The True Value of a Good Financial Advisor

by Benjamin Beck, CFP® Benjamin Beck, CFP® | February 7, 2024

Humans are emotional creatures. When it comes to investing, because of our emotionality, we run a big risk of being our own worst enemies. Intellectually, of course, we are perfectly capable of rationalizing, saying things like, “Oh, I understand the markets go up and down. I know that in the long-term I need to stay put…I’m “good,” I don't want to do anything rash with my money.”

And then it happens. I'm not talking about going through an election where markets are expected to be volatile. I'm talking about the once-every-six-or-seven-year type event, which has historically been when markets fall an average of a third or more. The 2008-2009 peak to trough, from the end of 2007 all the way to the beginning of 2009 was 52%. That’s hard, to see half your portfolio wiped out like that. When a market gets into bear market territory, which is typically defined as a top to bottom drop of 20% or more, we’re talking about a different emotional territory. It’s not ‘mild turbulence’ anymore. Even in non-bear market situations, when the markets go through a short-term pattern of falling say 9% or 13%, I do get calls from folks who are experiencing worry creeping in.


An Advisor's Role in Long-Term Financial Planning

This brings me to what I want to talk about today. You hear me talk a lot about our Strategy: how important it is to have discipline, a collection of rules to follow, what to buy, when to sell, and what to do with the proceeds. But what I really want to focus on in this conversation is the value we bring to the table as advisors. We are invaluable to our clients, for the simple reason that humans are hardwired to fail – precisely because of our emotions.

When we sit down with clients, we spend a lot of time understanding what they're trying to accomplish. Normally, that is getting their portfolio to a point where they feel they can retire. It means figuring out what that number is, determining what the best path is to get there, and then understanding what they have to do in order to make those funds last for what realistically is a 30-year retirement for most people.

Of course, I believe that our Strategies are quite effective because in my view we put our clients in front of opportunities where I think they can outperform alternative pathways over long periods of time. However, of even bigger importance is for us, as advisors, to be conscious of the fact that most investors will be with us for 30 plus years if they come to us at or before retirement. Therefore our value as advisors is directly linked to our ability to not only develop a plan that works for them, but to keep them in that plan and prevent them from doing anything that may be self-destructive financially.


The Emotional Toll of Bear Markets and the Importance of Having a Plan

Say you’re in your late fifties or early sixties today. If history is any indicator, then you will experience a bear market approximately five times over the course of your (also approximately) 30-year retirement. I should have underlined that these bear markets are not forever markets, they are relatively speaking temporary. The average bear market lasts 15 months, but it's 15 months of insanity in the media, 15 months of dread-filled conversations with family, friends, colleagues, and most of all yourself. Like Mike Tyson said, "Everybody has a plan until they get punched in the mouth." And when you do get punched in the mouth, like a bear market tends to do, I think as human beings it's really difficult to sit there and simply take the beating. We are emotional creatures, after all. We don’t respond, we react. We jump into doing something to get away from the pain of it all.

If we don’t have a plan that has some ‘bumpers’ to protect us, we can do quite a bit of harm to ourselves. The mind is a wild place and can jump to all kinds of conclusions when we’re in emotional pain. Imagine any situation when you may not have an outlet to vent, or a path to seek guidance. What may seem irrational looks and sounds completely rational to a person who is purely following their emotional impulses. I’m thinking of all the scenarios where we get in our own way – whether it’s in our relationships, perhaps in a fight with a significant other or family member, or maybe it’s in following through on a plan for fitness, or weight loss, or some New Year’s resolution. Unless we have a well-thought-out plan, which includes a mechanism for accountability, preferably from someone on the outside, we will always be at risk of harming ourselves.


The Key to Client Investment Returns: Staying the Course

You know, it’s so funny. Clients are often extremely concerned about returns, whether they can “beat the index” or whatever the metric is for them. That accomplishment pales in comparison to the advisor’s capability to keep the client invested and engaged over three decades. You want to talk about the real value of a good advisor? The benefit from ‘staying in’ is incalculable to the client. When clients inquire about our fee structure, I point to the long-term value we provide.

A great client of ours comes to mind, a fantastic guy. Anytime he puts in some money he says he will stick to the plan, but the moment the market falls (not even a big fall, just the smallest slip), and the news stories start up, I get a nervous text or a call from him. He has several million dollars with us, owns his business, and if he stays invested in equities over the course of his retirement, he’ll be able to leave an incredible legacy to his children and grandchildren. When we have those calls, I do sometimes have to talk him off the ledge. Then I hear that line, which I’ve heard from so many other clients, "But Ben, this time it's different." You see, this time it’s not. And last time it was not, either. Clients like to think that any given drop is different, but as a person who hears this frequently, I’m here to tell you that’s not the case.

The historical rate of return before inflation for equities is about ten percent. After inflation, it's somewhere around 7.5%. Compare that to the historical rate of return for bonds, which is less than three percent after inflation. There's no contest. It’s a necessity for any of our investors to say in equities if they are to reach their goals. The trade-off of staying in equities is that they need to be willing to embrace uncertainty. And that is so hard to do. That, to me, is why we are so valuable.


How Patience Mitigates the Risks of Emotional Investing

There are a lot of advisors out there who do not give good advice. We've talked about it before, about how a lot of advisors pacify their clients’ emotional states. (The advisors who do this, do it because they are just as emotional as their clients, they can’t handle being with clients who are being emotional.) That’s not right, and it’s not fair to the client. As advisors, our main objective is to ensure that we do everything possible so clients can realize their objectives. Market movements, economic data, benchmarking against the S&P 500, have nothing to do with our core mission. If the advisor shows even a hint of weakness, one slip up, one instance of going through a tough period and allowing somebody to move into cash, "until this blows over" – he or she can do serious damage. Succumbing to a client’s emotional needs could cost the client and the advisor in a big way. Statistically speaking the client has to miss out on only a few of the ‘up’ days during recovery in order for it to have a dramatic impact on their future. I’m not exaggerating when I say it could be disastrous.

I know it’s a cliche when advisors say, "I'm more of a psychologist than I am an advisor." OK, so advisors aren’t therapists. But where we earn our keep is indeed in the behavior management arena, not in the creation of investment products. As passionate as we are at Beck Bode about our own investment Strategies and the fact that we use top-level research, the fact that we have a very strict process on what to buy, when to sell, what to invest, there is that third component that doesn't get near as much airtime as it should – namely, patience. We need to be patient, and we need to guide our clients to be patient. 

When a client asks why they’re paying a fee, the answer is: to learn patience. It means that we will help the client patiently follow through on a plan that was established in partnership with them. Our job will be to make sure they’re not swayed by the inevitable ups and downs of the market. We need to say, every day, to every client, “You stay and stick with the plan, good things will happen, that’s why we get paid.”


Emotional Management: The Essential Element of a Good Financial Advisor

As advisors, our number one task is to get to know how our clients get when they get emotional. We need to normalize the fact that getting scared is human. We need to state honestly and plainly that there will be periods when the client will get scared, and that now, today, we will make an agreement on how we will handle that situation. Acknowledging that we are all human is the first step to helping clients get to where they want to go.


Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.

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