The differences between a financial advisor and a salesperson

The value of a financial advisor is not in selling products or selecting investments. Your value is in “all you can do to help clients accomplish a goal not based on a portfolio,” said David M. Blanchett, CFA, CFP, the head of retirement research for Morningstar Investment Management.

“Retirement income is incredibly complex, however, you can do things that help clients create more income and think about these different risks,” Blanchett said.

Find hidden roadblocks to client goals

A money manager can manage your clients’ investment portfolios. What they won’t do is look at your client’s needs and goals and all the variables that impact those. A good advisor is part detective and part behavioral coach. It’s your job as an advisor to ask questions to uncover the variables that may impact how you forecast clients’ retirement income needs. These variables include

• How long will the retirement last? When do your clients plan to stop working? What’s their life expectancy?
• What does the client expect to spend each year? Clients often don’t realize they spending differences in retirement. They don’t spend money like it’s a regular working weekday — they spend money like every day is Saturday.

Advisors then can look at other areas such as

• Return of the portfolio or asset
• Tax liabilities
• Risk management

Are the formulas accurate?

Even once you have the answers to all your questions, your job isn’t as easy as popping those answers into a predetermined formula. Question the formulas and the rules. Blanchett used the 4% rule as an example: “You can take out 4% of the initial balance when someone retires. If you have a $1 million portfolio, you take out $40,000 in year one. You assume that the withdrawal amount is increased every year by inflation for 30 years.”

Unfortunately, Blanchett said, “that rule is built on the assumption that you’re getting long-term U.S. asset return rates.” Even if those return rates turn out as predicted, your client might not.

“If the client lives to be 95 and they take out 4%, they’ll have little left in their retirement funds,” Blanchett said. “Yet if you forecast your client will live to be 110, then your client may not end up getting up much enjoyment out of their retirement, even if they have a big pot of money left at age 95.”

As a financial advisor then, you take each client’s case and goals as an individual and run through various simulations. You can do more than manage investments, you can help clients reach their goals.

From 2015 Top of the Table Annual Meeting presentation “Alpha, Beta and Now…Gama.” (MDRT members only)

For more about the value of a financial advisor, watch

• “Should you be using a third-party money manager”
• “An advisor’s value is in the advice”
• “Protecting clients’ futures: The value of financial advisors”
• “Are your clients giving away their retirement funds?”