Rational Reminder: What are financial advisors useful for?

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nedsaid
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Rational Reminder: What are financial advisors useful for?

Post by nedsaid »

Financial advisors and their pitfalls and benefits are a frequent topic here. Rational Reminder had a recent podcast titled
"What are financial advisors (measurably) useful for?" It is episode 249. I provide a summary here of Ben Felix's comments based upon studies that he had read. It is mostly excerpted from the transcript but I did vary from it from time to time. I didn't see any copyright on the material so I am not violating fair use.

Here is the YouTube link:

https://www.youtube.com/watch?v=RkT-yXj0FTs

Here is the transcript:

https://rationalreminder.ca/podcast/249

Rational Reminder: What are Financial Advisors (measurably) useful for?

Households make a lot of financial mistakes because financial decisions are complex, financial products are complex, and households have biases.

Costly mistakes that Households make.

1. Households tend to incorrectly assess the effects of compounding. They tend to prefer smaller rewards now to larger ones later. That's exponential growth bias and present bias.

2. Households often invest in high fee funds, even when otherwise identical, lower-fee options are available.

3. They failed to refinance their mortgages when it would be beneficial to do so.

4. They under-diversify their portfolios or failed to participate in the stock market altogether.

5. They engage in a tension-induced trading.

6. They over-invest in their employer stock, particularly if that stock has performed well in the past.

7. They failed to contribute to retirement plans with employer matches, even when they can take the money out with no penalty.

8. They under-save for retirement.

9. They under annuitize their assets at retirement.

Advisors should be the solution to household financial mistakes but are often less than an optimal solution for households. Here are some of the reasons:

1. There are a lot of conflicts of interest that affect the quality of that advice and maybe even make it detrimental.

2. Advisors sometimes failed to correct for client biases and might even reinforce those biases if those biases were in the Advisor’s interest to exploit.

3. Sometimes Advisors held incorrect biases themselves.

One study showed that one sample of Advisors held incorrect investment beliefs themselves. They trade frequently; they chase returns, they prefer expensive, actively managed mutual funds, they under diversify. One of the most interesting parts of the study is that they continue making these mistakes after they left the financial services industry. This research, it could show that those firms specifically select advisors who will deliver sincere, but misguided advice to clients.

4. Advisors can have a bias to recommend to clients products which have the highest compensation for the Advisor.

5. Financial advisors exert substantial influence over their client’s asset allocations but provide limited customization for client attributes like risk tolerance, age, investment horizon, financial sophistication, and they charge high fees for doing so.

6. Ben also pointed out that financial products are often intentionally complex in order to make fees opaque thus making it harder for a client to understand the costs involved. In other words, complexity is introduced to hide high fees. Advisors have the financial incentive to recommend such products.

So, the evidence so far suggests that financial advice is often low quality due to conflicts of interest, misguided beliefs, and a lack of customization.

Benefits that Advisors can provide are listed below:

1. Advisors can be a brake on a client’s lack of self-control.

In one study of German brokerage clients, they found people with self-control issues measured by smoking cigarettes are more likely to delegate their decisions to financial advisors, which work in this case, like a commitment device, and even with advisor incentives, over-trading for these investors is reduced. Investment biases are mitigated, and performance is improved.

2. Investors may additionally benefit from trust in their Advisor.

They may benefit from trust to the extent that having a trusted advisor reduces the perceived riskiness of investments and allows risk-averse investors to own higher expected return assets than they would have otherwise owned on their own. Advisors can positively affect savings behavior, trading activity, and asset allocation. Advisors influence increased stock market participation and risk-taking and decreased investments in cash accounts. Advisors can also help investors stick with riskier investments during bear markets.

3. There is a time efficiency argument, time spent learning how to manage money is time spent away from improving job skills. Delegating certain financial tasks can help someone to focus more on their own career.

4. Advisory services can help compensate for the loss of cognitive skills as one gets older.

5. Delegation can have benefits in reducing stress and mental overhead.

6. People with inflated perceptions of their own financial literacy are more likely to make mistakes and less willing to accept financial advice. It is the old saying that a little bit of knowledge can be a dangerous thing.
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wm631
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Re: Rational Reminder: What are financial advisors useful for?

