The Real Worth of a Professional Financial Planner

Why seeking -- and heeding -- financial advice from a certified may prove beneficial, some might even say priceless.

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Time to face facts: You can't control what the stock market does day to day or even year over year. But what you can control as an investor are your financial attitude and behavior. One simple way to improve your fiscal behavior, is to work with a qualified financial planner. With improved fiscal behavior an investor is less likely to make the types of mistakes many people make that can sabotage their financial success.

Why is this? Well, basically it's because a lot of the smartest choices may feel counterintuitive to an inexperienced or uninformed investor. A good financial advisor or Certified Financial Planner™, on the other hand, has been around the block a few times and is able to play the long game without getting his or head turned by returns that seem (and are) too good to be true. A prime example of this is many people feel that regularly beating the market is necessary to reach their financial goals when, in fact, those of us in the investment business know that this isn't necessarily true.

The S & P Return Gap
The prestigious financial research firm Dalbar releases a study every year called Quantitative Analysis of Investor Behavior that's better known as just the Dalbar Study. According to their findings, from 1984 to 2013 the S&P 500 has averaged 11.11% per year return. Sounds great, right? Unfortunately, the downside is the average S&P 500 investor earned just 3.69% over the same period of time.*

The truth is that very few people even come close to matching the S&P 500 returns over the long run unless their name happens to be Warren Buffett and they live in Omaha. Through the years I've seen tons of people who say they only invest in an S&P fund, only to manage dragging down their returns to a much lower level than their holdings for a given period of time. Whatever "strategy" they were implementing (if any) caused them to underperform their very own investments.

Case Study Priorities
Let's look at another way. What is more important to you?
A) Short term bragging rights: The numerical return on your portfolio?
B) Long term financial security: Actually having enough money to reach your goals?

- I recently met with a day trader "Genius Bob" who bragged about the "amazing returns" he'd achieved. His wife (who initiated the meeting) quickly informed me of "Genius Bob's" selective memory about the figures. While it was true he had doubled his money over the past 87 days (impressive), it was also true that over the past two years of full time DIY day trading he's lost about 75% of his family's life savings (NOT Impressive, not to mention the lack of any other income from elsewhere.) OUCH!

- In 1984, twin sisters Sam and Pat both started out with $100,000 to invest. Sam worked with an average advisor, who just really didn't offer much guidance beyond picking the initial investments. Sam got average returns of 3.69% per year and her account grew to $286,000 by 2013. Not too shabby considering she nearly almost tripled her money. She was pretty smug about how well she'd done until she looked her sister Pat's account. In contrast, Pat had professional financial help which proactively helped her avoid many of the mistakes and behaviors that drove down Sam's returns. In doing so, she earned a respectable 8% return per year average, growing her account to about $931,000, more than triple her sister Sam's profits.
Of course these are just examples used for illustration, and are not specifically indicative of any particular investment or situation, and that being said actual results will vary. While most of probably fall somewhere between 'Genius Bob" Sam or Pat when it comes to our investing behaviors, we all can improve how we handle our finances. Bottom line, by avoiding big investing mistakes, and letting compound interest work it's magic, even with return well below S&P averages, you can potentially achieve great results.

Time to Get Real
By no means am I generalizing what type of return an individual or couple's portfolio should be delivering. The point is to develop and financial plan (including investments) that fits your specific needs and goals.

For instance, you may find that with your current assets and saving rates that you need to save 200% of your income. In that case, you may need to reduce your retirement expectations or expect to work longer. On the other hand, you may run the numbers and see that you'll be fine with a much more modest return than you'd been investing for, and can potentially lower your overall portfolio risk.

The Smart Money
I believe the real value in working with a financial life planner goes well beyond investment returns. Juggling all your financial puzzle pieces can be stressful and time consuming. Having a trusted Financial Planner to help you with all of this can be a huge weight off your shoulders. I'll save the conversation about couples and fighting over money for another time (but if you haven't heard couples often fight over money, you have no idea how gruesome this can be, trust me.)

I'm in pretty good shape physically, but I do more reps and work out harder when I have a knowledgeable training partner, which in turn leads to me getting in better shape. I'm not any smarter or doing any new or special workouts but the guidance I get from an experienced trainer leads to significantly greater success than if I were to work out alone. The same may apply to having a financial coach, aka a Certified Financial Planner™, who can develop appropriate strategies - and encourage constructive fiscal behavior to boot - to make your money work harder in pursuit of your long term goals.

DAVID RAE, CFP®, AIF® is a Los Angeles-based retirement planning specialist with Trilogy Financial Services, a firm managing over $3 billion of client assets. He has been helping people reach their financial goals for over a decade. Follow him on Twitter @davidraecfp on Facebook or

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Securities and advisory services offered through National Planning Corporation, member FINRA, SIPC, a Registered Investment Advisor. Trilogy and NPC are separate and unrelated entities. The opinions voices in this article are for general information only. They are not intended to provide specific advice or recommendation for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual's goals, time horizon, and tolerance for risk. All indices are unmanaged and are not illustrative of any particular investment. It is not possible to invest directly into an index. Past performance is no guarantee of future results. Keep in mind that the investor returns reflect investment selection, as well as sales charges, fees, expenses, and transaction costs, whereas the S&P 500 Index returns do no. The factors also contribute to the difference in returns. Indexes are unmanaged; you cannot invest directly in an index. Performance illustrated no indicative of future results.
*Source Dalbar Study Quantitative Analysis of Investor Behavior 2014 This study utilizes date from the Investment Company Institute and Standard & Poor's to compare investor behavior with the returns of the overall equity market. The Average Equity Fund investor represents the aggregate action of all investors in equity mutual funds. Investor returns are determined using the change in total equity fund assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other cost. The S&P500 Index is an unmanaged index of large-cap U.S. stocks that is considered to be representative of the U.S. equity market.