Key Points

  • A financial advisor can help with crafting an investment plan that is suited to your goals, needs, and risk tolerance.
  • A Strategic Model Portfolio can then be implemented to meet your investment objectives.
  • Sound investment management that includes Portfolio Construction, Wealth Management, and Behavioral Coaching can provide tangible long-term benefit.

A financial advisor can help you manage your finances (how to save, budget, and spend). And a financial advisor can also help you to manage your investments (how to invest sensibly and suitably). In this post we’ll explore the benefit of the latter as it applies to a passive investing approach.

So Now What?

We’ve already explored the multitude of benefits of a passive investing approach over an active investing one at length. But do check out these posts for more on this topic. Long-story short, a passive approach has tangible benefits over an active one.

Passive investment is cheaper, less complex, and often produces superior after-tax results over medium to long time horizons than actively managed portfolios. — Investopedia

Now, let’s explore the benefits that a financial advisor can bring to the table with respect to sound investment management.

The path to financial freedom is often marred with obstacles. There will always be competing demands for our time and for our savings. And these demands are almost always unavoidable. An unexpected illness, a newborn to care for, a death in the family: live demands constant attention and sacrifice, often at significant financial cost. That’s where sound financial planning comes into play. Even though bad things can happen, you can always expect the best, but plan for the worst.

But when it comes to investing, often the obstacles that we face are self-imposed. These include the tendency of investors to choose stocks, mutual funds, or ETFs solely because of strong past performance, in hopes that it will persist, or to lose sight of the long term and abandon investment plans in periods of market downturns.

One way to avoid such obstacles, the things that “you can can change”, is to partner with a financial advisor in choosing a Strategic Model Portfolio that’s right for you. One that fits your goals, and your needs, and your risk appetite.

Thus, a financial advisor can help you:

  1. Establish explicit goals – Clear objective will help you stay on track.
  2. Monitor progress – As time goes on, you’ll want to ensure that you’re headed in the right direction.
  3. Suggest adjustments – But of course, circumstances change, so you’ll want to stay abreast of them.
  4. Keep you focused on the long-term – When markets become unhinged, this doesn’t mean you have to as well.

A financial advisor with a passive investing approach can help you find the right Strategic Model Portfolio (SMP) that aligns with these objectives by providing a solution that is diversified across stocks and bonds worldwide, and one that is also low in cost.

Strategic Model Portfolio Benefits

The goal of an SMP is to provide an investor with a complete investment solution tailored to his or her unique situation. And there are four potential benefits to this approach:

  1. Broad diversification – A balanced portfolio can provide exposure to more than 19,000 stocks and bonds worldwide, which can lower overall risk.
  2. Low costs – Leveraging low expense ratio funds means more money in your pocket.
  3. Potential tax efficiency – Low turnover funds can help to minimize the distribution of capital gains.
  4. Low relative performance variability – Because these types of funds seek to mimic indexes, the portfolio should provide consistent results over time.

The Three Keys

If a passive investing approach makes sense to an investor, here’s how a good financial advisor can add value. It boils down to sound investment management across Portfolio Construction, Wealth Management, and Behavioral Coaching.

  1. Portfolio Construction – Selecting a mix of assets that is suitable in light of your goals, time horizon, and tolerance for risk; employing broadly diversified, low-fee funds; locating assets in taxable and tax-advantaged accounts to maximize after-tax returns; and investing with a total-return, rather than an income-oriented, approach.
  2. Wealth Management – Including regularly rebalancing your portfolio to its target allocation and devising sound strategies for spending.
  3. Behavioral Coaching – Helping you to tune out the noise of the markets and adhere to a well-considered investment plan given that behavioral finance tells us that many investors fall into common traps that ultimately reduce performance.

Much of what advisors do for investors never appears on their quarterly statements. Yet investment management services can have significant benefits in helping you to come up with a suitable plan, to modify the plan as needed, and to stick to the plan when trouble strikes. This is what portfolio management is all about.

2019-09-04-Investment Management Benefits

The goal is to provide a suitable allocation using broadly diversified funds. In addition, assets should be efficiently allocated between taxable and tax-advantaged accounts. Further, regular rebalancing should be implemented, and a spending strategy strategy should be employed for portfolio drawdowns. Finally, an advisor can provide guidance to help you adhere to your investment plan.

Having a sound investment management plan might just be the most important step you can take towards financial freedom. And the steps you take today can have lasting implications for decades to come. So when making your choice on how to move forward in this space, realize that you are not alone. And consider working with a financial advisor to explore options on how to formulate a long-term plan that is suited to your goals and desires.


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