Post by wm631 »

nedsaid wrote: Sat Jun 10, 2023 2:56 pm Financial advisors and their pitfalls and benefits are a frequent topic here.
"What are financial advisors (measurably) useful for?"

I'll make it as short, and sweet as possible here - at least, for me; a self-educated, reasonably aware middle-class slub who rolled over his 40-year 401Ks and retirement package at age 58 to a well-regarded financial advisor (all the alphabet certifications after his name) when my mega-corp. decided to totally close-up shop and divest everything. Done through recommendations of knowledgeable friends + the company union contacts.

(1) Paperwork. All the roll-overs, consolidations, potential-future RMDs were handled easily, efficiently.
(2) A separate set of eyes, and advice. Assuming a qualified - and, honest - intelligence of your newly acquired Financial Significant Other.

That's it. If this were late summer 2012, my decision would now be completely different. I would have patiently struggled through all the paperwork involved, taken my chance with any I.R.S. mistakes (... and, I don't think think there would have been), ultimately remained the sole control of that major portion of my portfolio. And, of course, I've learned a lot more since. There's nothing I (... or, you ...) couldn't handle, in 2023, that wouldn't at least match my advisor's (well-regarded, 5-star) Philadelphia-based umbrella group - while keeping the 1-1.5% fees in my pocket. As a point of reference, I have a nice, growing separate personal brokerage account with Vanguard, that I add to myself. Under my own sole control, supervision. Same returns as my advisor and his group - and without the fees. It's basically a wash, in comparison.

Most importantly, any changes to the Vanguard accounts I want I can do, myself - alone - in a few minutes on the computer. As little - or, much - as I choose. No other discussion, or interaction involved. Do I regret (or, even intend to change) the advisor? Not exactly. Again - at this point, it gives me a completely separate platform (diversity), rather than having shoveled everything I have into Vanguard. Or, some into a highly suspect company pension, on the way out. But, I do know I always have an extra paid-for business partner standing at my shoulder, overlooking me. I'm not thrilled about that aspect.
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Re: Rational Reminder: What are financial advisors useful for?

Post by livesoft »

It seems that these things are bigger deals than they need to be if one ignored them for more than 20 years instead of starting to learn about financial things a little bit each year say starting with one's first job.

An example is someone who never ever looked at their tax returns, but always always always had someone else prepare the return that they simply signed completely trusting the tax preparer.
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Re: Rational Reminder: What are financial advisors useful for?

Post by backpacker61 »

Arguably, for many (probably most) households, the most important financial decision they make is the year at which to file for their Social Security benefits. A good advisor should have tools to analyze that decision and can review it with a client.
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Re: Rational Reminder: What are financial advisors useful for?

Post by 9-5 Suited »

This was a good podcast episode, and all the pitfalls and benefits seem very intuitive and documented in research. I especially liked the commentary on how financial salesmen also invest in the same arguably suboptimal portfolios they put their clients in. I actually found that somewhat good news, since it means they are more likely to be ignorant than evil when recommending expensive active products.

In my view, the bottom line items on financial advice are these:

1. It is a useful service and should be a valued profession that many people use. If more people used financial advisors (pending adjustments made to satisfy #2 and #3 below), it's likely most would have happier and healthier financial lives and accomplish more of their goals. Of course, DIY is going to be the best course of action if you care enough to do it on your own.

2. The pricing is too expensive over a lifetime in the current form (~1% AUM) and also leads to inherent, significant conflicts of interest as well as a desire to service a wealthy clientele with opaque pricing that gets siphoned off behind the scenes. If you think a 4% withdrawal rate is challenging to achieve, try a 2.5% rate with 1% AUM and 50 basis points on mutual funds.

3. Anybody who sells products for commission should not be a financial advisor, period. The industry coddles this behavior and toes the line with "fee-based" designations that serve to confuse the public. What generic member of the public could explain fee-only vs. fee-based? It's impossible to have both a fiduciary responsibility you take seriously and large commissions for only a select subset of products.
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Re: Rational Reminder: What are financial advisors useful for?

