How to Measure the Value of Intelligent Financial Planning

Tim Obendorf |

Many people want help making good financial choices and planning for the future, especially as they think about retirement. However, they wonder whether hiring an investment advisor is worth the money. After all, advisors charge fees or commissions…how much do they really help?

At Steward, we offer wealth management, which is different from investment management. We focus on financial planning to help clients invest strategically, in a “smart” manner. This means taking a holistic approach and providing meaningful advice that considers the total return for our clients, not just returns from investments.

Thinking about how an investment affects taxes, what type of account to place it in and even how to take money out when needed can significantly affect the total amount of spendable income an investor receives. Considering all these factors, an investment with lower market returns may actually result in more spendable income when used in a smart way.

Recently, Morningstar, an independent research firm, studied the impact of smart wealth management.1 They identified factors other than just picking good investments that create real financial gain.

Morningstar found that portfolios managed by planning-centered wealth managers created almost 29% more income for investors than the study’s benchmark. Put another way, smart, advisor-managed portfolios generated extra income equal to a 1.86% annual return.

The Morningstar study focused on post-retirement investors, age 65, drawing regular retirement income from their portfolios. Investors at other life stages might see different results, but the financial planning services the study identified add value at any stage.

Dynamic Withdrawal Strategies. Many people assume that in retirement they will withdraw from savings at a set rate, like a monthly salary. Withdrawals might change a bit as markets rise and fall, but overall they expect a steady income stream.

While this seems like a good, common sense approach, Morningstar found that a more strategic withdrawal strategy can strongly impact returns. At Steward, we evaluate client portfolios and model cash flows to establish withdrawal strategies that match client income and expense needs each year while keeping an eye out for financial challenges ahead. We focus on sustainability, making money last longer.

Asset Location and Withdrawal Sourcing. Asset location means putting assets where they provide the most benefit, from both a tax and investment return perspective. For example, an IRA may be the best location for stocks that pay dividends, because those dividends can accumulate tax-free.

Withdrawal sourcing means taking out money strategically instead of as needed or on a regular schedule. Carefully timing withdrawals, and the assets sold to fund them, can make a big difference.

Total Wealth Asset Allocation. We work with clients to establish a complete picture of their total wealth, including all their assets and liabilities, and we advise with this big picture in mind. We also think about how much risk each client is willing to take and his or her portfolio’s capacity for risk.

Annuity Allocation. In certain situations, clients can hedge some of the risk of “running out of money” by holding more guaranteed income investments like annuities as part of their portfolio.

Liability-Relative Optimization. Rather than allocate and invest based strictly on a formula, Steward constructs portfolios that account for many variables, including expected liabilities like home purchases or college funding. Customized portfolios provide a better hedge against the unique risks and liabilities that each client faces.

Engaging a relationship oriented, fee-based planner can add significant return on investment in addition to the peace of mind that working with a seasoned professional brings.

For a copy of the Morningstar report or to talk more about this, please feel free to contact us.

1Blanchett, D., & Kaplan, P. D. (2013, December/January). Alpha, Beta, and Now ... Gamma. Morningstar Advisor, 60-63.