By Beth Pinsker
It is difficult to set a dollar amount for peace of mind and the other behavioral strategies offered by advisers.
You can expect a lot more from a financial professional if you pay a 1% fee to manage your finances. How would you know?
It's impossible to measure success in all components of financial planning. Although some research papers tried to give a figure like 1.5% of assets or so forth, this was mostly for investment performance. You will also get financial services such as retirement planning, tax planning, investment selection, and estate planning if you pay for any type of advice. Beyond that, economic factors are outside the control of individuals even if they have the training and expertise.
Even though your adviser might have done a great job in 2022, you still lost money as both stocks and bonds fell significantly. You might have earned more if the same adviser did a poor job in the past. What about the future? It's impossible to know the future.
Roger Young, T. Rowe Price thought leadership director, says that while people have tried to estimate the value of financial advice, it is so dependent on each individual's unique circumstances. How much do you get from coaching and behavioral improvement?" It is very difficult to measure.
T. Rowe Price conducted an exercise to determine how customers value financial advice. This was done to help him identify predictors that would lead people to pay for his advice. Survey results showed that people don't place much value in the financial planning services that provide the most measurable return on investment, such as goal-setting, day-to-day cash management and coaching.
Retirees paid 45% more than those still working and 26% less. Those retirees who were already working with advisers were most interested in investment management--investment selection, asset allocation and rebalancing.
These services are, not by accident, the easiest to quantify the return on investment. Young says that it is possible to show statistics of how we have done and that this area can be used to demonstrate the benefits of an asset manager.
The tax planning puzzle
Surprisingly tax planning was not high on people's list of priorities, even though T. Rowe Price performed statistical analysis of survey results.
Subjective responses are more closely related to paying for advice (compared to only considering paying).
Young says that tax planning was second in value for people who are still working. However, when you take into account all other factors, it was not a factor that drove people to seek out advice.
Young suggests that this is because people don’t view tax planning as part financial planning and instead see it as help in filling out their tax forms.
Young says that tax planning is an important part of life. It's all about where they will get the help.
Are you listening?
The client must follow the advice. This could be where some of T. Rowe Price’s low-scoring behavioral aspects of financial planning are lost. It's not enough to hire a professional; the client must understand and follow the recommendations to determine if the investment is worthwhile.
Cary Carbonaro is a certified financial planner who also serves as director of women's wealth at Advisors Capital Management Wealth Services. "My job is not to make bad decisions, but to help you sleep at night."
Carbonaro discovered that not everyone is listening, which keeps her awake at night. Sometimes it's hard to get through to them. It just kills my soul. She says that she just loves it. They'll sell their stock when the market is down and cash out IRA to pay penalties and taxes if they want to purchase something. They will put their entire life and future at risk.
During the 2020 market crash, she was able convince 11 of 12 clients to cash in and stay invested. The ones who listened were happier and saw their investments rebound. The 12th was not so lucky. Despite Carbonaro's best efforts, everyone lost money last year.
It's difficult to be judged solely on the performance of the market. Carbonaro says that he believes he is doing more. "If you are willing to listen and allow me to talk you through the bad ideas, then I will keep your life on track and help you reach your goals.
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