Post by nedsaid »

wm631 wrote: Sat Jun 10, 2023 3:47 pm
nedsaid wrote: Sat Jun 10, 2023 2:56 pm Financial advisors and their pitfalls and benefits are a frequent topic here.
"What are financial advisors (measurably) useful for?"
I'll make it as short, and sweet as possible here - at least, for me; a self-educated, reasonably aware middle-class slub who rolled over his 40-year 401Ks and retirement package at age 58 to a well-regarded financial advisor (all the alphabet certifications after his name) when my mega-corp. decided to totally close-up shop and divest everything. Done through recommendations of knowledgeable friends + the company union contacts.

(1) Paperwork. All the roll-overs, consolidations, potential-future RMDs were handled easily, efficiently.
(2) A separate set of eyes, and advice. Assuming a qualified - and, honest - intelligence of your newly acquired Financial Significant Other.

That's it. If this were late summer 2012, my decision would now be completely different. I would have patiently struggled through all the paperwork involved, taken my chance with any I.R.S. mistakes (... and, I don't think think there would have been), ultimately remained the sole control of that major portion of my portfolio. And, of course, I've learned a lot more since. There's nothing I (... or, you ...) couldn't handle, in 2023, that wouldn't at least match my advisor's (well-regarded, 5-star) Philadelphia-based umbrella group - while keeping the 1-1.5% fees in my pocket. As a point of reference, I have a nice, growing separate personal brokerage account with Vanguard, that I add to myself. Under my own sole control, supervision. Same returns as my advisor and his group - and without the fees. It's basically a wash, in comparison.

Most importantly, any changes to the Vanguard accounts I want I can do, myself - alone - in a few minutes on the computer. As little - or, much - as I choose. No other discussion, or interaction involved. Do I regret (or, even intend to change) the advisor? Not exactly. Again - at this point, it gives me a completely separate platform (diversity), rather than having shoveled everything I have into Vanguard. Or, some into a highly suspect company pension, on the way out. But, I do know I always have an extra paid-for business partner standing at my shoulder, overlooking me. I'm not thrilled about that aspect.
Sounds to me like you have continued working with the Advisor in regards to your 401(k) rollover. You seem happy and dissatisfied with the Advisor at the same time. Could you explain a bit further why you chose to stick with him? That would be a good contribution to this thread. Has he done more for you than portfolio management?
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wm631
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Re: Rational Reminder: What are financial advisors useful for?

Post by wm631 »

nedsaid wrote: Sat Jun 10, 2023 4:42 pm
wm631 wrote: Sat Jun 10, 2023 3:47 pm
nedsaid wrote: Sat Jun 10, 2023 2:56 pm Financial advisors and their pitfalls and benefits are a frequent topic here.
"What are financial advisors (measurably) useful for?"
I'll make it as short, and sweet as possible here - at least, for me; a self-educated, reasonably aware middle-class slub who rolled over his 40-year 401Ks and retirement package at age 58 to a well-regarded financial advisor (all the alphabet certifications after his name) when my mega-corp. decided to totally close-up shop and divest everything. Done through recommendations of knowledgeable friends + the company union contacts.

(1) Paperwork. All the roll-overs, consolidations, potential-future RMDs were handled easily, efficiently.
(2) A separate set of eyes, and advice. Assuming a qualified - and, honest - intelligence of your newly acquired Financial Significant Other.

That's it. If this were late summer 2012, my decision would now be completely different. I would have patiently struggled through all the paperwork involved, taken my chance with any I.R.S. mistakes (... and, I don't think think there would have been), ultimately remained the sole control of that major portion of my portfolio. And, of course, I've learned a lot more since. There's nothing I (... or, you ...) couldn't handle, in 2023, that wouldn't at least match my advisor's (well-regarded, 5-star) Philadelphia-based umbrella group - while keeping the 1-1.5% fees in my pocket. As a point of reference, I have a nice, growing separate personal brokerage account with Vanguard, that I add to myself. Under my own sole control, supervision. Same returns as my advisor and his group - and without the fees. It's basically a wash, in comparison.

