When I first started Abnormal Returns, oh so many years ago, in my mind I was very much writing for the sophisticated individual investor. There were no robo-advisors. ETFs were still ramping up. Advisory fees were still a big drag on returns. It was a different world.

We now live in a world where the marginal cost of investing is approaching zero. Zero fee index funds. Zero dollar stock trades. However the cost of our actions and/or inaction are expensive as ever. The revolution in behavioral economics has shown us the many ways in which our brains can short circuit our decision making. There is still a dedicated group of individual investors who are disciplined and cost conscious enough to make a go of it as DIY investors.

Excellent piece from @ReformedBroker on why smart people work with financial advisors. When I was younger, I believed most rational people would follow a rational investment strategy.

I now know better. So does Josh.https://t.co/jA6RTCTkyv

— Jim O’Shaughnessy (@jposhaughnessy) August 9, 2018

Like Jim O’Shaughnessy I have come around on this issue. The vast majority of DIY investors will not succeed on their own. It often takes a blow-up of some kind to convince investors that they may need assistance. There is nothing wrong with admitting you might need help when it comes to your money or your health. In fact, it is a sign of strength, not weakness.

That being said, having someone manage your money and help coach you through the complexities of money today does not come without some cost. Rather than focusing on the cost, investors would do well to think about the entire experience. Seth Godin in a recent blog post makes a distinction between price and satisfaction. Godin writes:

If you want to create satisfaction, the two elements are:

Make useful promises

Keep them

Price is unrelated, except for one thing: Charge enough that you can afford to actually keep your promise. The thrill of a low price disappears quickly, but the pain of a broken promise lasts a very long time.

Investment advisors, like the firm I work for, can’t make promises about what the markets will do. No honest person can do that. But honest advisors can help provide you with an experience that gives you the confidence to go about living your life. Which should be, for all of us, the goal.

Just as the capital markets are always in flux, so are our financial lives. The mix of services that a comprehensive wealth manager can provide is built to accommodate our complex lives. You will not know ahead of time which of those services are important at any point in time. Josh Brown writing at the Reformed Broker notes how this occurs:

It’s also possible to say that during 300 days a year it’s the planning work that is worth the most to the client but during the other 65 days a year, it’s the asset management that’s going to make the difference. We don’t know in advance which days will be the 300 and which will be the 65. The thing is, what goes on during those 65 days might have tremendous implications for the financial plan – positive or negative.

If you are a financial advisor, already work with a financial advisor or are thinking about engaging an advisor, Josh’s post lays out why an asset management-based fees exist and why they will continue to exist going forward. Keeping promises to the client has a cost. Creating satisfaction is the goal.