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One of many ongoing discussions in my line of work involves the value of financial advice and working with a financial advisor. If you’ve never worked with one, you may be wondering what the fuss is about. After all, it might seem counterintuitive to pay someone to help you make more money, especially when no one can guarantee investment growth, or even that you’ll see a positive return.

Over the years, several companies have used research conducted by Vanguard to quantify the value that financial advisors provide, estimating that working with an advisor can help increase returns vs. self-directed investing. But what about other intangible benefits, such as financial education, behavioral coaching, legacy planning, and more? Measuring that value is more difficult, in part, because not every financial advisor delivers the same services to clients, and as consumers, we attach different values to those services.

In the United States, “financial advisors” and “financial advice” come in many different flavors because we don’t have a generally agreed-upon definition of what these terms represent. Some who call themselves financial advisors sell financial products, such as stocks or mutual funds, and the “advice” they provide is focused on determining which allocation to use, not which products to choose. Depending on how these advisors are paid, the advice you receive may be conflicted. (For example, if two products are suitable for you, but one pays the advisor a higher commission, which product will the advisor likely recommend?) When you work with this type of advisor, usually a securities or insurance broker, there’s no regulatory obligation to serve your best interests. Instead, the advisor must only provide recommendations that are suitable for your situation.

“Fee-only” firms don’t sell products at all. Instead, they can help you identify products that support your long-term goals and recommend an investment strategy to help you get closer to achieving them. You pay them directly for financial and investment advice, and they act as a fiduciary, meaning the recommendations they make must reflect your best interests at all times. They legally owe you a duty of loyalty. Financial advice goes beyond investment selection and asset allocation to include comprehensive wealth management. Their services may include (among others) integrating tax, financial, and investment strategies to provide you with a holistic picture of your financial well-being — now and in the future.

Jobs to Be Done

While the way financial advisors differentiate their services helps describe how they work with clients, it still doesn’t answer the question of value. That’s because our industry assumes that people hire all financial advisors for the same reason — to help them make more money. In fact, it’s more complicated than that. People hire financial advisors for a variety of “jobs,” and the job descriptions go well beyond the potential for providing greater investment returns.

The late author and Harvard University professor, Clayton Christensen, along with his colleagues, explored the theory of “jobs to be done” in a 2016 book, entitled Competing Against Luck. The book offers a different take on why people “hire” a product or a service to do a job. As the theory goes, people don’t simply buy products or services — instead, they hire them to make progress in specific circumstances. The book cites, as an example, a fast-food company that wanted to improve milkshake sales. It conducted extensive market research, asking customers what they liked or didn’t like about the company’s milkshakes. But the research wasn’t successful in helping to increase sales.

Applying the theory of jobs to be done, an outside consulting team learned that the company sold a lot of milkshakes in the morning. When the team asked customers why they bought milkshakes in the morning, they learned that customers found milkshakes to be an easily consumable breakfast on their long commutes to work. Customers were “hiring” milkshakes, as opposed to other breakfast options, like bananas or bagels, because they were filling, easy to consume while driving, and lasted longer, helping to make the commute less boring. Once the company understood how milkshakes aligned with what customers wanted to accomplish, it had a much better perspective on how to compete in the marketplace. The competition wasn’t just other milkshakes — it was any product that could be consumed easily, that would last the length of the commute, and that would keep the customer full until lunch.

Applied to financial advice, what is the job clients hire us to do? The answer depends on the problem our clients want to solve, or on the goals they want to accomplish. Let’s say an individual wants to improve their financial well-being. They could do this in a variety of ways — by “hiring” books on investing, an educational course or degree, a savings or brokerage account, or a financial advisor. Some clients may also lack a financial background and want guidance from an advisor with experience and expertise in working with people like them. Others may need an accountability coach who can keep them from making emotional decisions that may hinder their investing success. Some may need assistance helping family members understand their financial decisions and encouraging their participation in achieving their goals, and still others may have no interest in the nuts and bolts of achieving financial well-being — they just want an advisor to take care of it for them.

What Job Are You Hiring For?

Whether you’ve worked with other financial advisors or are considering starting an advisory relationship for the first time, it’s important to understand the job you’re hiring for, as well as the best “candidate” for the position. While fees are an important consideration, we believe they are only one factor in your decision-making process. Quality of service, the experience and expertise of the provider, the range of services, and a trustworthy relationship also contribute to the value of advice. If you’re hiring for financial peace of mind, determining a formula or a magic number to justify the fees you pay may not help you find the value you seek. Because your financial journey is unique to you, you may find that other factors weigh more heavily in achieving your goal because they speak directly to your ideal job “description.” In the end, the choice is deeply personal, and the value is in the eye of the beholder.

Author Wayne B. TitusIII Financial Advisor / Managing Director

Wayne authored the book, "The Entrepreneur’s Guide to Financial Well-Being," and loves to educate others on financial, tax and investment topics by writing columns and through public speaking.

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