DIY Investors Need A Coach, Advisors Have The Game Plan

Individuals without an advisor are more than twice as likely as those with an advisor to say they are “not at all confident” they have the balance between spending and saving correct.

That’s a message advisors need to get out to prospects, and fast.

According to Northwestern Mutual’s Planning & Progress Study, two-thirds of Americans are struggling to navigate spending now versus saving for later - and working with an advisor may just be the solution.

Additionally, the study found that 54 percent of those with an advisor feel “very financially secure” compared to just one in five without an advisor, and here’s why.

Because do-it-yourself investors are juggling other priorities, they aren’t as focused as a financial advisor would be. Just ask Sandy Botcher, vice president of distribution at Northwest Mutual.

“Financial decision-making can be overwhelming, especially when juggling a number of competing priorities,” said Botcher. “A financial advisor has the expertise and objectivity to see the whole picture and develop a strategy that’s flexible enough to enjoy life today while securing tomorrow.”

Getting Real

Rivi Biton, a New York City-based certified public accountant, thinks DIY investors simply don’t know how high of a wall they have to climb to succeed.

“People who manage their own investments must understand two major things. It requires full attention as rebalancing needs to occur to be successful; and, second, there is always a need for diversification,” Biton said.

Mark Radulovich, owner of Prota Financial in Houston, Texas, thinks a gap in knowledge about the industry leads investors to think that money management is simple.

“Most people don't really understand what our industry does because it looks simple. Yet, throwing a football is simple, too. But just as great quarterbacks like Tom Brady have a coach to rely on and help manage their game plan, great investors do, too,” Radulovich said. “After all, even Warren Buffet has Charlie Munger to rely on.”

Specialists Excel – And The Data Shows It

Unlike DIYers, good advisors are focused on honing their skills and learning the little tricks that can earn (or save) money, industry insiders say.

“Advisors who have dealt with many clients over many years get to see all sorts of situations, and often how a client entered or came out of that situation,” Radulovich said. “Consequently, we can see many of the warning signs ahead of time. And that is useful not just from a financial numbers perspective, but also helping our clients sleep well at night.”

Advisors are urging prospects to abandon any DIY impulses. Kyle Whipple, partner and financial advisor of C. Curtis Financial Group, in Plymouth, Mich., said advisors have data on their side.

“Back in December 2015, there was a Dalbar study that showed the average rate of return in the stock market between 1995 and 2015 was about 8.19 percent, yet the average mutual fund investor only managed to earn 4.67 percent,” Whipple said. “I believe this was due to investors making uninformed decisions and/or paying too much in undisclosed fees and expenses inside their investments.”

Whipple says DIY investors are also prone to making emotional decisions.

“They open up their statement or log onto their account to find it has dropped 10-20 percent or even 37 percent, like it did in 2008, and they don’t have a pre-set process to determine when to stay invested or when to sell out. At that point, they will undoubtedly make an emotional decision. Basically, they end up selling low and buying high,” he said.

The ultimate message advisors should send to potential clients who think they can manage their own money? Get a grip and be flexible.

“Clients always need to remember that it's their money,” Radulovich noted. “A good advisor is a guide to rely on and confide in, but if the client isn't happy with the relationship, then finding a different advisor is key.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected].

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