Faith needed to trust advisor

Tina Haapala |

I find the trust and faith people must have to choose me as their financial advisor interesting. Obviously anybody handing over their life’s savings for investments needs to be able to trust the one they’ve chosen to manage it. But faith is something that is often overlooked.

You see, as much as I study, calculate, plan, research, test, and learn, the only way to know if what I am bringing to the table is the best investment mix for a client is to see how it performs against all the other choices through their saving and retirement years. The problem is once you’ve done that, you can’t do it again if it didn’t come out right.  And it’s impossible to know what is going to happen in advance.

That’s why I consider my job harder than rocket science. At least with a rocket, you can calculate beforehand exactly what amount and type of fuel, nozzle, trajectory, and timing to use to get from here to Mars safely. There is very little, if any, guessing involved. With investments there is a lot of guessing. Hopefully educated guessing, but guessing none-the-less.

A lot of folks try to use history as a guide. As much as I like myself and my firm, I know and don’t mind letting you know that just because we’ve done well in the past doesn’t mean that we’ll do well in the future. I’m not a prophet. So while history might show I’ve done better than average, it wouldn’t mean I’d continue to do so.

Even mathematical analysis doesn’t prove things until it is too late. 3, 5, and 10-year averages are fraught with so much statistical noise that luck and circumstance can easily be the reasons for good or bad performance. The true geniuses in my field don’t emerge until after deciphering 20 or more years of data. But by then it’s likely too late to benefit from their knowledge, as they probably don’t have another 20 years before they retire.

Try to remember these things when some mutual fund or investment letter purports to have all the answers using history as proof.

With 20 years under my belt, I can tell you that even with what I said above, picking investments is not where I add value to my clients. A recent study by Vanguard funds tried to determine what it was that advisors bring to the table…what “oomph” they provide to the portfolios they manage. When it came to actual additional investment return, having an advisor only offered investors about three more percentage points than going it alone. (More on DIY investing in a future series of articles.)

 But only half of that 3% figure is due to investment selection, rebalancing, tax planning, and the like. The other half, about 1.5%, is due to influencing client behavior. This is where that faith in your advisor comes in, when you allow him or her to talk you off the ledge when the markets are turning south or anchors you  to earth when they are shooting up. That faith is even harder to measure than investing prowess.


This article was published under the title "Faith needed to trust adviser" in the Wichita Falls Times Record News on October 26, 2014.