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Reflections on the Nature of Independent Advice

There are several ways investors can go about making important financial decisions. One way is described by financial commentator Barry Ritholtz when he tweeted: “My training as a trader consisted of being push[ed] into [the] deep end of the pool while someone yelled ‘swim.’”

Fortunately for Ritholtz, he managed to stay afloat in his sink-or-swim trial. He’s a no-nonsense New Yorker, so maybe that explains it. For most of us, there is a much easier way: working with an objective and independent advisor who has your back as well as your best interests in mind.

But don’t just take my word for it. Fund manager Dimensional Fund Advisors has recently released a series of short-take videos exploring the roles they feel that we independent advisors can play in investors’ financial lives.

Academics Need Advisors
You may not be familiar with Professors Eugene Fama and Kenneth French, but we in the advisor world certainly are. As the names behind the Fama/French Three-Factor Model for managing market risks and returns, their research revolutionized portfolio construction theory so dramatically that Professor Fama received a 2013 Nobel Prize in Economics for his work.

Even though he helped shape the way we do investing today, French explains why he and his wife turn to their own financial advisor for assistance with their wealth. “We get an enormous amount of value out of our financial advisor,” he says. “I don’t think I need help with the portfolio management part. It’s much more about estate planning and taxes ... legal issues that crop up. Just sort of a quarterback for it.”

Advisors Need Advisors
Similarly, David Butler runs Dimensional’s Global Financial Advisor Services. In many respects, this makes him an advisor to advisors around the world, at least with respect to their practice development.

If anyone could manage his own money, you’d think it would be Butler. But rather than take a “do it yourself” approach, he too works with a financial advisor, and has for decades. “I can call the advisor at any moment,” says Butler, “and ask him any question about charitable giving or about estate planning or about insurance. It gives me confidence that he’s there to make sure that all of it is taken care of in a way that I would expect and I would want. ... What transpires over time is a very personal relationship.”

Investors Need Advisors
Dimensional’s Vice President Wes Wellington is also a familiar name in our circles, as a long-time impassioned presenter at investor and advisor forums alike. Here’s his take on why most investors benefit from having an advisor to turn to: “Part of the value of having a trusted financial advisor is a second opinion. Most of us don’t find it surprising that the world’s top tennis players and top golf pros have coaches. It’s not that they’re not very good at their sport. But having an independent source of ongoing advice, they find valuable. In our experience, most individuals can benefit – greatly benefit – from an independent source of advice.”

In short, whether you are a newbie or among the most seasoned investors, we believe that an advisor can add value to your life and your well-being. In Wellington’s video, he makes another good point: “For many of us, money – even though we don’t want to admit it – is a very emotional subject, for us and our families. It’s often hard to talk about, difficult to make decisions about, and particularly difficult to make completely objective decisions.”

That’s what we’re here for, we advisors. While it’s important for us to know how to plan, design and manage investment portfolios that are built to last, it’s those intangibles that may matter the most: Those critical discussions you’ve been avoiding having with your parents or your children; the essential estate planning you’ve been putting off despite your best intentions; that tangled mess of insurance products you’ve accumulated over the years.

These are the details that even a pro could use some coaching on.

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