Guest Post: Why You Need a Financial Advisor

Occasionally we feature guest posts at DoctorEquity. Adam Cox is the Chief Wealth Management Officer at my bank. He also hosts a wealth management podcast. You can find out more about him below.

Why High-Performers Should Work with a Financial Advisor

Does being exceptional in one area of your life automatically transfer to other areas of your life? That’s a common question facing many high performers, especially when it comes to their personal finances. The research on this issue is actually quite clear:  high performers who manage their own investments tend to underperform their peers who work with financial advisors – sometimes drastically. Why is this?

Financial advisor and author Ben Carlson, CFA, summarizes it well in his book, A Wealth of Common Sense:

People who earn the most money are likely to be higher up the totem pole in management positions at most companies. The problem is that the power and responsibility these higher-ups have can lead to overconfidence in other areas of their life. A study of this group showed that they developed overconfidence because of their management and income status, which translated into increased trading activity in their portfolios. Predictably, this led to lower than average performance in their investment accounts. It can be difficult for intelligent people to realize that success in one field doesn’t necessarily translate into market success. In fact, successful people are probably more prone to investing errors because they are so intelligent and overconfident. Only those who are able to recognize their limitations are able to have lasting success in the markets.  (emphasis added)

-Ben Carlson, CFA

Not convinced? Here are a few other reasons why a high performer should consider working with a financial advisor.

The Value of Advice

Some investors see the cost of their advisor (expressed as an advisory fee) as a sunk cost that cannot be recovered and are therefore tempted to ‘go it alone’ and save the fee. The thinking is that by doing so you will come out ahead in the end. But is that actually the case? According to research done by Vanguard, working with a financial advisor can add about 3% in net returns annually, typically concentrated in periods of market distress or euphoria.

These opportunities can pique an investor’s fear or greed, tempting him or her to abandon a well-thought-out investment plan. In such circumstances, the advisor may have the opportunity to add tens of percentage points of value-add, rather than mere basis points, and may more than offset years of advisory fees. However, the difference in your clients’ performance if they stay invested according to your plan, as opposed to abandoning it, does not show up on any client statement.


Think 3% isn’t a big deal? It is. Consider two investors, Investor A and Investor B. Both start with an initial investment of $100,000 and never add anything to it. Investor A earns a net return of 8% over that time period while Investor B earns 11%. At the end of 30 years, Investor A’s account will be worth $1,006,265, while Investor B’s account will be worth $2,289,229, a difference of $1,282,964!

It Starts With a Plan

A financial advisor can help you plan for today as well as your tomorrow. Your advisor should be equipped to help you put together a comprehensive financial plan, concentrating on your investments, current and projected income taxes, legacy planning, and philanthropic goals. If done well, this financial plan will account for any outside assets (e.g., real estate, closely-held investments, etc.) and craft a financial and investment plan that takes everything into consideration. This will help tailor the risk tolerance of your marketable securities portfolio and make sure your overall risk profile is appropriate for your age and stage.

Peace of mind

Finally, working with a financial advisor with the requisite expertise can give you the peace of mind that your hard-earned dollars are being maximized and that your future is secure. It will also free you up to do the things that you want to do with your coveted free time – things you value more than researching investments and taxes.

Adam Cox is the Executive Vice President and Chief Wealth Management Officer at The First National Bank in Sioux Falls. With an education from the University of South Dakota, the University of St. Thomas School of Law, and the University of Notre Dame, Adam leads First National’s team of professional advisors in providing wealth management and financial planning services as fiduciaries who are driven by providing results for their clients and nothing else. If you’d like to learn more about First National’s approach to financial planning and investment management, visit their website.

Adam also hosts an excellent podcast, Common Cents on the Prairie, where he and his guests share how to make smarter decisions with your money when it comes to investing, saving, and more. You can find it wherever you stream your podcasts, as well as subscribe to be notified when new episodes are released each month.

Dr. Equity