The Difference Between Financial and Investment Advice
There’s never been a better time to be an investor. Advances in technology have leveled the playing field in a truly unprecedented way. While these advances are great for you, they make offering value as financial advisors more difficult.
So as we continue to see improvements in technology I believe investment management will become more and more of a commodity. That means real financial advice will be a huge differentiator in the financial services industry. Anyone can create a portfolio, asset allocation or investment strategy. We are even told robots can do this with this concept called “Robo-Advisor”. What most people actually need is advice about how their investments fit into their overall financial plan, and more importantly their life. Believe me – robots cannot do this, nor do investment products do this. It takes an experienced, skilled, listening Advisor.
Both investment management and financial advice are necessary components for long-term success, but it’s important to understand the differences.
So let’s compare and contrast the two:
Investment management is about managing investments. Financial advice is about managing investor behavior.
Investment management is about asset allocation, expected returns, risk tolerance and time horizons. Financial advice is about making wise choices about the use of debt, how much you are saving vs. spending, setting up college savings plans, tax efficiency, estate planning and ensuring your insurance needs are taken care of.
Investment management is about portfolio construction and risk management. Financial advice is about a comprehensive financial planning and emotional management, you know: fear and greed.
Investment management is about measuring portfolio performance by comparing results to predetermined index benchmarks. Financial advice is about measuring your performance against your true benchmark — your goals, your future. Nobody retires based on what some index did.
Investment management is about allowing your money to work for you to help you reach your financial goals. Financial advice is about helping people define their goals, dreams, desires and fears. Creating a time specific, dollar value specific, income specific plan that is yours.
Investment management is about creating a portfolio that can survive severe market disruptions. Financial advice is about creating a financial plan that can survive severe life disruptions. Market corrections are “normal” – historically the markets temporarily fall in price 10 – 15% every year or so, and 20 – 30% every five or six years or so. That is “normal”.
Investment management is about where to invest your money. Financial advice is the “why” of the money, followed by the “how” and the “when” to invest it
Investment management helps you understand how much you need to earn on your investments meet your future spending needs. Financial advice helps you understand how much you need to save meet your future spending needs. The amount you save and the when you save has a much greater impact on your financial health than investment return or investment management.
Investment management is about reducing the anxiety that comes from the volatile nature of the markets. Financial advice is about reducing the anxiety that comes from making important decisions with your money.
Investment management involves growing your wealth so some day you can become wealthy. Financial advice involves figuring out what a wealthy life means to you. Wealth and prosperity are a state of mind, not a value on your statement.
To get the most out of investment management you really need to also be receiving well thought-out financial advice. They go hand-in-hand because an Advisor can’t make legitimate investment recommendations until they understand you and your personal situation.
We believe financial advice is far more valuable than investment advices, and there are a lot of people who need better financial advice.
If you would like to have a conversation with a Financial Advisor at Prosperion, contact us. We would enjoy meeting you.
A few weeks ago I attended the retirement party of someone I’ve called a dear friend for over 49 years. Long ago, we were both young financial advisors chasing similar career paths. We even migrated to independent businesses around the same time. His retirement prompted me to reflect with gratitude on all my opportunities and […]