Three Ways a Financial Professional Can Add Value

Based on an article from our U.S. partners – Getting help to invest, manage taxes, and protect your family may be worth the cost.

The financial world is complex–with myriad choices, complex terminology, and high stakes. Many people prefer a do-it‑yourself approach, but partnering with a financial professional has the potential to help. Of course, that guidance comes with a cost. Is it worth it? That is a personal decision that each individual needs to evaluate, but there are advantages to working with a financial professional.  “Having a strong relationship with a financial professional can be a huge benefit for individuals and the people they care about,” Steve Gresham, executive vice president in Fidelity’s Private Client Group. “A financial professional can help prevent you from being blindsided by risks, avoid making big mistakes, understand your options, confront realities about your financial situation, and make strong plans.”

Exhibit 1:  Where a financial professional can add value


1. Investment guidance

The nightly news will always include a mention of what the S&P 500 or Dow Jones indexes did. While these broad benchmarks have a role to play in evaluating investment returns, the truth is that most investors fall far short of “market” performance. Independent research firm DALBAR estimates that the average stock investor trails the stock market by nearly four percentage points annually, while Morningstar has estimated that mutual fund investors as a whole have trailed the average mutual fund by from 0.55% up to 2.5% a year, in recent years.¹  One key reason:  bad timing.

Investors as a whole tend to buy investments that have been rising and sell when they have been falling, as the emotions of fear and greed drive decisions. Unfortunately, these are often poorly timed decisions, and they end up resulting in underperformance.

Exhibit 2 Trying to time the market can cost you


Source: Investment Company Institute, 2015 Investment Company Fact Book. Past performance is not a guarantee of future results. These data show industry flows into the equity funds tracked by the Investment Company Institute, plotted as a six-month moving average. A six-month moving average means that each data point shows the average for the previous six months; for example, the data point for June 2015 shows the average for January–June 2015.  Total return is based on the MSCI All Country World Daily Total Return Index, a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets.

A financial professional potentially can help you create and follow a disciplined investment process to avoid these emotional decisions. This includes an appropriate asset allocation to help you reach a particular goal. Research has shown that asset allocation is a key driver of portfolio returns. The choice of an appropriate asset allocation depends on your goal, time frame, situation, and risk tolerance. But it’s not easy to do. According to data from workplace savings plans that Fidelity administers in the U.S., only about half the investors who are doing it on their own have an asset allocation that is roughly on track.²

Having an appropriate investment mix is important when it comes to how much risk and volatility you can tolerate.  The key is to pick a portfolio mix you can stick with through market ups and downs.

“All of us experience similar feelings, but acting on our emotions may not always produce the best financial results,” says Joe Steeves, senior vice president in Fidelity’s private client group. “An experienced professional can offer a steadying hand during stressful times to help you stick to a plan that’s right for your situation and feelings about risk, and to navigate the markets to reach your goals.”

2. Navigating the tax rules

Taxes, and all the rules around taxes are complicated, but a financial professional may be able to help.

Just helping you to think through which of your investments should be held in which account can make a big difference.

Which investments are better suited for a TFSA and which for a RRSP? Because different types of investments are subject to different tax rules, and different types of accounts offer different tax benefits, coming up with a strategy for what to put where can potentially reduce the taxes you have to pay on your investments overall. These asset location decisions can be complex, but a financial professional may be able to help. 

A financial professional may also be able to help you manage the ongoing taxes from your investment portfolio, through investment selection and strategies like tax-loss harvesting – matching investment gains and losses.

3. Financial planning for life

Having a relationship with a financial professional also creates the opportunity for you to manage the risks and needs of your family as they change over time. This means everything from a plan for retirement saving to managing the financial impact of children and parents through different life stages, and protecting your own long-term financial goals from excessive risk.

A financial professional can help you manage the complexities of retirement savings and spending – choosing how much to save and in which accounts, and then how much to withdraw, and which investment alternatives and accounts should be used to help generate income.

A financial professional can also help keep your plan on track, by helping to manage changes in your life, and helping to navigate around major risks. This means helping you adjust your strategy to support your children – and your aging parents – through the different stages of life. It also means helping to protect your family from major risks. Health issues are a common cause of early retirement, and they can derail your plans. A financial professional can help you to create a plan to protect your loved ones.

A trusted financial professional can also help your family. In many families, a single individual is primarily responsible for investment decisions and managing money. But as you age, the risks of disability, impairment, and death rise. It may not be pleasant to consider, but who would help your spouse or children navigate your financial situation if you couldn’t?

Working with a trusted professional who understands your financial situation can help your loved ones manage that transition. A professional can also bring an impartial perspective to challenging family conversations, including who will make decisions and what will happen to your money after you are gone.

“Our research shows that seven in ten adult children believe it is important to know about their parents’ financial situation, and one in three feels he or she needs to know more,” says Steeves.³  “A financial professional can assist in these conversations and step in during the moments that matter, with the information and insight you and your family need to handle changes as you age.”

Exhibit 3 As parents age, adult children are more involved in finances.


Survey conducted by Fidelity in November 2015. See footnote 3 for details.

Staying on track

Creating a financial plan is an important step. But as your life and the markets change, your plan will need to adapt. A financial professional can help keep you on track.

For Canadian Investors
For Canadian prospects only. Offered in each province of Canada by Fidelity Investments Canada ULC in accordance with applicable securities laws.

Before investing, consider the funds’ investment objectives, risks, charges and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates.  Fidelity does not assume any duty to update any of the information.

Investing involves risk, including risk of loss.

Past performance is no guarantee of future results.

¹ DALBAR study: The results cited are from the 2015 Quantitative Analysis of Investor Behavior for investment performance from January 1, 1985, to December 31, 2014. DALBAR is an independent, Boston‑based financial research firm. Using monthly fund data supplied by the Investment Company Institute, QAIB calculates investor returns as the change in assets after excluding sales, redemptions, and exchanges. The Morningstar study: The 2014 and 2015 Mind the Gap studies compares asset-weighted 10-year investor returns with average 10‑year returns.

² Data as of December 31, 2015. Asset allocation based on equity holdings relative to Fidelity Freedom Fund using a 10% band and based on an assumed retirement age of 67. “All data based on Fidelity analysis of 22,000 corporate DC plans (including adviser-sold DC) and 13.6 million participants.

³ Survey based on 20-minute online interviews with a total of 1,043 adult children. Interviewing took place from October 14 to November 2, 2015. Adult children had to be at least 30 years old with a living parent who is at least 60 years old. The children’s parents also needed to have at least $500,000 in assets and be working with a financial adviser.

Indexes are unmanaged. It is not possible to invest directly in an index. The S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. 

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange or the Nasdaq.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s