Skip to Main Content

Investing for the Future: Why Relationships Matter

multi-generation family having dinner outdoors

In this increasingly digital age, it can be hard to imagine how people ever managed their money without online banking or mobile apps.

Thanks to tech, you can now tackle virtually any financial task — including saving and planning for retirement — right from your mobile device.

As part of the tech revolution, robo-advisors have emerged as a next generation alternative to traditional financial management. Rather than relying on human advice, robo-advisors use algorithms to help guide investors toward their financial goals. In the 2017 Financial Planning Tech Survey, 44 percent of financial advisors at large firms said that advice from robo-advisors will likely transform the wealth management industry within the next few years.

This doesn't mean, however, that the human touch has lost its appeal — or its value. A 2017 BlackRock survey found that 71 percent of investors who work with a financial advisor are highly satisfied with their relationship and the impact it's had on their portfolio.

If you're considering professional investing or wealth management services, it's important to understand what the financial advisor relationship can add to your longterm financial outlook.

Why Personal Connections Matter

Getting your financial advice from a robo-advisor can simplify financial planning. It's very much hands-off and low cost. However, robo-advisors fall short in understanding the individual personalities and preferences of investors.

That's where building a relationship with a financial advisor becomes important. There are certain things human advisors can do that robo-advisors can't, starting with helping you develop a thorough understanding of where you fall on the risk tolerance spectrum.

Taking too much risk in your portfolio, without being properly diversified, could result in significant losses. Taking too little risk could mean your portfolio doesn't live up to its full potential.

Either scenario is counterproductive to achieving your financial goals, including saving enough to reach your target retirement number.

Understanding your risk tolerance and your risk capacity can help you build a portfolio that's best suited to your needs and objectives. Your risk tolerance refers to how much risk you're comfortable taking; your risk capacity is how much risk you need to take to achieve your goals. In the BlackRock survey, the most satisfied investors were the ones whose advisors had helped them develop a clear understanding of risk.

In addition, an advisor can help you keep your emotions from derailing your investment choices. When a market correction occurs, for instance, your financial advisor can help you develop a defensive strategy for riding it out and calm some of the anxiety that downturns often trigger. A robo-advisor, on the other hand, would be limited to rebalancing your portfolio in a correction according to what its algorithm dictates, without taking your individual needs or fears into account.

Evolving the Advisor Relationship Through Life Changes

The way you approach investing at age 25 isn't the same way you approach it at age 65. Conversely, you may have a much broader knowledge of investing in your 60s than you do (or did) in your 20s. A financial advisor can help you shape your strategy as you shift between the different stages of your investing life:

  • In your 20s, you may be at the very beginning of investing for retirement. At the same time, you may be working to pay down student loans, build an emergency savings cushion, or fund a down payment for when you're ready to buy a home.
  • As you move into your 30s, you may realize the goal of buying a home or starting a family, both of which remind you to focus on building wealth for your later years. In this decade, the repayment of your student loans also may be ongoing.
  • By the time you enter your 40s, a new financial goal may be on the horizon: saving for your child's college education. Or you or your spouse may want to pursue new goals of your own, leading to a change in career or the launching of a business.
  • In your 50s, it's easy to find yourself juggling competing responsibilities and demands that involve both your children and your aging parents, while remembering to stay focused on saving for your own retirement. In the ramp-up toward retirement as you move into your 60s, the emphasis may be on making catch-up contributions to your retirement accounts and paying down your mortgage and any other debts.
  • In your post-retirement years — whenever they may start — your focus will be on strategies for maximizing the distribution of your retirement savings, which is different from the process of accumulation. Timing and taxes are two important themes, as you work to help ensure your retirement funds will last long enough.

Developing a relationship with a financial advisor early on can make navigating these various life changes and competing financial goals easier. The advisor can help you create a well-rounded financial plan with both short- and long-term objectives, and identify the various action steps you need to take to reach them.

An advisor can also point out what adjustments are necessary if life throws you a curveball you weren't expecting, such as a job loss or finding yourself caring for children and aging parents.Again, those are things a robo-advisor isn't designed to do.

Taking the First Step

Building a relationship with a financial advisor can yield significant benefits over your investing lifetime. At a minimum, an advisor can sit down with you and conduct an annual investment review of your portfolio to gauge whether you're taking the right amount of risk to meet your goals, whether you're diversified enough to protect against any major market shocks, and whether you're investing as tax- and cost-efficiently as possible.

This is a valuable conversation to have, even if you don't think you need a financial advisor right now or if you're currently comfortable managing your investments on your own. An advisor can point out the blind spots you may have missed and the knowledge gaps in your plan, and help you fill them in.

Whether you've never had a professional evaluation of your portfolio before, or you're looking for a second opinion, it's worth your time to schedule an appointment with a financial advisor to discuss your retirement and investing goals.

Schedule An Appointment