In today’s rough market, financial professionals are treading out rebalancing plans or other investment advice, but the real value of their counsel may lie elsewhere.
“An advisor is adding more value when she is managing your emotions than when she is managing your money,” writes Behavioural finance expert Daniel Crosby in a blog post from early August. “Fully half of that owes to behavioral coaching, or preventing clients from making foolish decisions during times of fear or greed!”
We’ve heard the old maxim that asset allocation is responsible for almost all investment returns with very little of that performance attributed to actual security selection. Crosby suggests, based on findings from Vanguard, that an advisor’s hand-holding does more to boost returns than either asset allocation or the rebalancing of a client’s portfolio.
“The research suggests that in addition to the financial rewards that may accrue to those working with an advisor, (that partnership) also provides increases in confidence and security that are no less valuable,” writes Crosby. “Receiving good financial advice pays a dividend that builds both wealth and confidence. The research is unequivocal that a competent financial guide can both help you achieve the returns necessary to arrive at your financial destination while simultaneously improving the quality of your journey.”
So, the next time you’re meeting with a prospective client, you might want to refrain from pulling out charts and tables showing the returns of winning mutual funds or ETFs and instead focus on the “Behavioural Alpha” you’re able to provide them.
After all, that’s where an advisor’s real value lies.