Value Proposition of Investment Advice

How do you evaluate the services that you pay for?  We recently sold a house and paid the typical 6% fee to our realtor – 3% to the listing agent and 3% to the sales agent.  This seemed like a lot of money for one transaction.  However, it enabled us to move an illiquid asset in less than 2 months and move on to another home.  The intangibles provided by our realtor were many.  The firm was experienced and professional and listened to our concerns.  They marketed the property exceedingly well, hired outstanding photographers, promoted it on social media and positioned it appropriately within a competitive marketplace.  They held an open house for other realtors, showcasing our property and obtaining written feedback from over 30 agents about the pros and cons of our home including the listing price.  When the time came for the actual negotiations the owner of the firm provided exceptional guidance and was extremely responsive.  We felt that the final offer that we received was fair and competitive.  We were clearly not their largest client, but they made us feel important.  They transitioned us to their in-house closing team who made sure that all the details were completed, and the closing went off without a hitch.  After the closing, the team followed up with us numerous times to make sure that all was well and that we were happy with the service.

We could have tried to sell the property ourselves.  There are do-it-yourself services for homeowners who wish to save the 6% and it is tempting.  However, we are not realtors.  We don’t know how to market or accurately price real estate.  We didn’t want to show the house ourselves or field calls and questions from unqualified buyers.  We were not comfortable with all the legal aspects of selling a home and wanted someone with the experience to execute this for us.  We wanted to sell the property quickly and painlessly.  After all, this was an important and large asset for us.

How does this analogy apply to investment advice?  In a recent Wall Street Journal article that I read the author stated that investment management is now a commodity whose price has dropped close to zero following the advent of robo advisers and automated portfolio services.  While these services may have their place with entry level investors, they are not the best solution for clients with complex specialized needs or anyone who wants more personalized experience. Robo advice is best for younger clients with minimal assets.  Robo advisers are designed for clients who can stick with their asset allocation unwaveringly in good times and bad and who are comfortable doing the work themselves without much professional support.   Independent advisors provide a completely different level of service with the value based on their ability to analyze a wide amount of financial information and customize the delivery for their clients.  Just like our realtor, we are professionals in our field and provide the following items of value for our fee above and beyond rebalancing a portfolio:

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  • Financial planning: We are a planning-based firm with the client’s goals at the heart of our practice. We are a resource for our clients’ financial questions ranging from Social Security optimization to refinancing a mortgage to saving for college education.  We have an on-going commitment to keep up this level of expertise and have added two candidates for CFP® Certification this year. Behind the scenes, planning is integral to our decision-making process.  We know if a client is ill and may need access to additional cash for medical expenses.  Long before retirement we plan for a stream of income for our clients and to facilitate their cash flow.  Our estate planning allows us to assist clients who are suddenly widowed, acting as a trusted advisor in times of their greatest need.  Essentially, we are financial partners with our clients -available and knowledgeable to assist them throughout their lifespan.


  • Risk assessment: One of the most important services that we provide is assessing the risk level of our clients. While typical robo advisers ask 5-8 basic questions to determine your risk capacity, our assessment is based on an in-depth knowledge of our clients formed from our conversations, meetings and analysis. We include questions about your health, your life plans in retirement, the needs of your children and grandchildren, and charitable considerations.  Then we integrate your risk tolerance with your financial goals (for income and/or growth) to determine the proper asset allocation for your portfolios.  Finally, this is not a one-time proposition; we periodically review the asset allocation with our clients to see if any changes are needed.
  • Customization: Our recommendations are not cookie cutter. We customize our portfolios to meet the needs of our clients including factors like tax minimization, unrealized gain analysis, income needs planning, and individual or social constraints.  We allow for the fact that some 80-year-old clients can be aggressive, and some Gen X clients may be conservative.  While robo advisors categorize everyone into 4-5 basic types, our analysis allows for many shades of gray and a multitude of different portfolios.


  • Research and Review: Portfolios under our management are reviewed weekly and holdings are monitored daily for changes. We assess the entire universe of options available – not a playlist of 50 ETF’s or mutual funds, and we receive no commissions from anything that we buy or sell. We use multiple sources for our research including Value Line, Barron’s, Wall Street Journal, Dow Theory Forecast, Credit Suisse, Quodd, Schwab, Ned Davis and Argus among others.  Look at the holdings in a typical robo portfolio and you will find that they use a very short list of custodian funds (such as Schwab ETF’s or Vanguard funds) and proprietary money market accounts that are profitable for the firm and not very beneficial for the client.  This is where they make their money and why their fees appear inexpensive.
  • Reporting: Our reporting is designed to be easy to read and understand. We provide a quarterly graphic analysis of client portfolios and compare them to a relevant benchmark.  Our fees are transparently shown on these reports, not hidden or buried in the fine print.  All returns are net of our fees so that you know what you are making.  Unlike a robo adviser, we can explain the holdings in our client portfolios, answer questions about accounts and help our clients interpret their results.  Our focus is on the client goals and the risk adjusted returns that they need to meet their long-term objectives.


  • Discipline: People fight a constant battle between the alternate devils of fear and greed.  By working with an independent advisor and placing the advisor in the middle of decision making, the cycle of fear and greed can be mitigated which can lead to better overall returns.  In a recent Dalbar press release, the average equity investor lost -9.42% in 2018 compared to the S&P 500 index which was down by -4.38%.  Dalbar’s Quantitative Analysis of Investor Behavior Study has been analyzing investor returns since 1994 and has consistently found the average investor earns much less than market indices suggest.  Discipline comes from having an independent advisor partner with you on these important decisions; a robot simply can’t provide this level of support.
  • Continuity: Working with a discretionary independent advisor provides continuity of management. Extended travel, memory loss, sickness, hospitalization are all circumstances in which the independent advisor can provide management when clients are unable to do so on their own. Beyond the peace of mind that this provides, there are tangible and real benefits to having someone actively working on your behalf when you cannot.  To provide continuity within our firm we have actively recruited and trained the next generation of financial planners and advisors who are knowledgeable and dedicated to helping our clients.


  • Service: It is one thing to have 24-7 access to an 800 number. It is another to have access to a team who knows you and is responsive to your needs whether it is 9-5 or at nights, holidays or weekends.  Being service oriented is not a tag line to us; it is a way of life.


  • Trust: We work only for our clients and always in their best interests. We receive a fee from our clients for our services.  There is no other commission, kickback or fee-splitting.  Therefore, when we act on your behalf we are working as fiduciaries.  Many of the automated portfolio services use their own funds, or money market accounts to compensate for what appears to be low fees.
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  • Expertise: For those who think that investment management and financial planning are easy, I say think again. This is a complicated world full of risks and opportunities.  The landscape is constantly changing and the bell weather stocks that you owned 10 years ago may not be prudent today.  Properly managing a portfolio and integrating personal financial planning is a complex area- one that needs to adapt and change with changing times.


  • Knowledge: Questions about your portfolio? Robo clients can call 1-800 call center but they certainly don’t have access to talk to the portfolio manager for their account. When our clients call, they talk to an Investment Manager with 30+ years of experience or a CERTIFIED FINANCIAL PLANNER™ with 20+ years in the business.  Knowledge of our client’s unique circumstances leads to better decision making on their behalf. There is a difference between an advisor or CFP® who knows you personally and a random individual in a call center.  The choice is yours.