An investor interested in our services came into a meeting with the expectation that his portfolio returns would exceed the benchmark by 1% to account for the 1% management fee. That expectation might seem reasonable if you’re paying an asset manager solely to maximize returns. However, the reasons investors choose a financial planner extend far beyond achieving high returns.
Financial planners focus on finding the right balance between risk, reward, and emotions. While no one cares more about your money than you do, that emotional attachment often leads to impulsive decisions—such as panic selling during a market correction or buying when valuations are high. Investors can purchase index mutual funds or exchange-traded funds (ETFs) that closely mirror the broad market. However, studies have shown that, despite identical investments, investors’ returns are nearly 2% lower than their benchmarks due to poorly timed buying and selling of fund shares.
Even if an investor can endure market volatility and remain invested, mutual funds and ETFs do not offer guidance on critical financial decisions. They cannot advise on the most tax-efficient allocation across account types, the optimal sources for withdrawing capital, how to calculate and time required minimum distributions, or the best strategies for passing assets to heirs.
Financial planning encompasses far more than just asset management. Financial advisers develop comprehensive, long-term financial plans, run complex cash flow projections, and engage in discovery to help define spending habits and financial goals around retirement, education, legacy planning, business decisions, and more. They also serve as a sounding board for the emotional financial decisions investors face.
While the internet provides access to a wealth of information, and artificial intelligence (AI) chatbots can deliver relatively accurate, textbook-based financial advice, these tools cannot fully comprehend your unique circumstances. AI-generated advice, while often technically correct, isn’t tailored to your specific situation. A chatbot cannot assess whether a decision aligns with your goals or how it may affect other areas of your financial life.
AI chatbots do not have thoughts or feelings but can respond in ways that give the impression that they do. By contrast, a financial adviser considers quantitative factors and the nuances that numbers alone can’t capture. They bring empathy and human connection to the table—understanding your emotions, adapting plans to give you peace of mind, and offering guidance that aligns with your life goals.
This holistic approach balances the reward or performance with the risk involved, the emotional reaction to that risk, and the desire for the reward. For instance, an adviser who knows you well understands that your family dynamics might necessitate a more conservative approach than the S&P 500. While your investment performance may lag behind the broader market, your benchmark isn’t the S&P—it’s your personal financial goals.
Financial planning is more than returns. For example, if you only need a 6% annual return to achieve your goals with a 98% probability of success retiring in five years, is it worth taking on additional risk for a 12% return if it reduces your likelihood of success to 75%? These are the kinds of decisions a financial adviser can help you navigate, ensuring you stay on the best path for you.
If you have questions about the value your adviser brings to the table, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the January 25, 2025 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
