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  • Nicholas Pihl

The real value of advice, and what some advisors (and their clients) get wrong

The main way I make money is by managing investments for a fee. This is controversial for some people. Mostly, the pushback sounds like, "well, can't you just give the clients a game plan and let them do it on their own?" The idea being that clients just pay by the hour and keep the cost of an advisor relatively low. This is the cheapest option. But it's not necessarily the best option, or even the best value.


I used to be more open-minded about this, but I've met with a handful of prospective clients who used to work with an advisor under that arrangement. From what I can tell, they got decent advice for the time, but there were some big, missed opportunities along the way as circumstances changed.


One couple had been told that they could retire in 2021, and were asking me if they were still on track for that (their other advisor had retired). The good news was that, yes, they could still retire in 2021. The bad news was that they could also have retired in 2020, 2019, or even 2018! The market had handily outperformed their advisor's assumption of 8% annual growth, but because they didn't have an ongoing relationship, they didn't find out they could retire until 3 years after the fact.


Another couple had followed the same advisor's plan (this one was 10 years out of date) and ended up with $200,000 extra in cash at age 78. Not really a problem, unless you consider that they could have enjoyed some of that money traveling and enjoying life in their early 70s while they still had the health and energy to do so.


The basic problem with planning is that the plan goes quickly out of date. The goals may stay the same, but the path will vary in unpredictable ways. Not only do you have wide variation in stock market returns (the 10% average return almost never happens), you have changes in tax law, changes in jobs and employer retirement plans. People get married, people move out of state, people get sick. People realize their kid needs to go to private school.


I can't always know in advance what will affect the plan, but I know that something will, and it's something I want to be present to help out with.


To put it another way, you don't need a map, you need a guide.


Financial calculations aside, there's a personal component. This is my favorite part of the job. With most clients, I check in or meet with them at least quarterly. These meetings can lead to small nudges that lead to big changes over time. The smallest change might look something like contributing an extra 1% of their paycheck to their 401k. But that's just the tip of the iceberg.


What's really fun is when I get to be a cheerleader. I have the awesome position of being someone that people can talk about their long term goals with, their hopes and dreams. Not what they currently have, but what they really want their lives to look like.


Why do people share this stuff with me? It's because I can help them make it a reality. Between their their vision for what they want, and my financial knowledge, we can usually put together a sense of what it will take to get there. Moreover, when we get creative, and clear about what really matters, we can make that journey faster, and more fun.


It's not enough just to be encouraging, or just to lay out the numbers. You have to do both. You have to be able to say, "here's why these numbers are realistic. And look, you might be able to do even better, these are just a conservative baseline. Moreover, I think you can really do this, and I am excited for you."


That's the value of having a financial guide for your journey. You have someone who can help clarify the path, set you towards it, and guide you along it, testing for hidden opportunities and dangers. That way, you get the most out of your time on earth.


Let me be your financial guide.

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