Most importantly, any changes to the Vanguard accounts I want I can do, myself - alone - in a few minutes on the computer. As little - or, much - as I choose. No other discussion, or interaction involved. Do I regret (or, even intend to change) the advisor? Not exactly. Again - at this point, it gives me a completely separate platform (diversity), rather than having shoveled everything I have into Vanguard. Or, some into a highly suspect company pension, on the way out. But, I do know I always have an extra paid-for business partner standing at my shoulder, overlooking me. I'm not thrilled about that aspect.
Sounds to me like you have continued working with the Advisor in regards to your 401(k) rollover. You seem happy and dissatisfied with the Advisor at the same time. Could you explain a bit further why you chose to stick with him? That would be a good contribution to this thread. Has he done more for you than portfolio management?
I thought I pretty much did in the post.

Pros:
Separate qualified advice. Totally different group of accounts, not Vanguard. All my portfolio eggs aren't in one basket as maybe they would be with Vanguard. About as a "good" an advisor, and advisory group (Clark Capital) as I could expect; and locally based (though, of course, that part's not terribly important. Still ...) The basics (monthly payments, paperwork, accruals, etc.) are handled by them. Not much for me to do with it - except keep an eye out, occasionally; check-in on it. My equal beneficiaries are also my equal heirs - eventually, my financially-savvy nephew will only have a couple of fairly uncomplicated phone calls with them to do, though also some extra follow-up double-checking afterwards, on his own.

Cons:
The fees. The complexity of the accounts, in breaking down the components. But, it can be done. (I have: to understand them better) Vanguard is simpler (A-B-C). Most of all: my last paragraph of the post - the bureaucracy of making substantial changes to any of my set-up. Yes - I can do that; of course. I'm ultimately Master of the Ship. But, any modification takes time, back and forth paperwork, triple-checking, potential screw-ups in the figures and pay-outs. And ... if you think about it ... how many of us really want - or, need - a Financial Mother-In-Law, arguing about what they think the right course to do with your money is ?

One more main point to address with what I think you're actually hinting at: getting out. It's always more complicated than getting in. It would take weeks, and potential fund delays to do so. A LOT of double-checking, for me. As a side note, the initial roll-overs in 2012 to the advisor also included two separate pensions, two separate non-retirement accounts I had set up for my brother's kids. This was in addition to my own 401K contributions. I'm almost 69. Extra RMDs from them will be facing me from all that in about two years. All this would get a bit messy and time-consuming for me to figure out, alone. Right now, I don't need to make a massive turn-over like that. Or, tax consequences. (... did I mention I haven't applied yet for that excellent fixed annuity known as Social Security?) If my advisor's returns fail to keep up, I'll step in and things WILL be changed. Not yet. As I said, though: if I woke up tomorrow back in the summer of 2012? I'd be handling all my accounts now, myself, alone.
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Re: Rational Reminder: What are financial advisors useful for?

Post by nedsaid »

wm631 wrote: Sat Jun 10, 2023 6:03 pm
nedsaid wrote: Sat Jun 10, 2023 4:42 pm
wm631 wrote: Sat Jun 10, 2023 3:47 pm
nedsaid wrote: Sat Jun 10, 2023 2:56 pm Financial advisors and their pitfalls and benefits are a frequent topic here.
"What are financial advisors (measurably) useful for?"
I'll make it as short, and sweet as possible here - at least, for me; a self-educated, reasonably aware middle-class slub who rolled over his 40-year 401Ks and retirement package at age 58 to a well-regarded financial advisor (all the alphabet certifications after his name) when my mega-corp. decided to totally close-up shop and divest everything. Done through recommendations of knowledgeable friends + the company union contacts.

(1) Paperwork. All the roll-overs, consolidations, potential-future RMDs were handled easily, efficiently.
(2) A separate set of eyes, and advice. Assuming a qualified - and, honest - intelligence of your newly acquired Financial Significant Other.

