Often when I’m working with clients this question comes up: “who is your financial advisor?” And just as often they will answer with “Oh, yes. Our financial advisor is Joe with Joe’s Investments.” We’ll continue to talk...

...about questions and concerns they have about buying a home, how to finance it, if they are saving enough for retirement, when would they like to retire, financing their kids’ college education, if they are adequately insured, and so forth. I’ll then ask them, have you asked Joe these questions? “Oh, he doesn’t provide that kind of advice… he just manages our investments.”

Joe is not acting as a financial advisor, at least not in his role with the clients in my example. Less than 20% of financial advisors use comprehensive financial plans to determine their clients’ needs. What I would say is Joe is acting purely as an investment advisor.

Source: 5/28/2003 Wealth Management Letter (Cerulli); 11/13/2003 Wealth Management Letter (Cerulli); Tiburon Research and Analysis

I have the privilege of working with Opes Advisors’ Chief Investment Officers, Mark Duval. And Mark has this great way of articulating the roles of an advisor in any person or family’s lives. Mark says that there are three distinct roles that someone holds with regard to financial advice:

• First is the role of a Financial Advisor. This is someone who is providing comprehensive financial advice and strategy inclusive of retirement planning, debt analysis, risk assessment/insurance, cash-flow, etc. now and projecting forward.
• Second is a sub-set of the first, which is Investment Advisor. The Investment Advisor is providing an asset allocation strategy for the client, choosing how much of their investable assets should be in a particular investment sector (large US stocks, bonds, real estate, emerging markets, etc.).
• And third, a subset of the second, is the money manager, who is picking when to buy and sell specific stocks or other assets on behalf of the client, such as the manager of a mutual fund.

Each of these roles might be played by the same person, or they may be completely different people and companies. But the roles exist. In the case of my example above, these clients in essence are acting as their own Financial Advisor, figuring it out as they go along. They may do just fine depending on how skilled they are in personal finance and their capacity to deal with the financial issues and questions that come up in their lives. As Mark also says, it’s analogues to choosing to be your own car mechanic or not for your own car. You could do all of the maintenance, repairs and upkeep yourself. Or you can hire a car mechanic to do it for you. And like making repairs on your car, you might be very good and efficient at strategizing and managing your own financial situation, or it might take you much longer or you may make some critical mistakes.

What to do? Be clear for yourself who is going to play which of these roles in your financial life. If you don’t hire someone to be your Financial Advisor, take it upon yourself to build your skill and competence in that area. Same thing if you plan to be your own Investment Advisor and/or Money Manager. And if you do hire these roles out, learn to be a good, educated customer so you can assess when to be satisfied with your advisors.

Jeff Smith has been helping families in the Marin community for more than 17 years. As a trusted financial advisor and mortgage advisor, Jeff helps his clients make better financial decisions to improve the outcomes of the financial choices in life.