Your financial advisor as “alpha”

Contrary to the selective data promoted by most of the investment management industry, independent historical data shows that investment professionals have considerable difficulty consistently outperforming the markets. In fact underperformance is very much the norm over the longer term! When they do, rather than it being a result of innate investment manager skill, it is more likely to be either the result of chance or as a consequence of moving away from the risk tolerance agreed with the client.

A more realistic performance benchmark, where the client and advisors’ interests are better aligned would be “Better than investors are likely to do if they didn’t work with a financial advisor”. Rather than try and outperform the market, a fee-based financial advisor can add value (i.e. alpha) by developing long term relationships with their clients and by providing financial planning, investment advice and acting as the clients’ behavioural coach.

Experienced stewardship is key to this relationship-based approach. Without professional help, individual investors, influenced by recent market performance and the current economic backdrop, can make emotional investment decisions inappropriate to achieving their long term goals. For example, adopting a performance chasing strategy and investing in funds, which have historically outperformed the market, despite disclaimers highlighting that past performance is no indicator of future returns could dampen overall performance. This is where a financial advisor can help, by providing a single minded application of a client’s investment strategy in terms of asset allocation, regular portfolio rebalancing and a tax efficient approach to financial planning.

The real added value that a financial advisor can provide is financial planning, acting as a behavioural coach and ensuring that there is a consistent and credible investment process that is both tax efficient and low cost.

If you have any questions regarding financial planning and investment planning, please contact us on 020 3865 2379

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