That's it. If this were late summer 2012, my decision would now be completely different. I would have patiently struggled through all the paperwork involved, taken my chance with any I.R.S. mistakes (... and, I don't think think there would have been), ultimately remained the sole control of that major portion of my portfolio. And, of course, I've learned a lot more since. There's nothing I (... or, you ...) couldn't handle, in 2023, that wouldn't at least match my advisor's (well-regarded, 5-star) Philadelphia-based umbrella group - while keeping the 1-1.5% fees in my pocket. As a point of reference, I have a nice, growing separate personal brokerage account with Vanguard, that I add to myself. Under my own sole control, supervision. Same returns as my advisor and his group - and without the fees. It's basically a wash, in comparison.

Most importantly, any changes to the Vanguard accounts I want I can do, myself - alone - in a few minutes on the computer. As little - or, much - as I choose. No other discussion, or interaction involved. Do I regret (or, even intend to change) the advisor? Not exactly. Again - at this point, it gives me a completely separate platform (diversity), rather than having shoveled everything I have into Vanguard. Or, some into a highly suspect company pension, on the way out. But, I do know I always have an extra paid-for business partner standing at my shoulder, overlooking me. I'm not thrilled about that aspect.
Sounds to me like you have continued working with the Advisor in regards to your 401(k) rollover. You seem happy and dissatisfied with the Advisor at the same time. Could you explain a bit further why you chose to stick with him? That would be a good contribution to this thread. Has he done more for you than portfolio management?
I thought I pretty much did in the post.

Pros:
Separate qualified advice. Totally different group of accounts, not Vanguard. All my portfolio eggs aren't in one basket as maybe they would be with Vanguard. About as a "good" an advisor, and advisory group (Clark Capital) as I could expect; and locally based (though, of course, that part's not terribly important. Still ...) The basics (monthly payments, paperwork, accruals, etc.) are handled by them. Not much for me to do with it - except keep an eye out, occasionally; check-in on it. My equal beneficiaries are also my equal heirs - eventually, my financially-savvy nephew will only have a couple of fairly uncomplicated phone calls with them to do, though also some extra follow-up double-checking afterwards, on his own.

Cons:
The fees. The complexity of the accounts, in breaking down the components. But, it can be done. (I have: to understand them better) Vanguard is simpler (A-B-C). Most of all: my last paragraph of the post - the bureaucracy of making substantial changes to any of my set-up. Yes - I can do that; of course. I'm ultimately Master of the Ship. But, any modification takes time, back and forth paperwork, triple-checking, potential screw-ups in the figures and pay-outs. And ... if you think about it ... how many of us really want - or, need - a Financial Mother-In-Law, arguing about what they think the right course to do with your money is ?

One more main point to address with what I think you're actually hinting at: getting out. It's always more complicated than getting in. It would take weeks, and potential fund delays to do so. A LOT of double-checking, for me. As a side note, the initial roll-overs in 2012 to the advisor also included two separate pensions, two separate non-retirement accounts I had set up for my brother's kids. This was in addition to my own 401K contributions. I'm almost 69. Extra RMDs from them will be facing me from all that in about two years. All this would get a bit messy and time-consuming for me to figure out, alone. Right now, I don't need to make a massive turn-over like that. Or, tax consequences. (... did I mention I haven't applied yet for that excellent fixed annuity known as Social Security?) If my advisor's returns fail to keep up, I'll step in and things WILL be changed. Not yet. As I said, though: if I woke up tomorrow back in the summer of 2012? I'd be handling all my accounts now, myself, alone.
Clark Capital, yes I remember them. When I worked for a Financial Advisor, we used one of their Fixed Income Funds, what they do is tactical asset allocation, in this case they did this with bonds. The particular fund that was used had a very good track record.

So sounds to me like you like the convenience of having them handle things for you but it sounds you chafe at having somebody looking over your shoulder.

If you think about getting out at some point, what I would do is learn as much as you can from your Advisor. Prepare for your meetings, ask good questions, take good notes. Read your statements best you can and any materials they have
given you. You should have some sort of retirement plan, financial plan, whatever they call it, dust the thing off and read it. There should be an Investment Policy Statement, read that as well. The more you know, the easier any future transition might be.

