Investors are constantly bombarded with financial and economic headlines and anecdotes that trigger emotions ranging from fear to euphoria. It takes skill for an advisor to look at financial markets every single day, and still make appropriate, measured, long-term investment decisions. Skilled advisors learn how to filter market noise. Advisor alpha demands this skill, and it is always accompanied with investment knowledge, a historical perspective, and an honest self-awareness of the advisor’s own susceptibility to irrational behavior.
Great advisors not only possess the skills associated with creating appropriate investment allocations, but they also possess the ability to help investors sustain the allocations! Great advisors are always reminding, always educating, always communicating. They earn and maintain trust. An advisor may create and propose an appropriate asset allocation or financial plan, but it makes little difference if the investor does not accept or sustain the plan. Investors ultimately have discretion. Not every investor will accept advice or behave in an ideal fashion. Some clients might be unhappy or even leave if they hear the truth, but advisor alpha requires total honesty.
Advisor alpha is so valuable, because it requires tremendous courage and conviction. It requires a willingness to maintain an asset allocation that at times misses some of the market upside or captures some of the market downside. It requires a willingness to have hard conversations and an ability to avoid emotional contagion. It requires not only the ability to embrace innovation but also the disciple to follow rules and processes.
The concept of “robo advisors” has sent a shiver through many financial advisors. However, great advisors are embracing technology and digital delivery for analysis, efficiency, and transparency. It is not an either/or question (i.e., either a robot advisor or a human advisor), it is an “and” question (technology combined with a skilled advisor). When the stakes are high and the dollars are meaningful, most investors won’t be soothed by a robotic voice or encouraged by a computer screen filled with numbers. At critical life moments and pivotal market moments, investors will turn to skilled financial advisors with credibility, authority, and perspective.