What Good is an Investment Advisor?

A good investment advisor will essentially act as your personal CFO (Chief Financial Officer). Here’s (some of) what you can expect them to do for you:

Customize an Investment Plan. A good advisor will help you design a custom investment plan to suit your individual situation. It should take into account your financial goals, as well as your need, willingness, and ability to tolerate risk. Your investment plan should generally be designed to minimize your tax-burden (if possible and prudent given your circumstances).

Ensure Consistent Implementation of your Investment Plan. We’ve found that many people make dramatic changes to their investment strategies on a fairly regular basis. Failure to consistently implement an investment plan is one of the principal reasons for underperformance.

Often-neglected parts of a good investment plan include (but are not limited to): periodic rebalancing and tax-loss harvesting. A good investment advisor will constantly be alert for opportunities to prudently harvest losses and for situations which suggest partial (or complete) rebalancing might be prudent.

Act as a Human Circuit Breaker. A good advisor will try to talk you out of doing things which might be hazardous to your wealth. People often get urges to act on emotion. These contemplated actions often have predictably negative financial consequences. A good financial advisor will help you to understand when acting on some of your impulses may be imprudent.

More specifically, investors have a strong tendency to chase hot returns and attempt market timing. It is quite useful to have a voice of reason available to remind you of the imprudence of such actions. Thus, what an investment advisor does NOT do (e.g. chase performance and attempt market timing) may be MUCH more important than what they actually do!

Keep up on the Latest Greatest Research. A good financial advisor is constantly updating their theoretical and empirical knowledge of the science of investing. As the research reveals new truths about prudent investing, a good financial advisor will adapt your investment plan accordingly. Most lay people don’t have the time or inclination to read academic journals to keep up on the latest research. For examples of the sort of research we are talking about, see the red entries here .