Investing & Economy

Financial Advisors Bring Added Value

"You get what you pay for"

Robo-advisors, investment apps, and low-cost investment funds are drawing wide attention as consumers face new challenges to the traditional model of consulting a financial planning professional.

However, despite lower costs for those options, most Americans still prefer dealing with human beings for financial advice. A 2020 NerdWallet survey conducted by the Harris Poll found 84 percent of people would rather interact with a real person than deal with a robo-advisor. The most recent Investopedia Affluent Millennials Investing Survey also found 65 percent of those millennials trust a financial advisor and 43 percent use their services.

“You get what you pay for,” said Richard P. Hand, CFP®, president of Valley Forge Wealth Management Inc., in Spring City, Pennsylvania. “Low-cost products and services put everybody in the same box. That's how they have to do things to get scale and make things cheaper. But everyone is different.”

Within the financial services industry, he said, investment services and products such as mutual funds are increasingly becoming commodities.

“Everyone’s offering something really cheap,” he said. “But you can't really commoditize relationships. I think there's a lot more margin in relationships than there is in selling products.”

Hand said his firm looks at each individual situation to see what makes that client different and unique. His advisors then design customized solutions that do more than just recommending investments. They address such topics as retirement planning, cash flow, estate planning, tax management, risk tolerance, and how to manage risk. His client’s value tailored solutions that help them reach their specific goals.
hand quote
He added that many competitors in the robo-advisor and low-cost sectors do not factor in the complex life situations and various risks people must navigate.

“They are not really addressing topics such as whether you have long-term care insurance, what happens if your pension ends, or whether you have enough life insurance. “What if there is a small business that needs to be sold, a divorce which led to a blended family situation, or a child with special needs?” They only talk about the products they sell, such as mutual funds. We make things as customized as we can for people to make sure they hit their specific goals—while looking at the big picture.

Technology platforms sometimes appeal to investors who are averse to working with humans – more introverted individuals, for example – and who prefer to make their own decisions, Hand said. They can also work for people who are able to make good decisions by learning and understanding the investment environment. “Not everyone is going to hire a financial advisor, but that’s ok.”

Handx500x600However, the biggest danger with robo-advisors and investing apps such as Robinhood arises from the video game-style experience they provide. Gamified platforms also encourage a herd mentality where users make investments simply because others do. People who do not understand why they are buying and selling can easily lose money through these tools.

“I'm not worried about robos stealing business from us,” Hand added. “In fact, I'd be more inclined to say I get a lot of business from people who tried some DIY platform, lost half their money, and now want some professional help.”

The financial planning discipline offers a broader range of services beyond investments. For example, preparing for retirement requires comprehensive, individual plans that evaluate a variety of risks and options. Longer life spans are increasing the length of time when retirees will need to be financially self-sufficient.

“You can't get rid of every single risk,” Hand said. “You have to manage them, trading one risk for another in some cases. How you manage risk depends on the clients’ level of risk tolerance, as well as other factors. We might use annuities that guarantee a lifetime payout to meet basic needs, such as groceries and utilities. Then they can take inflation adjusted distributions from their other accounts. The solution largely depends on how risk-tolerant they are.”

For more information on Valley Forge Wealth Management, visit: valleyforgewealth.com

 

Related Articles

© 2017-2019 Advisors Magazine. All Rights Reserved.Design & Development by The Web Empire

Search