drug. Wouldn’t you be cautious? The same applies to financial advice.  When it comes to investment management, it’s okay to pay a fee on the percentage of assets that the advisor manages. But if you’re paying more than 1% to someone for managing your money, you’re getting taken advantage of. There is more value to be found through relationship-oriented services than by trying to outperform the market.  True consultants are in the business of providing unbiased advice that is not influenced by any conflict of interest that is often brought by recommending individual financial products. Be sure that you are paying directly for the advice and not the commission of the products themselves.