More Can Be Done by Financial Advisors

09/10/2011 Share 0 comments

John Wasik at Reuters recently published an excellent article Financial advisers consistently ask the wrong questions.

We quote the following:

If you go to see a financial adviser and you are only asked two main questions — how much money will you need in retirement and what’s your risk tolerance? – you should run for the hills.

Financial advisers who are shackled by conventional wisdom or just looking for numbers to plug into off-the-shelf portfolio software may be asking you the wrong questions. ...

“Frankly I think trained monkeys could do the same basic job giving answers to those two questions,” Ariely writes. “Certainly algorithms can do it, probably with many fewer errors. This is not something for which we should pay 1 percent of assets under management.”

It is interesting to see that the two often asked questions are very similar to the two questions MyPlanIQ asks our users to help them decide their risk profile in their portfolios:

Number of years to retirement

Risk tolerance

Except, of course, these are aksed by a free system instead of pricey humans.

John went further to state that financial advisors should at least help their clients to understand the following:

• Life History: Where have you been and where are you going? Do you have chronic health issues? How does your past influence your future?
  
• Life Transitions: You need a dynamic plan that can walk you through divorce, adult children’s needs, elder/long-term care and anything that derails your retirement plan.
• Life Principles: What’s important? Do you have to move or go back to school?
• Life Goals: Your life doesn’t stop when you leave a career. What do you want to accomplish? Where do you want to go?

Given many low cost and diverse choices of ETFs and index mutual funds, it is now possible for a system such as MyPlanIQ to offer institutional quality portfolio help for average investors in their 401k investments, IRA investments and variable annuity investments. 

Let's look at our simplest plan Six Core Asset ETFs that consists of only six candidate ETFs:

Other than DBC, all of five ETFs are Vanguard ETFs that have extremely low expense ratios. Let's see how the two asset allocation portfolios have performed recently:

So the model portfolios have been very effective, out performing general market index S&P 500 (SPX) or SPY by a big margin. For more detailed performance, refer to Portfolio Comparison.

As we stated elsewhere several times, we do believe financial advisors can offer great help to investors in understanding their intricate personal situations, which can not be replaced by a software system such as MyPlanIQ. Furthermore, they can help their clients to stay the course during a volatile period such as this one.

Symbols: SPX, VTI, VEU, VNQ, VWO, DBC, BND, SPY, Retirement Investments, Portfolio Management, Asset Management

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are monitored publicly on our web site since their listing and any data before their listing are obtained through historical simulation and are hypothetical.