the BERINGER group Newsletter

Chris Beringer


Why would anyone want to pay for an investment advisor?

by Chris Beringer

The current availability of investment advice is prevalent and oftentimes accurate. I went on Google and utilized one of the free asset allocation websites. They asked me ten questions and then provided me a suggested asset allocation. It was a tad more conservative than my current portfolio, but generally speaking, was not that far off.

So, why would you need to hire a professional investment advisor?  Here are three key reasons:

1) Investing is emotional.

To take emotion away from our goals of providing college education for our children, retirement, philanthropic goals and potentially leaving money to future generations would not be human. Markets have always been, and always will be, volatile.

The S&P 500 has provided an annualized return of 11.79% from 1980 to 2011. This has not been a steady return. There have been multiple shocks and bear markets over that period, some that have lasted for a long period of time. 2001-2010, for instance, has been called the "lost decade" providing an annualized return of just 1.41%.

Periods of volatility and poor performance often cause individuals to make emotional decisions and sell at the bottom, locking in losses. The single greatest advantage of using an investment advisor is that they should help keep you calm during heightened volatility.

"Stay the course" and "slow and steady" may seem cliche, but remain to be the core principals of investing. Investing is designed to be done over decades, not months, and having an investment advisor to provide sanity is critical. Hopefully, your investment advisor understands your risk tolerance and has designed an appropriate portfolio.

2) An investment advisor helps you understand what you own.

Currently, the 30 year treasury note is yielding 2.52% (as of 7/27/2012). Effectively, loaning the Federal government money for 30 years for a return of 2.52%. Oh, and it's taxable. That does not seem like a good investment to me. However, my asset allocation software suggested that I have 30% in bonds. If I took their advice, and simply bought an ETF that tracks the Barclay's aggregate, I would own those securities! In fact, over 25% of the ishare fund is in securities dated 25 years and longer.

Now, these issues performed well in the past, due to declining interest rates, but in a period of rising interest rates, these securities could be a time bomb. Understanding how your portfolio is constructed is critical and will help you avoid unwanted volatility.

3) The typical investor tends to be drawn towards performance.

A solid investment advisor should be attracted to philosophy. I was talking to Linda Postorivo, the CIO of The Beringer Group, and I said, "Have you ever invested in the number one performing manager in their space and been happy?" She laughed and simply said, "No."

Chasing performance is a losers game. Selecting investment products that share your philosophy is what investing is about. There are periods of time where growth is in favor, or when value is in favor, but they usually revert to the mean. Your investment philosophy might align you with managers that focus on dividends, managers that focus on growth or managers that focus on finding bargains, and there will be periods where the philosophy that you gravitate to will be out of favor.

Performance is fleeting, but a long-term investment philosophy is what will allow you to achieve your objectives.


Convinced that its time to hire a professional investment advisor?  Here are five qualities you should look for:

1)  Independence.  The investor needs to know that the advisor is giving pure advice, without having to worry that they are being sold a product so the advisor can collect a commission.

2)  An understanding of the inner relationship between fees, taxes and portfolio return.  At the end, it is what you keep after paying fees and taxes (capital gains, income and estate taxes).  For instance, a money manager that returns 10% whose return is all made up of short term capital gains, is not as valuable as a money manager that returns 8% and realizes little to no gains.

3)  A broad base understanding of different asset classes and how they interact.  An investment advisor should not be a specialist, but rather a generalist who grasps the different correlations between stocks, bonds, hedge funds, private equity and hard assets.

4)  The ability to reduce manager fees.  Typically, an investor should work with an advisor who has enough clout to reduce fees.  

5)  The ability to customize a portfolio to specific needs.  Every high net worth individual is different and has different and therefore should have a customized portfolio.

In conclusion, a good investment advisor should hold your hands during periods of intensive volatility, explain what you own and help you stick to a philosophy that achieves your goals.







Copyright 2012.  The BERINGER Group