Like snowflakes, no two people are exactly alike.  People talk different, look and dress differently, some like their eggs over easy; others prefer scrambled.  They have different bank accounts with different names, drive different colored cars to their different paying jobs, to live different lives in their different homes.

Although our individual lifestyles are what differentiate us, people are still bound by many commonalities.  We all pay taxes (well, for the most part), want the best for our children, work hard to save for retirement, and we will all inevitably one day pass away.  While there is little modern medicine can do to remedy the foible of mortality at the moment, a financial advisor can be a great asset to facilitate some of our other commonly shared goals.

Dispelling the Stockbroker Myth

First off, financial advisors are not exclusively for the rich; there are many advisors who work with clients worth $100,000 or less.  With the advancement of modern technology and online trading, execution costs are a fraction of what they once were, and financial advice has become much more affordable.  Also, contrary to popular belief, advisors do not have crystal balls to pick only the best performing stocks.  No one can predict the market and it’s usually the ones taking cold showers and eating bologna sandwiches that argue otherwise.  So if you believe using an advisor is only a means for the rich to get richer: you’re only half right.

While exceptions exist, for the most part financial advisors are not market gurus’ sitting behind their desks shoulder deep in earnings release’s and research reports.  In fact, there are some advisors who don’t know or care where the market closed last week.  That’s not to say they don’t know the difference between a stock and a bond, but it would be surprising to find many advisors who can distinguish a 10K from a 10Q report, let alone assess what is being reported.  When all’s said and done, there are many good reasons to work with an advisor but individual stock recommendation is usually not at the top of the list.

How Advisors Add Value

Through wealth management strategies and financial planning services, advisors provide a meaningful service to many clients.  While their stock picks may at times be more unnerving than fishing during hurricane season, sound financial advice can leave a client with a larger portfolio to worry about in the long run.

For example, few investors exercise specific lot accounting, where capital gain recipients can match the sale of a security with a specific lot of portfolio holdings.  The strategy is to choose a lot with the highest cost basis that’s been held for over a year, thereby reducing the capital gains tax imposed.  An advisor who prudently chooses the best lot to sell will ultimately preserve a client’s portfolio from higher taxes, and generate what’s known as tax alpha.

But an advisor’s role extends beyond a second hand accountant helping clients pull a fast one on Uncle Sam.  They provide estate and trust advice, provide insurance and over all retirement planning.  Not many clients know the difference between a Grantor Retained Annuity Trust (GRAT) versus a Spendthrift Trust, let alone when to use each.  A knowledgeable advisor can preemptively recommend one or the other to help optimize a client’s financial situation, potentially saving a great deal on taxes and transfer penalties.    

The Dynamic Advisor

Thus an advisor’s value is realized when they address commonly identifiable concerns with custom tailored solutions unique to each client.  The ability to recognize client issues and the prudence to determine the most suitable course of action is why advisors are in high demand.  And with the arsenal of investment tools and financial services continuously expanding, advisors have never been better equipped to do their job.

Most bulge bracket firms are scrambling to provide clients with one stop shopping for all our financial needs: a Wal-Mart for your money, if I may.  Gone are the days of stocks quoted by eighths in the Wall Street Journal, and with it left the clichéd image of ticket waving brokers screaming “buy” and “sell”.   Today, financial advisors not only provide investment advice, they offer retirement planning, tax planning, mortgages, estate planning, wealth transfer and insurance planning as well as a myriad of other services.  Put bluntly, they not only tell you what to buy, they tell you when to buy it, how to buy it and where to put it as well.

Conclusion

In short, employing a financial advisor can be one of the most rewarding financial decisions made by a client.  However, it is not due to their superior stock picking abilities or crystal ball atop their desk.  The best reason to employ a financial advisor is for their ability to identify, amongst an infinite combination of client specific situations, a unique solution that helps to reach some very commonly shared financial goal.