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Measuring the Value of Financial Advisor Advice on Your Retirement Plans

| May 14, 2019
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Beyond Asset Allocation: 7 Ways You Can Benefit from Working with a Financial Advisor

Is it possible to measure the value of professional financial advice when it comes to your retirement strategy? According to a recent study of retirement plan participants with self-directed brokerage accounts (SDBAs),1 participants who worked with a financial advisor had higher balances and more diversified portfolios compared to those who didn’t. 2 Specifically, those who chose to work with a financial advisor reported an average balance of $449,552, nearly twice as much as the $234,643 reported by non-advised participants.1

Interestingly, the study found that the larger balances were not necessarily an indication that the portfolios of investors working with advisors were outperforming market indices by that margin. Instead, the study concluded that “investors with higher balances more likely benefitted from their advisors’ advice to save and invest more and reduce exposure to individual stocks through broad portfolio diversification.”3

Similar results have surfaced in studies of mutual fund investors. DALBAR’s Quantitative Analysis of Investor Behavior Study (“QAIB”), which has analyzed investor returns on an annual basis snce 1994, consistently found that the average investor earns much less than market indices suggest.4 Why? According to DALBAR, investment results are greatly influenced by investor behavior. By succumbing to short term strategies such as market timing or performance chasing… as well as psychological factors, such as loss aversion, reacting to market news, or following the behaviors of others (i.e. herd mentality)… many investors are unable to exercise the necessary discipline to remain invested long enough to capture the benefits markets can provide over longer time horizons. 5

Adding value beyond investment returns

Yet, investment returns are only one part of the equation. That’s where working with an experienced financial advisor may make a difference. Financial advisors typically employ a disciplined process that not only seeks to manage risk aligned with individual investor goals and objectives, but can help answer critical questions that asset allocation alone cannot address, such as: When can I retire? Will I have enough to support all of my goals? Will I outlive my assets?

Determining if you will have sufficient income to cover all of your expenses and maintain your desired lifestyle requires a holistic approach to planning. That begins with understanding and documenting your goals, analyzing your various income sources, anticipating your expenses in retirement, evaluating how your income may increase over time to outpace inflation, and developing a viable spending and withdrawal strategy aligned with your needs and goals. Only then can customized recommendations and strategies be implemented and monitored over time to support your goals.

Seven ways you can benefit from working with a financial advisor.

Whether you currently participate in your university retirement plan’s self-directed brokerage account option or through the plan’s core investment options, faculty and staff may benefit from working with an advisor who is well versed in the various retirement benefits available to university employees. A professional advisor can provide a holistic view of your financial picture that goes well beyond asset allocation, diversification and portfolio rebalancing:

1. Tax-efficient asset location strategies – make sure you are considering all of the pre-tax retirement savings opportunities available to you.

2. Retirement spending strategy – determine which accounts to draw on, and in what order, to help optimize your income, spending, and tax efficiency.

3. Access to specialized resources – coordinate advice and guidance from specialists in the areas of retirement, tax, investment, estate, and risk management.

4. Financial education – your advisor can help educate you on complex financial concepts and strategies to help you make confident decisions across all aspects of your financial picture.

5. Behavioral coaching – your advisor can act as financial sounding board to assist you in making sound financial decisions.

6. Fiduciary advice – working with a fiduciary advisor helps ensure the advice you receive is always in your best interest, not that of your advisor or financial product provider.

7. Regular financial reviews – formal reviews of your strategy enable you to look over and adjust your strategy based on changes in the markets and in your life.

To learn more about how working with an experienced financial advisor may add measurable value in helping you pursue your financial goals, let’s schedule time to talk.

1 Charles Schwab: The Schwab Self-Directed Brokerage Account Indicator, September 30, 2018

2 Self-directed brokerage accounts (SDBAs) are brokerage accounts within retirement plans, including 401(b), 401(k), 457 and other types of retirement plans, that allow participants to invest in stocks, bonds, exchange traded funds, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.



5 DALBAR’s 23rd Annual Quantitative Analysis of Investor Behavior Study (“QAIB”) 2017

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