I get asked all the time, “What did the stock market do today?” While that is a reasonable question to ask, it presumes that wealth management is about investing. Investing is an important part of the wealth management process, but it is not the only component or even the main focus. This is a distinction many do not realize.
The value of an adviser stretches far beyond investing and returns. In fact, financial planning and investing early in life have more importance than investing itself. Wealth management is a multi-faceted process that should not begin with investing as the focus of any initial discussions. Done right, the center of the initial discussions includes client goals, fears, needs and expectations.
A ZERO-SUM GAME
Why focus on a client’s personal goals, fears, needs and expectations before investing? It is because, as economist and Nobel Laureate Bill Sharpe pointed out, the market is a zero-sum game. The average investor will likely get only the return the overall market provides or, in reality, probably less because of fees and transaction costs. It is difficult enough for investment professionals with MBAs, PhDs, computer software and complex algorithms to get a return greater than the market, much less the average investor whose full-time job isn’t to try to do better than the market. As a result, we believe the best wealth management focuses on what can be controlled within reasonable expectations.
VALUE OF INDIVIDUALIZATION
Individualized, goals-based wealth management may add somewhere between 1.8 percent1 and 3 percent2 or more of value per year to the decision making process, as some efforts to quantify this value have shown. That value could be lower or higher based on individual situations. Any value added from actual investing decisions, such as tactical asset allocation and investment selection, is on top of this over the long run — icing on the cake, as they say. For this reason, our own firm, which does have an Investment Advisory Committee and several investment management professionals, has the crux of its firepower in its team of advisers.
MEANINGFUL INVESTING
Wealth management is about helping an individual, family or organization make better-informed financial decisions in order to achieve long-term goals. The value of this service becomes more imperative as financial situations become more complex and more wealth is at stake. In the same way that a visit to the doctor limits your risk of poor health or an attorney’s representation limits the risk of civil fines or incarceration, a wealth manager’s services limit the risk of not having the money you need when you need it most, such as when you retire or when you plan for the expansion of your business.
A good wealth manager should seek to understand your financial situation before providing any recommendations. Through behavioral coaching, a spending strategy, rebalancing, asset allocation and a mind to keep investing expenses low2, a wealth manager can add value even before getting down to finer details regarding investing strategy.
Goal-based investing adds meaning to the decisions being made and creates benchmarks and accountability. This will be the first clue to knowing you might be in good hands.
W.J. Rossi offers securities through Valmark Securities Inc. (member of FINRA/ SIPC). He also offers advisory services through Koss Olinger Consulting LLC, an SEC Registered Investment Advisor. Valmark Securities Inc. is separate from Koss Olinger Consulting. Koss Olinger is located at 2700-A NW 43rd Street, Gainesville, Florida 32606. The material contained in the herein is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the material discussed, nor does it constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned. The opinions expressed do not necessarily reflect those of author and are subject to change without notice.