Who needs a financial advisor when the markets are on the rise?

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LLike many others, I am drawn to “comeback” stories. So it’s no surprise that the story of the world’s rarest and oldest dog has stuck with me.

For over 50 years, the New Guinea Mountain Wild Dog was believed to be extinct. But in the 2010s, a few reported sightings led researchers to take blood samples that confirmed the existence of a healthy and viable population lurking in a remote area.

You might be wondering how this story can relate to the question posed in the title of this blog. Well, for me, it’s that the last 10+ years have led too many investors to devalue the role of a financial advisor by turning advice into an à la carte menu. Many still enjoy financial planning, but they are wondering if they need an investing quarterback. However, at Blueprint, we are seeing signs of a revival.

“Investing is easy,” say independent investors

For over 10 years, we’ve been living in a massive case study on the power of recency bias. For investors, almost every data point could lead them to conclude that having a financial advisor to serve as an investment quarterback is no longer relevant, including:

  • An on-the-fly investing approach has been most effective during a historic 13-year bull market
  • The explosion of fintech has put the tools of investing and financial planning within the reach of the masses
  • Most mainstream financial advisors don’t offer access to riskier and in-demand assets such as cryptocurrency, real estate, or hedge funds.
  • The fixed fee revolution has encouraged a hybrid DIY approach, where investors are briefed by their advisor / planner but end up keeping the reins on the investment side.

For investors whose personal investment “maturity” occurred in whole or in large part after the Great Recession, the avoidance of financial advisers runs particularly deep. The graph below highlights the decrease in dependence on advisers among those under 45.

Source: https://www.wsj.com/articles/rich-millennials-to-financial-advisers-thanks-for-the-golf-invite-but-you-cant-invest-my-money-11636367400

“It’s easy to manage $ 500,000, $ 1 million yourself,” said a 26-year-old. The Wall Street Journal in the same article from November 2021 which included the table above. Michael Martocci, a startup founder, says he spends less than an hour a week monitoring his investments and channels 90% of his money into crypto.

Return expectations that do not pass the smell test

Recency bias not only affects how investors perceive the role of advisors, but also thinking about the potential for returns. The following graph – which strikes me as mind-boggling – says a lot on this point.

Return expectations

Source: https://www.businesswire.com/news/home/20210623005211/en/Investors-Emerge-From-COVID-with-Outsized-Investment-Return-Expectations-Finds-Natixis-Survey

This table contains the answer to the question posed in the title of this blog, in my opinion. Who needs a financial advisor when the markets are on the rise? Answer: Most investors, but especially those who think the markets are only going to rise, as these individuals seem to be in danger of giving up their plan when (not if) the markets take a long-term downturn.

Full market cycles include large drawdowns. This is often when financial advisors, in their role as investment quarterbacks, can really show their value. Some of the value may be retrospective, at least for financial advisers who focus on wealth preservation, as they’ve likely already guided their clients to risk-managed investments. But the other part is in real time, when the advisers serve as the investment therapist, if you will. Advisors provide individuals with the confidence they need to stick to their financial plan, even if the client’s inner monologue tells them to pull out of the market.

But what happens to investors who have no one to silence that inner voice telling them to run away, who aren’t properly risk-managed, or – worse yet – both? If you were around in 2008, you know the answer; it’s disheartening because it’s so preventable.

And it’s not just individuals without counseling. I think investors in the growing flat fee segment of the advisory space will largely suffer the same fate when a sustained bear market takes shape, as will investors who use a traditional fee-based advisor from assets under. management though theirs is one of the many who have ignored prudent risk management and investor behavior.

Now more than ever, the level of disconnect between investor expectations and advisor perspectives shows that investors need an advisor who can be both a financial planning coach and an investment strategist to help them. at :

  • Set practical short and long term performance expectations
  • Put in place a financial plan that can reasonably achieve long-term financial goals
  • Apply a risk-managed investment philosophy that does not focus on upside returns at the expense of downside protection
  • Stick to the plan in emotionally charged market environments

The “return” of the financial advisor as an investment quarterback

Something that keeps me awake lately is a lingering concern that too many investors are ill-prepared for a sustained market correction, especially as they approach retirement age. I don’t mean this in a hyperbolic way, because I know people in my own life that I care about. I wonder if their overly euphoric approach to investing over the past 13 years could permanently prevent them from achieving their financial goals when their portfolios suffer the next market crash.

Given the strength of the hold of the recency bias on many investors, I think the sad reality is that it may take a significant market shock or downside before they reassess their thinking on the market. role of an advisor.

Consultants who have been and continue to focus on building strong relationships, delivering modernized customer service, and outsourcing to offer a solid range of services under one roof will be well positioned for the “comeback”.

Blueprint Investment Partners is an investment adviser registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. An advisor’s oral and written communications provide you with information about which you decide to hire or retain an advisor. For more information, please visit advisorinfo.sec.gov and search for our company name.

Information obtained from third party sources is believed to be reliable although its accuracy is not guaranteed, and Blueprint makes no representations or warranties as to the accuracy or completeness of the information, which should not be used as the basis for any investment decision.

Information contained on third party websites to which Blueprint may link is not fully reviewed for accuracy and Blueprint assumes no responsibility for the information contained on such websites.

The opinions expressed in this commentary reflect the author’s subjective judgments based on the terms at the time of writing and are subject to change without notice.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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