Here is a dilemma for you. Your goal is to choose someone that can best help you grow your wealth, and you have ten people to choose between. Now imagine that you are scared to talk to seven of the ten people we gave you. It makes the decision a lot easier, right? Similar to how Law and Order SVU tends to throw in curveballs as soon as you believe you have solved the mystery, though, we want to do the same.
Those seven people that you just eliminated are actually the people that give you a better opportunity to grow your wealth. In fact, they can help provide a 3% boost to your investments.
So the plot thickens, and now we are left with a real dilemma: do we look to overcome our fear to gain the help necessary to grow our wealth, or do we stay in our comfort zone and miss out on this possible boost?
People Fear Financial Advisors
A recent study came out that showed that 71% of individuals fear talking to a financial advisor. The conclusion was spread across the board; old, young, higher earners, and everyday people. Nearly half of the individuals that were polled in this study said that they didn’t want to provide financial advisors their information, and nearly 40% were afraid to hear the financial advisors give them bad news.
Yeah, 71% of people are scared to talk to this guy.
These are normal human behaviors, though. Financial information is very personal and we don’t tend to share the information with many people. And who likes to hear bad news? I think that is a reason why so many people avoid going to the doctor when they have, what they believe to be, a cold.
Just because these are normal human behaviors doesn’t mean they are the best decision. Going to the doctor and giving them the necessary information before your illness gets worse, time and time again proves to be the best option. Waiting to get help with medical, financial, or anything else tends to lead to harsher outcomes where more drastic actions are necessary.
We get it, though, your common tendencies are harder to overcome. The fear that financial advisors can’t help you or maybe they cost too much continues to be a battle for you. Generally, the other option is to manage your finances on your own. Maybe it means opening an account at Charles Schwab or Fidelity… or maybe even Vanguard. Vanguard provides low-cost options for people to invest on their own and something that we've recommended to individuals before.
Interestingly enough, Vanguard recently released a study that revealed something counterintuitive to their business model… and especially to your fear.
Financial Advisors Can Help You Build Wealth
This Vanguard study shows that having a financial advisor can add 3% to your returns. It wasn’t strictly due to financial advisors being better at picking stocks or giving you a proper asset allocation, either. The majority of the benefit came from something that people struggle with on their own… it’s just human nature.
The Vanguard study found that the major benefit to having a financial advisor was “behavioral coaching,” or in simpler terms, “keeping you from panicking or acting irrationally.” This actually accounted for half of the benefit they found. Having an objective opinion, a sounding board, and someone that has the holistic vision in mind helps you from being irrational in volatile times. Remember when the markets were falling off a cliff just a couple months ago? Or maybe you remember 2011 when the S&P 500 dropped 18% from its peak to the bottom in just a couple of months? And who can forget 2008?
These are times when our emotions overcome us. It leads to making decisions to help us cope with the current moment, as opposed to understanding the longer-term vision. A financial advisor, as Vanguard found, helps investors keep the longer-term goals in sight and the current moment at bay which can add 1.5% to individual’s return.
I like to try and provide relatable examples to finance mainly because finance can be hard to consume and understand at times.
Let’s say we want to lose weight over the next six months. Wouldn’t it be great during these six months to have a “pantry guard?" Someone who kept you from acting on your cravings that set you back from your weight loss plan?
Just last night, I had a chocolate craving. Despite trying to eat fruit to satisfy my sweet tooth, I couldn’t stop craving chocolate. I eventually gave in, went to the pantry and found some chocolate chips. After one handful, I was much happier than I had been with my grapes.
If I were on a weight loss plan, though, fulfilling my immediate desire for chocolate would have set back my longer term weight loss goal. Having a “pantry guard” who would slap my hand and tell me “no” could have helped keep me on track to reach my goal. They would continue to help me focus on the longer-term impact of my actions because they would know that the thrill of accomplishing the longer-term goal would greatly outweigh the small thrill I had last night with those chocolate chips.
A financial advisor is your ability to have a “pantry guard” for your investments. They help you focus on the longer-term goals while keeping you from making that short term mistake. Typically those short term mistakes aren't seen until much later but provide an immediate small thrill.
Keep Small Financial Mistakes Small
There is no argument that we are all irrational at times. (If you disagree right now, you are being irrational!)
We have all had that moment where we broke up with an ex or had a case of the Monday’s and found ourselves splurging at the mall. A few days later we are left wondering why we made the purchases we did.
That is a small mistake. A mistake that can be overcome by selling the purse or maybe just working a couple extra hours. You don’t need someone telling you not to make those mistakes.
But we want to keep our mistakes small. Making a mistake with our investments can be a big mistake. We can’t return our investment mistakes. We can’t get to 62 and say, “I want to return a mistake I made in my 40’s so I can retire today.”
Many of you who are scared to talk to a financial advisor are afraid to hear that specific statement which is the reason I put it here today. Because the time people tend to start talking with a financial advisor is at 62… rather than 40. Talking to an advisor at 40, despite your fears, will make the conversation much less harsh and the solution much more attainable.
Heck, you may even be surprised by the answers you get.
Vanguard thinks an advisor is valuable. 71% of individuals are fearful of financial advisors. There is a disconnect. Fixing that starts with relating and educating… and that is what we are trying to do every day here at Wela. If you're ready to talk with an advisor, just sign up for a free account and schedule your appointment today.