Before leaving the Advisor, you could start a thread and post your portfolio in Boglehead approved format and let folks here offer their opinions. Formulate a plan starting with where you would like the money to go. Vanguard? Fidelity? Schwab? Too many folks ask for advice only after they have left their Advisor and want the forum to do what the Advisor was doing but for free. The whole idea is to know how to do this yourself before you make the switch or at least to switch to a cheaper Advisory service. Having a plan sketched out in advance makes the transition a whole lot easier.

I think the biggest reason that folks leave their Advisor is the costs, folks believe their Advisor is costing them too much
for the services rendered. Some firms offer very comprehensive services which include financial planning and doing the tax return; other firms just manage the portfolio and yet others are somewhere in between. If you are paying 1% to 1.5% in fees every year for only portfolio management, I think that is too much. If you are getting comprehensive financial planning along with that, then it is a better deal but still might be too much. It's up to you.

Whatever you decide, best of luck to you.
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Re: Rational Reminder: What are financial advisors useful for?

Post by gunny2 »

I think lumping all "financial advisors" in one big lump is misguided. Some may guide one to certain things because they get a commission, but not all, and some are better than others in general just like any other profession.

With that in mind, IMO they are useful for quite a lot, the two main things being:

1. Expertise. Most people don't know nearly as much about this as they do.
2. A poke in the ribs. :happy Most people are also not as active in managing their portfolios as they should be and (at least for me) it's good to have someone contacting me occasionally to say hey it's time to do a review.

Still, knowledge is power, and people should try to learn as much as they can so when they talk to a financial advisor, they can have as productive of a meeting as possible vs just wondering how much they should or shouldn't trust them.
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Re: Rational Reminder: What are financial advisors useful for?

Post by ScubaHogg »

The problem seems to be if you know enough that you could pick out a good advisor, you know enough to not need one
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Re: Rational Reminder: What are financial advisors useful for?

Post by Sandtrap »

nedsaid wrote: Sat Jun 10, 2023 2:56 pm Financial advisors and their pitfalls and benefits are a frequent topic here. Rational Reminder had a recent podcast titled
"What are financial advisors (measurably) useful for?" It is episode 249. I provide a summary here of Ben Felix's comments based upon studies that he had read. It is mostly excerpted from the transcript but I did vary from it from time to time. I didn't see any copyright on the material so I am not violating fair use.

Here is the YouTube link:

https://www.youtube.com/watch?v=RkT-yXj0FTs

Here is the transcript:

https://rationalreminder.ca/podcast/249

Rational Reminder: What are Financial Advisors (measurably) useful for?

Households make a lot of financial mistakes because financial decisions are complex, financial products are complex, and households have biases.

Costly mistakes that Households make.

1. Households tend to incorrectly assess the effects of compounding. They tend to prefer smaller rewards now to larger ones later. That's exponential growth bias and present bias.

2. Households often invest in high fee funds, even when otherwise identical, lower-fee options are available.

3. They failed to refinance their mortgages when it would be beneficial to do so.

4. They under-diversify their portfolios or failed to participate in the stock market altogether.

5. They engage in a tension-induced trading.

6. They over-invest in their employer stock, particularly if that stock has performed well in the past.

7. They failed to contribute to retirement plans with employer matches, even when they can take the money out with no penalty.

8. They under-save for retirement.

9. They under annuitize their assets at retirement.

Advisors should be the solution to household financial mistakes but are often less than an optimal solution for households. Here are some of the reasons:

1. There are a lot of conflicts of interest that affect the quality of that advice and maybe even make it detrimental.

2. Advisors sometimes failed to correct for client biases and might even reinforce those biases if those biases were in the Advisor’s interest to exploit.

3. Sometimes Advisors held incorrect biases themselves.

One study showed that one sample of Advisors held incorrect investment beliefs themselves. They trade frequently; they chase returns, they prefer expensive, actively managed mutual funds, they under diversify. One of the most interesting parts of the study is that they continue making these mistakes after they left the financial services industry. This research, it could show that those firms specifically select advisors who will deliver sincere, but misguided advice to clients.

4. Advisors can have a bias to recommend to clients products which have the highest compensation for the Advisor.

5. Financial advisors exert substantial influence over their client’s asset allocations but provide limited customization for client attributes like risk tolerance, age, investment horizon, financial sophistication, and they charge high fees for doing so.

