Hire a Financial AdvisorRecruitment of a financial advisor
Worth the cost of hiring a financial advisor?
The financial advisory usually cost 0.5 to 1 per cent of your portfolios per year. Vanguard, one of the world's biggest mutual funds, has been studying this issue for 15 years. Vanguard came to the conclusion, on the basis of research, analyses and tests, that there was a measurable improvement in returns from working with a financial advisor.
The Vanguard call this benefit the advisor's Alpha. If certain best practice is followed, the outcome can be an alphanumeric of around 3 per cent per year. Russell Investments, a large asset manager, came to a similar conclusions. Russel believes that a good financial advisor can boost investors' yields by 3.75 per cent.
It is not everyone who wants or needs a financial advisor. According to Vanguard, about a fourth of retail investments are really "self-directed". Obsessive traders are following the market and enjoying making and executing financial forecasts. The most important thing, perhaps, is that these players have an unbelievable degree of rigour that keeps their emotion from interfering with their long-term strategies.
Knowing that three fourths of us are not "self-directed" when it comes to the issue of making a living, it is good to know that there is help that can really make a difference - under the right conditions. Mr Vanguard says that there are several ways in which a financial advisor can create added value for your investing activity. These advantages include advice on the development of a general management policy, wealth diversification, tax minimization, re-balancing and structuring/time tracking of withdrawal from your pension account.
Any of these service can gradually increase a client's return - sometimes continuously, sometimes occasionally. However, the greatest way in which a financial advisor can create added value - up to 1.5 per cent per year of higher return per year - is behavioural training. Every good knight in the game knows that fearmoney doesn't make a living.
Some of the best financial advisers are able to keep their clients' anxiety and emotion at bay by offering continuous, fact-based guidance and peace of mind when market conditions become shaky or mad. Russell's survey also identifies this as the greatest advantage of working with a financial advisor. Vanguard's survey of more than 58,000 self-managed ISRAs showed that those who made significant changes to their EVEN ONCE strategies in the five years from 2008 to 2012 experienced a 8 per cent increase in returns.
Morningstar research shows that often the return for a fund is far lower than the return for the fund in which it invests. A consultant can avoid such counterproductive behaviour. Information is presented without regard to the particular investor's objective, appetite for risks or financial condition and may not be appropriate for all types of investments.