financial planning: why and when do you need a financial advisor?

We recently liquidated some investments to fund a friend’s business venture. The distributor who sold us the product many years ago called us to let us know that there seemed to be a problem with the refund process. He worked with us throughout the situation, coordinated all the agencies involved and made sure we got the necessary funds. One of the many instances where I feel grateful to have someone to manage our investments.

Do-it-yourself (DIY) is attractive. Especially for someone like me who works in the investment field and follows the products and markets of a profession. DIY is also exciting and seems like a very mature and responsible thing to do. Many express surprise when I tell them that I don’t manage my own money. Let me explain why I chose to delegate this task.

Like many others, I prioritize my work and my life over money management. My energies are directed mainly towards my work, my home, my relationships and my interests. Spending an awful lot of time with a long list of bond, stock and fund names is something I’d rather not do. Every time I’ve tried, my money has suffered because I don’t make the decision and don’t let anyone else do it for me.

It’s not just my experience. I have several very knowledgeable friends who cannot dedicate enough time to make sound investment decisions on their own, even if they are experts in the matter. I admit that I don’t have the time and the skills to properly complete all of this in all its components: information, analysis, processing and follow-up. I choose to delegate instead.

When I have to decide where my money should be invested, I am overwhelmed with the choices that exist. As an investor, I only have publicly available information in the media. There is no way to go beyond the published figures. I like the many ready lists that analyze the products and create a sensible shortlist. But then I like to look at the numbers, go through the analysis, ask my adviser any questions I have, look for explanations to my satisfaction, and make the decision. I prefer this consultation process that relies on curated data for my specific questions and doubts.

My advisor can’t get away with passive product recommendation. I’m also not ready to sign the papers after a meeting. I pay my advisor for the recommendations he makes. If I use a distributor, I know that they earn a commission by selling the product to me. Both are willing to work for their fees, and my interest is high because it’s my money. They provide the information I need and offer data and analysis to back up the products we shortlist. It is my responsibility to protect my money from the vested interests of anyone who might seek it out and I don’t hesitate to do so. I’m only ready and willing to take help in the process, rather than working from scratch alone.

I keep reasonable expectations. No one can time the markets and that’s not what I expect my advisor or fund manager to do for me. I also don’t want to pick the products so well that I always have winners handy. As long as I have good quality processes and products, I am ready to face the vagaries of the market and the cycles in my stride. The allocation of money between the different options and choices is a decision I make, based on my needs and preferences.

Much like fund managers earn for beating benchmarks, I wish we had advisory professionals managing asset allocations and collecting fees to provide alpha for that macro pick, but we don’t have market that allows and rewards such expertise.

As for the products themselves, call me a lackey, but I prefer mutual funds. I know that a sensible process is in place to build, review and manage a portfolio. I trust it for my money, wholeheartedly. The presence of competition, information and performance evaluation makes me even more pleasant. With some fund-selection efforts with my advisor, I can rest assured that the money is deployed and working well. My lists are reviewed every year and the money is invested throughout the year in the same funds whenever I have a surplus. My returns have outpaced benchmarks and inflation and I wouldn’t ask for more.

A small portion of the corpus is invested directly in stocks with friends, just for the fun of fundamental analysis and value investing. This corpus sometimes beats the funds; sometimes not. There is no point in having a long list of this and that. This portfolio can never beat the index. The direct equity portfolio should be bold and focused. It’s risky and it goes both ways. It is small enough not to hurt.

I rely on my advisors and distributors because the approach where someone implements the joint plan we have agreed on and completes the paperwork is valuable to me. Someone else is looking at the portfolio even though I’m busy with my work. They tell me when something isn’t working and that’s invaluable to me. I don’t need all the choices to be a winner as long as I don’t mind the losers. Since they can see my money dispassionately, it helps.

This combination of fund managers managing the portfolio, advisors managing the product, and distributors managing the process creates an outsourced team that makes a living by making my money grow. Left to my own devices, I may not make the time, or be too biased, or get too attached to notice what isn’t working and plug the leaks. My money will be fine as long as it doesn’t slow down for lack of my attention or get lost in my refusal to accept failures.

My distributor who swung into action for a process error I made many years ago, made no money handling my redemption. Assuming the world of fund managers, advisers and distributors is out to get us, we risk missing out on the benefits of working with unbiased outsiders who take pride in their work. There is a middle ground between tinkering and blindly abdicating all money decisions to others. All it takes is a little dedication, commitment and teamwork.

(The author is president of the Center for Investment Education and Learning)