The Blog

December 15, 2020

A Case for the Fiduciary Advisor

by Josh Clavell

I have seen many types of investors over the years, and most could not be more different from one another. The greatest commonality was they, like all of us, are wired to be emotional investors. The volatility and uncertainty associated with COVID times tends to accentuate any pre-existing cognitive biases we might have, making us even more susceptible to emotional decision making. Now more than ever is the time for investors to hand the reigns over to a fiduciary advisor.

Why should you work with a fiduciary advisor?

Fiduciaries are required by law to put their client’s best interest above their own. If you DIY invest, invest through an insurance company, invest with your bank or a broker, here are four positions you might find yourself in to consider why delegating your investments to a fiduciary advisor might be in your best interest.

If you are feeling insecure about your portfolio’s risk.

It has been an unpredictable ride through COVID-19, and it’s not over yet. We have had some of the wildest market volatility ever, and the uncertainty is still incredibly high. Investing is always an emotional endeavor, but that doesn’t mean you can’t better understand why the risk we take is worth it long-term. Now more than ever it is extremely important that the level of risk in your portfolio is aligned with both your tolerance for the risk and need for return.

Seek fiduciary advice to help you determine if the level of risk in your current portfolio is needed to achieve the level of return to meet your future goals. They can show you what would happen if your portfolio dropped significantly in the next three months and how it might affect your financial future. Knowing that you are in the proper portfolio for your personal risk tolerance and future needs can help you feel more secure about your future even in these uncertain times.

If you have concerns about your portfolio’s investments.

Whether you have been with your broker for your entire life or are self-taught, it is understandable that you might be concerned about your investments. Entire sectors have changed overnight, some shutting down during COVID, while others are more lucrative than ever before. If you are investing for yourself, it might be impossible to decide your next move. Many people sold out and never bought back in, some people bought bargains at the bottom but are starting to fear what is next for their recent investments, and others are holding onto investments with significant losses, still waiting for a turnaround.

On the other hand, now is not the time to invest with firms who are not required to have your best interest at heart. A fee-only, fiduciary advisor can help you evaluate your current portfolio and recommend a more diversified, less costly approach based on your needs. Diversification will help maximize return over time while lowering risk, helping you weather future volatility. Efficient investments with low costs and without hidden fees will keep more money in your pocket in the long term. A fiduciary advisor can objectively analyze your specific investments and determine what you might want to keep, and which should be sold and used to diversify. Knowing that you have an efficient, well-diversified portfolio will help quell concerns regarding your specific investments.

If you are overwhelmed by keeping up with your investments.

You might have enjoyed the nuances of managing your own money up to now, but at this point it would be understandable if you are finding it difficult to maintain your portfolio. Maintaining an organized portfolio in especially volatile times requires discipline, expertise, and often expensive software just to keep track of everything. Trying to do it yourself or spreading out investments between multiple institutions means you might be missing out on valuable tax-saving opportunities that having a single strategy with a consistent vision allows.

Fiduciary advisors can help you build location optimization into your portfolio, quickly exercise tax loss harvesting opportunities, and regularly rebalance your portfolio, which can help you buy low and sell high during volatile times. Delegating to a fiduciary advisor allows you to not only remove your emotions from the equation so that you don’t make any costly mistakes, but it ensures every opportunity is being captured.

If you are sitting on cash but are nervous about investing at this moment.

Regardless of whether you were never in the market, cashed out at all-time highs before the COVID crash, sold out at the bottom, or have recently come into additional resources, you might be anxious about your next move. With the markets edging toward all-time highs and COVID burning through the U.S. faster than ever, there is a renewed fear of another significant decline. Once again, the best thing you can do is work with a fee-only, fiduciary financial advisor to formulate an investment plan tailored to your comfort level.

I already mentioned that advisors can help you build and maintain a diversified portfolio that matches your risk tolerance and return needs. They can also work with you to help you methodically invest your cash. Fiduciary advisors can help you implement dollar cost averaging, an investing technique in which you take the lump sum you want to invest and divide it into many equal chunks and invest regularly over a given period. This will help mitigate short term volatility exposure in the current economic climate. This slow and steady method might be better left to advisors who employ trading software, because the investments at every purchase interval might have different ratios depending on how the investments do along the way.

Advisors are here for you in these difficult times.

Hiring a fiduciary advisor can help you with the reservations you are feeling about your current investment situation. They can help you align your portfolio with your risk tolerance, choose investments that are diversified and efficient, manage your assets cohesively, and help you invest any new assets strategically.