Often when I meet people and tell them I’m part of the team here at Granite—if they’ve never worked with an advisor—they might not understand exactly what we do—or the value that we bring to our clients.

I’m always happy to explain it—I love what we do here—I’m always ready to share a story about what we accomplish on behalf of our clients—and that’s what I want to talk about today. Beyond your standard investment advice (which I’ll touch on below), we help our clients make the right decisions based on information and data—decisions around money can be emotional—and we help our clients through that.

What is the Value of an Investment Advisor?

First off, let’s all get on the same page about what a Registered Investment Advisor is. According to Investopedia,

“A Registered Investment Advisor (RIA) is an advisor or firm engaged in the investment advisory business and registered either with the Securities and Exchange Commission (SEC) or state securities authorities. RIAs have a fiduciary duty to their clients, which means they have a fundamental obligation to provide suitable investment advice and always act in their clients’ best interests.”

How would I explain this? I think of an Investment Advisory as someone you know, someone you trust to tell you not just what you need to hear, but to provide you with an objective answer, information, and guidance. A great investment advisor will not only provide you with investment guidance—i.e.., the answer you want—but empower you with the information you need to make hard decisions.

Think about when you really need guidance—when things are going well? Maybe. But mainly—people need help when things aren’t going well—when emotions can get the better of them. When the market gets tough, you need to make tough decisions. You know what you have to do—what you need to do—but you really don’t want to do it.

Working with an Investment Advisor gives you the opportunity to talk to someone who has your personal investment goals and interests in mind. They should walk you through the challenges, provide you with an objective view of the situation, and help provide you with the confidence to make the right decision for you.

An Investment Advisor should be thoughtful and help you differentiate your “needs” from your “wants”. The right Investment Advisor helps you understand your fears and helps you know which choice is right for you.

For the Times When You Just Can’t Move Forward: A Story

I would like to share a story by way of example. Please note that names and a few non-essential/non-material facts have been changed to protect the identities of the parties involved.

First, some background. A few years back I was working with a client who was updating his estate plan with a new attorney. He had recently lost his wife. He didn’t have any children so there was no immediate family to inherit his wealth. He had always been very generous within his community, and had a circle of friends who had supported him throughout his life and he wanted each of them to have a share in his estate. He just didn’t want them to know about the inheritance until he was gone.

He had two accounts, one was an individual retirement account (an IRA) and another was a personal account held in a revocable trust. Some of his heirs would share in the personal account, while others would only share in his IRA.

In order to name the people in the IRA, he would have to provide some personal information about his heirs to the custodian, information he didn’t have and didn’t want to tell them why he was asking. This was bothering him and he was considering just liquidating the IRA so that everyone would share in just “one big pot”. He knew what he wanted to happen, he just couldn’t figure out a way to get it done. All of it was getting overwhelming for him, so he just did nothing.

It is very important to have beneficiaries listed for an IRA account and I knew his hadn’t been updated since his wife’s death. We were discussing his investments and I reminded him that we needed to update the IRA documents. It was then that he admitted he had just put everything on the back burner.

He told me how overwhelmed he was with the estate plan and with the IRA form. About how he didn’t want to ask his friends for the information needed to complete the form. And about how he didn’t want one set of friends knowing who was sharing in what pot of money and how he was just going to forgo the whole thing and instruct the attorney to sell everything after he died and pass it out. To help him figure this out, I asked to speak directly with his attorney. My client was glad I offered and his attorney was happy to hear from me.

I explained to the attorney that—for this client—there is both a special circumstance (how the assets are held) AND a privacy issue. The attorney reiterated the fact that she couldn’t get the client to move on his estate documentation. We spent some time discussing his options. She and I understood the tax implications of his estate, but we needed to figure out a way for him to understand the BEST way to get his assets to his heirs.

Once we started talking, the lawyer and I were able to find a solution that addressed both the privacy AND the distribution of wealth. Since I’ve known my client for 20 years, I was able to communicate the alternatives in his language. It is not that the attorney could communicate the information; it is that my client wasn’t as comfortable with her as he is with me. Over a lifetime we had built a relationship where I could explain both what he should do in this situation and—more importantly—why he should do it. I was so excited that I could go back and tell him that we had a solution. The reality is that he could have sat in the lawyer’s office for hours, never really understanding the solution, and never reach a conclusion that worked for him.

In my opinion, at their core a good investment advisor is that best friend or confidante you call when you want the most objective answer. Usually, they are the kind of friend who isn’t going to give you the answer you want, but the answer you need. They are always thoughtful and put your needs above their own. They know you and your fears—almost as much as your spouse, partner or parent—and they know how to calm those fears. They are a good listener and usually, can help you find a solution.

At the Heart of the Matter: Objectivity

People hire an investment advisor for different reasons. Some hire an advisor for investment strategy or asset allocation or because they are too busy doing something else. But, the true value of an investment advisor comes from their objectivity.

Can anyone go to the internet and learn to be a good investor? Probably, but can you be objective when it really counts?

I know you have all heard that surgeons don’t perform surgery on their loved ones. There is a reason for that—objectivity. When things go bad—if they go bad in the operating room (or in financial markets) the right expert is in a position to be truly objective. They are able to take emotion out of their decisions. They have confidence in their experience and have confidence in what they know about you—your body or your portfolio—to make the unemotional and objective decisions to get you through the “bad”.

And… Avoid the Herd Mentality

As investment advisors, we see ourselves as educators—we don’t make what we do feel like magic to you. We see investing as mathematics and analytics. A good investment advisor will teach you as much or a little as you want to know about the economy, asset allocation and stock picking. Over time, you’ll come to understand and appreciate the process—and the people who are helping you along the way.

Whether we’re educating on something technical, or we’re intuitive enough to understand your emotional response to something, we’re able to add a tremendous amount of value—helping you avoid the herd mentality. In investing, the herd mentality is the idea that when stock prices go up, investors buy, and when prices go down, they sell.

According to the team over at Real Investment Advice, “Despite the best of our intentions, it is nearly impossible for an individual to be devoid of the emotional biases that inevitably leads to poor investment decision-making over time. This is why all great investors have strict investment disciplines that they follow to reduce the impact of human emotions.”

While some people are disciplined enough to do it on their own—many aren’t. When the market is down 10% are they going to sell some of their bond fund and buy equity? It’s hard to stay firm when you see a bunch of people selling and use that as a bellwether to start buying. Personal, disciplined, objective investing is really the difference between investment knowledge and investment wisdom. Investment wisdom is the value of an investment advisor.

Are you getting value out of your current investment approach? If not, I would love the opportunity to share with you our approach to investing today.

 

Past performance is no guarantee of future results. Returns are presented net of management fees. There can be no assurance that any of the securities referred to herein were produced for or remain in portfolios managed by Granite Investment Advisors. A complete list of all Granite Investment Advisors’ recommendations within the preceding year is available upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities described herein.