The cost of advice. For our firm, like many, it amounts to 1% of the assets we manage, per year, with a decrease in the rate for larger portfolios. How can it be worth it? That may be well over 10% of the annual gain in an invested portfolio. While that may seem like a lot, we feel it is easy to show you how we add value well beyond our 1% cost.
1) We design portfolios designed to underperform broad market averages. Huh? That must be a typo, right Gene? No. Market Indeces return about 11% per year, but have volatility well over 15% - which means you can swing from no return to a large double digit return in just a few years. That ride is hard on your emotions, so we won't try to replicate it. Market indices will double in value about every 6 to 7 years (using the "Rule of 72"). Our risk dampened portfolios are custom designed to get our clients where they need to go, with a double every 8 to 10 years, or even slower for those who goals are largely funded. Just a bit slower for a MUCH smoother ride. We won't take clients who feel they need to go faster than that, as ample evidence exists to show that they would not be able to handle the large swings in portfolio value. The Dalbar study shows this process alone is worth 3% per year on average.
2) We avoid making mistakes. That doesn't mean we don't make any, it just means we know and apply the "Best Practices" on investment management so we can avoid the ones that cause significant problems. We diversify portfolios across different risks, rebalance them, and seek minimum cost products to invest your money. We know that Muni Bonds belong in a taxable account, that hedges are best held in a deferred account, and that growth assets belong in the Roth. We have processes to ensure we add beneficiaries, properly explain what "per stripes" vs "per capita" means and how best to use each, and how to ensure all retirement income transfers meet your needs and tax situation. We don't forget RMDs (required minimum distributions), when they are due, and know how to calculate them so the client doesn't have a 50% penalty applied by the IRS. The typical unmanaged investor makes 1 or 2 large mistakes each year, typically costing them well beyond the 1% we charge. This point is emphasized by both the Dalbar Study (above) and our favorite book on financial advice, "Simple Wealth, Inevitable Wealth" by Nick Murray.
3) We save you time. Seriously, when you retire, do you WANT to do all of the stuff mentioned in the above paragraph? Or sit at your desk to find bargains on a down market day that happens to occur during a family reunion? What about the extra year or two you worked because you weren't sure if you had enough to retire early? Our plans test and retest outcomes, using the best data available, so our estimates of the future have high degrees of confidence that can be used to make important decisions. What would it be worth to you to AVOID a late in life regret of having worked too long? A few thousand a year to make sure that doesn't happen is sensible insurance. We save the kind of time that has great value, as it saves you from doing the things you don't want to do, or would waste your time trying to vet out the best options.
4) We help you achieve financial contentment. That feeling comes from the knowledge that you have enough money, even if a minor setback or crisis occurs. You only achieve this by having a long-term relationship with an advisor who hears your concerns, and tests the impact of common setbacks to your plan. After years of making sure that the plan is sound and sturdy, that allows clients to experience a feeling of confidence that is irreplaceable.
5) We help you achieve your financial goals. Effort without a goal can be ineffective or even seem pointless. But goals can focus activity. If you have a New Year's resolution to get healthy, it will fall flat unless you list measurable goals to track and guide your efforts. Money works the same way. By breaking down life goals into smaller steps that need funding, it can make the insurmountable task of retirement, college, even a new career path - doable.
The above aspects of value are processes within the realm of "Financial Life Management". It is our one true product. We encourage you to look for the "Results You Will Value" video which reinforces the true value of the above concepts.