What a Financial Advisor? Consider these Seven Concepts.

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Richard Rosso
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So, you need a financial advisor, but do you truly understand the full extent of the benefits? Consider these Magnificent Seven Concepts:

Concept One: Financial Advisors are NOT Portfolio Managers.

Most consumers believe that financial advisors are primarily investment selectors and asset managers. While these duties are valid, they are not at the top of an advisor’s list or priorities.

Many financial advisors outsource these duties to third-party experts in portfolio construction, analysis, selection, and rebalancing.

As a result, financial advisors are not usually the primary investment experts. Certainly, they study and understand the products available to them. However, a financial advisor is primarily responsible for holistically partnering with clients to understand their overall financial health.

You’ve probably noticed that wealth specialist, financial advisor, and financial consultant are used interchangeably on business cards. It’s very confusing. Ultimately, it’s up to you to ask questions to understand a professional’s commitment to you.

And it’s so much more than just the portfolio.

Concept Two: A Financial Advisor as Holistic Partner.

A qualified financial advisor doesn’t provide solutions in a vacuum. Salespeople are anxious to address financial questions with product responses. Financial advisors, especially those of a fiduciary nature, initiate a process of discovery, data gathering, and lifestyle analysis.

And this journey begins with a comprehensive financial plan.

Unfortunately, when people think of plans, they think of investments. After all, stocks are ‘sexy,’ plans are ‘boring.’

Many times, financial plans act as loss leaders. They’re churned out for free to forge a path to commissioned products.

Remember, the goal of a plan is the plan itself!

Yes, a properly designed financial plan helps financial advisors answer questions properly backed by a household’s money DNA. Product solutions are validated through a holistic study of a client’s financial condition.

Think of a plan as a diagnostic. A complete money chemistry that identifies strengths and weaknesses. If necessary, a qualified financial advisor raises money awareness and outlines a course correction.

Imagine if your doctor, without testing, prescribes a statin drug. You can’t. A financial advisor with a holistic approach can’t imagine it either.

Concept Three: A Financial Advisor assists with Behavioral Rebalancing.

Portfolio rebalancing is simple compared to behavioral rebalancing. Investors look to take on more risk to adrenalize long-term asset allocations at the worst possible times. A tenured financial advisor who’s experienced market cycles looks to help clients maintain behavioral balance.

In Terry Burnham’s book Mean Markets and Lizard Brains, the logic of averages is unavoidable when it comes to investments. No investment class can be above average indefinitely.

So, why take on additional risk if a financial plan suggests a four percent return to meet your goals?

A financial advisor must recalibrate a client’s internal risk clock, which can go awry during periods of extreme fear or greed.

Concept Four: Seeking the Highest Return on Capital? Seek out a Financial Advisor.

According to a 2021 Fidelity Investor Insights Survey, professional financial advice can add up to 5.1% to portfolio returns. That’s only part of the story. Remember, financial advice encompasses everyday money decisions that affect the quality of your life.

Financial advisors provide ongoing guidance as part of that responsibility: Should I buy a new car or lease? Can we afford a trip to Hawaii? Should we cash out our retirement account to pay off the house?

At RIA, our advisors address concerns that go beyond stocks and bonds. We understand money is fungible, and what’s important is the highest and best use of your hard-earned capital.

Concept Five: Financial Advisor as Objective Sounding Board.

Financial advisors address questions as distant from the money universe as Earth is to Neptune (the farthest planet). They are objective sounding boards on health to marriage in the form of – “What would you do if…”

They are active listeners and connect clients to other services and professionals outside their expertise. We garner outside expertise that can assist clients in meeting their needs, contributing to their overall well-being.

Concept Six: Financial Advisor as Swiffer!

There are complex topics many financial professionals avoid. Miss a Medicare enrollment period and incur a lifetime of penalties. Claim Social Security too soon and leave thousands of dollars on the table.

For example, the scare of Social Security going bankrupt is mostly clickbait. Advisors who understand guaranteed income benefits are indispensable partners. They’re armed with information, and emotions are not part of the equation.

Remember, a guaranteed income strategy is important to an investment portfolio’s survivability. Lifetime income options can help retirees adjust or reduce portfolio withdrawal rates during market turbulence.

A proficient financial advisor keeps abreast of legislation and helps clients prepare for imminent changes to the current tax code. Many of the provisions of the Tax Cuts and Jobs Act sunset at the end of 2025 and marginal tax rates are slated to return to pre-TCJA levels in 2026.

For example, a single taxpayer with a taxable income of $44,726 to $95,375 currently falls within the 22% marginal rate. In 2026, that same taxable income range falls within the 25% marginal rate. Thus, advisors must prepare to assist clients, especially retirees, with tax-efficient retirement income strategies such as Roth conversions.

Unprepared advisors prefer to ignore financial ‘dust bunnies.’ Keep them under the bed.

A good financial advisor, “Swiffers,’ or exposes clients to these topics and partners with them accordingly to make valuable decisions.  

Don’t ignore financial ‘dust bunnies.’ Doing so will cost you.

Concept Seven: A Financial Advisor’s Accumulator and Distributor Skill Sets.

Those accumulating wealth and clients seeking income have different needs. A financial advisor must possess the skills to serve both.

Sure, there is overlap, but clients in the accumulation of wealth stage can weather volatility better than retirees who generate retirement income primarily from variable assets such as stocks and bonds.

Per the paper, The Vital Signs of Retirement Income, by James B. Sandidge, JD, for the Investments & Wealth Institute®, managing the distribution of wealth is a complex, nonlinear process governed by the laws of Chaos Theory.  

Unlike accumulating wealth, which is a linear process. Volatility can be a friend when purchasing investments.

However, market volatility coupled with account withdrawals can lead to a cascading investment loss and increase the danger of running out of money prematurely.

Clients in distribution require different allocations, ongoing monitoring, adjustment of withdrawal rates, and an adaptive distribution theory to navigate the waters of investment volatility. Simultaneously, they may need estate planning strategies to pass on legacies to family members and charities.

Accumulators require guidance on managing household cash flow, retirement plan contributions, college savings vehicles, and overall insurance assessments.

Generally, financial advisors focus on accumulation strategies.  Hence, the ones who focus on the needs of those building wealth AND clients harvesting it are a special breed. As a result, their approach is truly holistic and what’s required today to service a diverse set of clients and their families.

Last, the Magnificent Seven Concepts can help you crystallize what you seek in a financial advisor.

And the portfolio may be the least of the obstacles you need to overcome to be financially successful.

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