In financial services, the landscape can be quite perplexing, with various titles and roles for professionals assisting investors in managing their assets. Whether you're embarking on the quest for a financial adviser for the first time or have been working with one for years, it's beneficial to grasp the primary categories and what these professionals can offer you.
Commonly used terms include financial adviser, financial planner, investment adviser, and wealth manager. The most coveted qualifications among these professionals are the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations.
Essentially, when properly registered with their state or the Securities and Exchange Commission (SEC) as RIAs (Registered Investment Advisers), these professionals share a fiduciary duty to their clients, meaning they are obligated to act in the client's best interests. This implies recommending what is best for the client rather than merely what is suitable—but might yield a higher commission or fee for the adviser. It stands in contrast to securities (and insurance) brokers, who are essentially agents—or Registered Representatives—of their employers and may be incentivized to sell products with higher fees, even when a cheaper but equally suitable option is available.
It's worth noting that anyone can label themselves a financial adviser, underscoring the importance of thorough research when considering hiring one (a good place to start is the SEC's investor.gov website). All types are supposed to provide clients with personalized investment advice tailored to their financial goals and risk tolerance. These objectives may include supplementing retirement income, funding kids' or grandkids' college tuition, a home down payment, or creating an emergency fund.
Financial planners typically extend their services beyond investments and often assist with insurance, budgeting, debt reduction, and estate planning. Finally, wealth managers primarily cater to the most affluent individuals and families, offering in-house legal, tax, and other advisory services for tasks ranging from setting up foundations, buying and selling businesses, managing real estate, or even providing concierge services.
Bristlecone's core expertise lies in aiding clients with their investments but with a crucial nuance: our ultimate objective is to maximize the odds that our clients have sufficient funds to meet their financial goals when the time comes. It is not to maximize returns.
The most dependable ways to achieve long-term financial goals are well-known: 1) spend less than one earns, 2) invest in assets that exceed inflation after costs and taxes, and 3) avoid costly mistakes along the way, especially behavioral traps. Yet, even intelligent, successful people can struggle with execution.
The task of accumulating wealth primarily rests with our clients, who come from diverse backgrounds – some have built thriving businesses, others have earned substantial salaries or stock-based compensation packages, and some were just plain frugal, diligently saving over several decades. However, they all share a common understanding of the importance of spending less than they earn.
The investing part is where a good financial adviser can make a difference. First, we believe that one of the greater benefits we provide to our clients is "behavioral" coaching during volatile times. Emotions frequently get the better of us, particularly regarding money. Abandoning a well-planned investment strategy during a bear market or chasing fads during a bull market can be costly and lead to durable setbacks. We offer perspectives based on experience that help keep emotions at bay.
We implement other practices that add value, such as rebalancing, using cost-effective investment options, reducing taxes, and applying sustainable spending policies. Noticeably absent from our approach are strategies like "beating the market" or "timing the market." Consistently achieving such feats is statistically improbable. Consequently, we focus on tried-and-true strategies.
What truly unites our clients is the realization that building wealth and keeping it requires different skills. Knowing when to switch focus is often challenging. Accumulating wealth can be exhilarating and fulfilling, while what we do for clients can be relatively uneventful, even dull.
Preserving wealth is more about patience and discipline. The portfolio construction principles we adhere to ensure that our clients' portfolios are unlikely to be a source of excitement. Instead, investment returns frequently lag behind bull market headlines.
This is by design: all our portfolios include some proportion of cash or bonds. Historically, interest-generating investments provide greater stability in principal value but limited opportunities for significant long-term capital growth, mostly due to their vulnerability to inflation. Their role is more befitting to funding short and intermediate needs.
Conversely, equity investments, such as common stocks, offer greater potential returns but come with the drawback of periodic declines exceeding 20%. However, this year-to-year variability becomes acceptable when viewed through a long-term lens.
To draw a sailing analogy, by mixing asset classes with different risk and return characteristics, we aim to construct seaworthy portfolios to safely navigate any weather and reach our destination securely rather than striving for the fastest voyage.
Fair winds and following seas!
READY TO SAIL?
One of Bristlecone Value Partners’ principles is to communicate frequently, openly and honestly. We believe that our clients benefit from understanding our investment philosophy and process. Our views and opinions regarding investment prospects are "forward looking statements," which may or may not be accurate over the long term. While we believe we have a reasonable basis for our appraisals, and we have confidence in our opinions, actual results may differ materially from those we anticipate. Information provided in this blog should not be considered as a recommendation to purchase or sell any particular security. You can identify forward looking statements by words like "believe," "expect," "anticipate," or similar expressions when discussing particular portfolio holdings. We cannot assure future results and achievements. You should not place undue reliance on forward looking statements, which speak only as of the date of the blog entry. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Our comments are intended to reflect trading activity in a mature, unrestricted portfolio and might not be representative of actual activity in all portfolios. Portfolio holdings are subject to change without notice. Current and future performance may be lower or higher than the performance quoted in this blog.References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and returns do not reflect the deduction of advisory fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there can be no assurance that a portfolio will match or outperform any particular index or benchmark. Past Performance is not indicative of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client's investment portfolio.This content is developed from sources believed to be providing accurate information, and it may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.