6. Ben also pointed out that financial products are often intentionally complex in order to make fees opaque thus making it harder for a client to understand the costs involved. In other words, complexity is introduced to hide high fees. Advisors have the financial incentive to recommend such products.

So, the evidence so far suggests that financial advice is often low quality due to conflicts of interest, misguided beliefs, and a lack of customization.

Benefits that Advisors can provide are listed below:

1. Advisors can be a brake on a client’s lack of self-control.

In one study of German brokerage clients, they found people with self-control issues measured by smoking cigarettes are more likely to delegate their decisions to financial advisors, which work in this case, like a commitment device, and even with advisor incentives, over-trading for these investors is reduced. Investment biases are mitigated, and performance is improved.

2. Investors may additionally benefit from trust in their Advisor.

They may benefit from trust to the extent that having a trusted advisor reduces the perceived riskiness of investments and allows risk-averse investors to own higher expected return assets than they would have otherwise owned on their own. Advisors can positively affect savings behavior, trading activity, and asset allocation. Advisors influence increased stock market participation and risk-taking and decreased investments in cash accounts. Advisors can also help investors stick with riskier investments during bear markets.

3. There is a time efficiency argument, time spent learning how to manage money is time spent away from improving job skills. Delegating certain financial tasks can help someone to focus more on their own career.

4. Advisory services can help compensate for the loss of cognitive skills as one gets older.

5. Delegation can have benefits in reducing stress and mental overhead.

6. People with inflated perceptions of their own financial literacy are more likely to make mistakes and less willing to accept financial advice. It is the old saying that a little bit of knowledge can be a dangerous thing.
Outstanding!

thanks for posting this.
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Re: Rational Reminder: What are financial advisors useful for?

Post by nedsaid »

Sandtrap, you are welcome. Every once in a while, I like to take on a project like this hoping that it will be useful to
others. I do enjoy summarizing a post and boiling it down to its essential points. Glad you found this worthwhile.
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Re: Rational Reminder: What are financial advisors useful for?

Post by Charles Joseph »

livesoft wrote: Sat Jun 10, 2023 3:59 pm It seems that these things repairing one's own automobiles are bigger deals than they need to be if one ignored them for more than 20 years instead of starting to learn about financial things automobile repair a little bit each year say starting with one's first job.
livesoft wrote: Sat Jun 10, 2023 3:59 pm It seems that these things representing oneself in legal matters are bigger deals than they need to be if one ignored them for more than 20 years instead of starting to learn about financial things legal stuff a little bit each year say starting with one's first job.
livesoft wrote: Sat Jun 10, 2023 3:59 pm It seems that these things performing one's own root canals are bigger deals than they need to be if one ignored them for more than 20 years instead of starting to learn about financial things endodontics a little bit each year say starting with one's first job.
Some people have no interest in, nor the acumen for, things financial. An advisor can be helpful.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: Rational Reminder: What are financial advisors useful for?

Post by livesoft »

Charles Joseph wrote: Sun Jun 11, 2023 10:00 am Some people have no interest in, nor the acumen for, things financial. An advisor can be helpful.
Your examples are interesting because unlike something like filing a tax return or saving for retirement which are ongoing matters, many (most?) people do not ever need a root canal, nor a lawyer, nor have to repair a car. And if they do, it might be only once in their lifetimes.

Now if you had used something like "driving a car" , "learning how to swim", or "mowing their own grass", then I would agree.
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Re: Rational Reminder: What are financial advisors useful for?

Post by Charles Joseph »

livesoft wrote: Sun Jun 11, 2023 10:20 am
Charles Joseph wrote: Sun Jun 11, 2023 10:00 am Some people have no interest in, nor the acumen for, things financial. An advisor can be helpful.
Your examples are interesting because unlike something like filing a tax return or saving for retirement which are ongoing matters, many (most?) people do not ever need a root canal, nor a lawyer, nor have to repair a car. And if they do, it might be only once in their lifetimes.

Now if you had used something like "driving a car" , "learning how to swim", or "mowing their own grass", then I would agree.
Agreed. I was just jokin.

