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Why Investors Should Pay for Advice

The bull market has run for more than ten years. Many investors don’t remember down markets. Exchange traded funds have been around since the mid 1990’s. Now online trades seem to be commission free. People think: “Why do I need to pay for financial advice?” Twelve Reasons it Makes Sense to Pay for Financial Advice Investors often benefit from working with advisors, but the reasons often aren’t obvious. 1. It’s not their profession. You can cut your own hair, repair your own car or represent yourself in court. Most people don’t because it’s not their area of expertise. Advisors are trained. They usually have experience. 2. They aren’t objective. People are emotional about money. Psychologically, losing it hurts them more than making it gives them pleasure. Statistics show the investing public buys high and sells low. Advisors do lots of hand holding, which is better explained as “focusing on the long term.” 3. Pay as you go pricing. It’s not like buying a house or car, later deciding you made the wrong choice and paying a lot to get out. Many advisors utilize asset-based pricing and professional money management. Although investing should be viewed long term, if you are invested three years, two months, one week and one day then decide you want to part company, you are usually only charged for the period of time you used the service. 4. Pricing is transparent. Everyone is in business to make money. When you buy a diamond ring, you don’t know what you would get if you sold it to another jeweler down the street. What’s the markup? Fee based accounts are pretty straightforward re: pricing. Listed securities like stocks are priced with bids and offers every day. 5. Do you want to take responsibility? It’s human nature to want to blame misfortune on someone else. No one wants to say “I made a bad decision and I lost money.” Although advisors don’t take actual responsibility (they don’t make up losses) they are accountable. If the investor isn’t happy with the relationship, they can fire their advisor. 6. Do you have the attention span? On cable tv, i nvesting has become a spectator sport, like professional wrestling. People love watching in their spare time. “Spare time” are the operative words. The NYSE is open 6 ½ hours a day, most weekdays. Stocks trade in foreign markets. Professional money managers are focused on investments, all day, every day. It’s what they do. Advisors are similarly committed. 7. Can you get enough information to make good decisions? You’ve heard the expression: “We aren’t starved of information. We are drowning in it.” Attributed to various people, there’s also “We are drowning in information while starving for wisdom.” Much “free” information online comes with a bias. Advisors and the firms behind them sort through information before making recommendations. 8. Do you see the big picture? Some investors might see trading stocks as fun, similar to trying their luck at a casino. Advisors see investing as a disciplined process to help a client amass money to try and meet a goal, like a comfortable retirement. 9. Are you trained? Professionals in the financial services industry are licensed and trained. They usually earn professional certifications. They have continuing education requirements. Your spouse wouldn’t hand you a pair of scissors and say: “Cut my hair. How tough could it be?” Advisors are trained before they can offer advice to clients. 10. How much experience do you have? It’s been a pretty good stock market for 10+ years. As an investor, have you ever seen a bear market? It’s been said: “The market goes up like an escalator and down like an elevator.” Will you get scared and sell? Although past performance is no guarantee of future results, experienced advisors know markets are usually cyclical. They’ve likely seen it before. 11. What will it cost if you make a mistake? You watch late night TV. Upon hearing gold is good and buying gold coins is the way to go, you call the number on the screen and buy those coins. Upon delivery, you learn the coins are authentic, but their value is different from the price you paid, even though the price of gold hasn’t changed much. What did that investment cost you? If you are a gold bug, advisors can suggest ways to own gold with more transparent pricing. 12. Who tells you when to sell? Many people get advice from friends. The knowledgable barber is a stereotype. They might tell you what they are buying, but do they say: “I think it’s time to get out?” Probably not, unless you closely quizzed them on their market activity. Although buy and hold has been an accepted strategy for years, advisors often talk about price targets. The bottom line is investing is more complicated than it looks. That’s why investors often benefit from professional advice.

Related: Answering the Question: “What Have You Done for Me Lately?”