Nine Reasons It Makes Sense to Pay for Financial Advice

... That Make Sense to Most People

Everyone wants to eliminate the middleman.  We buy online instead of shopping in stores.  A “For sale by owner” sign goes up when you want to cut out the realtor.  We want to invest without paying fees or commissions to a ‘broker.”

The Disreputable Profession

“And now for something completely different.” (Monty Python) Close your eyes.  Think of a profession that has a reputation for being disreputable.  They are characterized as overcharging and cheating their customers.  You could easily do several of the tasks they perform on your own.  There’s books and information on the Internet to tell you how.  Yet we still go to these folks on a regular basis. If you said “auto mechanics” you would be right.  You can easily change your own oil or replace tires.  Yet despite their bad press, we take our cars to the local mechanic to keep them maintained.  Why?  Because we think our mechanic is honest, does a good job and has our best interests at heart. FYI: Back in 2013, Gallup reported that only 16% of Americans felt Congress was doing a good job.  Yet 46% felt their local Congressional representative was doing a good job.  People disapprove of the group, but like their local person.

Nine Reasons to Pay for Financial Advice

Here are a few reasons that should make sense to most people.
  1. It’s pay as you go.  Many advisors have transitioned to managed money or a fee-based pricing model.  No upfront sales charges.   No surrender charges.  Although investing is meant to be a long-term commitment, if you stick with a money manager for four years, three months, two weeks and one day and leave, you are only paying for the time you used the service.
  2. Insurance is complicated. You can buy insurance online.  However, the features and benefits can be confusing.  If you bought a homeowner's policy, paid premiums for ten years, had a problem, made a claim and discovered you weren’t covered for that eventuality, you would feel like you’ve wasted money for ten years.
  3. Advice has value (1). I think it was the New York Post that ran a cartoon shortly after the Crash of 1987.  A destitute fellow, sat at the curb, looking for handouts.  He has a sign  “I lost it all in the Crash, but I saved a fortune on commissions.”
  4. Advice has value (2). It’s legal to represent yourself in court.  If you get audited by the IRS, you could turn up solo.  Most people hire a lawyer or accountant to act on their behalf.  They have knowledge, skills and experience.
  5. The three T’s. A California advisor would explain: “If you have The 3 T’s you don’t need me.  The time to do research and anticipate tax consequences.  Technique, knowing what you are doing.  Temperament, or emotional control.”  If you are missing one or more of those T’s, that’s why you are paying me.”
  6. Risk of making a mistake. In golf, a “mulligan” is a “do over.”  In the world of investing, you don’t get “do overs” if things don’t work out the way you hoped.
  7. The stakes are high. If you fly to Vegas, gamble and have a streak of bad luck, you’ve probably only lost the money you brought along.  If you invest your retirement savings in a couple of stocks that don’t work out, you may have set your retirement back years.
  8. Act, don’t react. You’ve seen the DALBAR study.  For the twenty-year period ending 12/31/15, the S&P 500 averaged 9.85%.  The average equity fund investor made 5.19%.  It’s human nature to want to get in when everything is going right (i.e.: the top) and sell out when everything is going wrong (i.e.: the bottom).  Financial news programs on TV don’t help.  Hand holding has value.
  9. Long term mindset. Most financial advisors are very good at keeping client’s focused on their objectives, adding money on a steady basis, during good times and bad.
There are many other good ways to explain the value of advice.  This list is a good starting point. Related: Five Little Lies Many Investors Tell Themselves