But the thing is, if I were a typical civilian with no knowledge of or interest in financial stuff, where would I go? If I were lucky, I'd end up at Vanguard and could get into their PAS which IMO is very reasonable.

If I were unlucky, I'd end up with the sharks, which is more likely.

I guess it's just a tough world out there and buyer beware. Due diligence is required.

Addendum: In this unredeemed world, you are truly either the windshield or the bug, and no set of laws will ever fully protect you from that dynamic.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: Rational Reminder: What are financial advisors useful for?

Post by Taylor Larimore »

Bogleheads:

A primary advantage of a simple portfolio like The Three-Fund Portfolio is that it seldom requires an advisor.

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Re: Rational Reminder: What are financial advisors useful for?

Post by arcticpineapplecorp. »

ScubaHogg wrote: Sun Jun 11, 2023 5:38 am The problem seems to be if you know enough that you could pick out a good advisor, you know enough to not need one
i agree with this aphorism generally...

It's also true that knowing and doing are two different things. there are plenty of people who know they should exercise and eat more vegetables but they don't. I think there's also a difference between the knowledge it might take to just buy and hold a three fund portfolio and the emotions involved in staying the course when the crap hits the fan. An advisor might (or might not) be helpful in this regard to talk you off the ledge of panic selling. I think there was a presenter once who pointed at two people in the front row and said they'd each do better if they managed the other's portfolio rather than their own because of the emotion and behavioral mistakes we're prone too when we're managing our own money (but are more dispassionate when managing other's money). Getting one's asset allocation right can help to by holding enough stocks to be able to SWAN but not more, but that's something I think people don't spend nearly enough time on in my humble opinion. It's the "investors should never bear too much, nor too little risk" part of investing philosophy.
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Re: Rational Reminder: What are financial advisors useful for?

Post by nedsaid »

Charles Joseph wrote: Sun Jun 11, 2023 10:43 am
livesoft wrote: Sun Jun 11, 2023 10:20 am
Charles Joseph wrote: Sun Jun 11, 2023 10:00 am Some people have no interest in, nor the acumen for, things financial. An advisor can be helpful.
Your examples are interesting because unlike something like filing a tax return or saving for retirement which are ongoing matters, many (most?) people do not ever need a root canal, nor a lawyer, nor have to repair a car. And if they do, it might be only once in their lifetimes.

Now if you had used something like "driving a car" , "learning how to swim", or "mowing their own grass", then I would agree.
Agreed. I was just jokin.

But the thing is, if I were a typical civilian with no knowledge of or interest in financial stuff, where would I go? If I were lucky, I'd end up at Vanguard and could get into their PAS which IMO is very reasonable.

If I were unlucky, I'd end up with the sharks, which is more likely.

I guess it's just a tough world out there and buyer beware. Due diligence is required.

Addendum: In this unredeemed world, you are truly either the windshield or the bug, and no set of laws will ever fully protect you from that dynamic.
I have a big interest in the topic of Financial Advisors, it is clear that lots of people need help and could benefit from an Advisor but you want them to go to the right place. The problem is that good Advisors aren't so easy to find. If you find a good Advisor, the issue is getting your money's worth, the Assets Under Management fee really adds up over time.

Taylor pointed out that with a simple portfolio, you don't need an Advisor to manage it. I think the biggest Value from an Advisor is the Financial Planning, one reason I like to see a Certified Financial Planner certification. Probably the best way to go is paying for advice by the hour rather than with an Assets Under Management fee.

I hope that threads like this will be informative and help people in making financial decisions. A very big decision is whether or not to do it yourself, to seek advice, or take a hybrid approach. I have followed a hybrid path myself.
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Re: Rational Reminder: What are financial advisors useful for?

Post by ScubaHogg »

Charles Joseph wrote: Sun Jun 11, 2023 10:43 am Addendum: In this unredeemed world, you are truly either the windshield or the bug, and no set of laws will ever fully protect you from that dynamic.
This is a great line
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Rational Reminder: What are financial advisors useful for?

Post by ScubaHogg »

Fwiw, my signature is specifically a reference to financial advisors and Bogleheads
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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