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By Brian J. Regan

Let’s talk about what you should expect from a financial adviser.

In my opinion, a financial adviser should have three main functions:

1. Financial Planning

The adviser should help you understand your personal finances and what you need to do to reach your goals.

Brian J. Regan

Brian J. Regan

2. Determine Risk Preference

Given the knowledge of your personal finances, the advisor should know your ability to take risk. Additionally, and completely separate from your personal finances, a good advisor should get to know you as a person and determine your willingness to take risk.

3. Invest within Your Risk Preference

Investing within your risk preference means having a general asset allocation set for the long term. The allocation should not change unless there is a life event, and market events should not alter the target allocation.

If you feel the need to make drastic changes as the market falls, your adviser did not nail down your risk preference. Psychology can also be a factor too: Often, when a client’s preferred political party is in power or if the market is trending higher, clients perceive markets to be less volatile than reality. Behavioral bias can be a dominant force that can take some trial and error for the adviser to truly nail down your risk preference.

How Does an Adviser Add Value by Investing Within Your Risk Preference?

The DALBAR study from 2020 shows that the average investor earned only 2.9% from 2001 to 2020, barely outpacing inflation. That underperformed both the S&P 500 and investment-grade bonds. This drastic underperformance occurs because investors routinely take too much risk, panic when things go south, and then struggle to get reinvested. Any allocation to stocks and bonds if held through volatility would have outperformed the average investor. Finding the right risk preference likely ensures outperformance vs. your average neighbor.


We are often asked by clients if we outperform the market, but it’s really the wrong question. Instead, the right questions to ask your adviser are: Do your clients achieve their goals? Are your clients taking the appropriate amount of risk? Do your clients trust you to make intelligent decisions within the risk framework? And, ultimately, if I work with you, will I do better than if I do it on my own?

In my opinion, the answer should definitely be yes to the last question if you are working with a good adviser and it should not be a hard hurdle to achieve given the performance of the average investor.

Now, back to performance. Of course, you’d want your adviser to perform well. However, it is fair to ask, how is good performance determined?

A few simple guidelines:

1. Unless you have a very aggressive risk preference, you should not expect to outperform the stock market. As shown in the DALBAR study, less risky assets underperform the stock market over the long term. Generally, if you take less risk, you’ll get less return. And that’s fine!

2. You should not expect your adviser to try to time the market. In fact, a reasonable adviser should actively try to coach you away from this tendency. There’s a Vanguard study that tries to show the value of a financial adviser and by their measure behavioral coaching adds 1.5% per year on average in value to a client. In my experience, I think that number is low.

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3. You should not expect your adviser to performance chase. Performance chasing is jumping into assets that have done well recently. You should expect your adviser to stay well diversified within your risk preference. Performance chasing can have devastating consequences. Here is an example of recent performance chasing. Can you imagine if your adviser had invested a significant sum of your assets in the ARK Innovation ETF because it had done so well going into February of 2021?

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4. You should expect your adviser to try to perform within your risk tolerance. A good adviser can pick great funds and keep your costs low, but a superior adviser can make allocation decisions with your risk profile framework that drives some outperformance such as overweighting or underweighting beta, duration, credit, or sectors. My goal in this suite is to make our fees cheaper for our clients through superior asset allocation.

Another suite of strategies includes individual stock selection. Individual stock selection should be considered riskier and often moves contrary to popular opinion, which can be difficult for many people as we try to find good value. My stated goal is to unabashedly outperform AMRs fees over the long term within a stated risk profile.

It always comes down to the risk profile. There is a truth and a lie that are commonly told. The truth is that you can get market performance for cheap by buying an index fund. The lie is that you will actualize that performance without help as the DALBAR study shows. 

About the Author: Brian J. Regan, CFA®

Brian J. Regan, CFA®, MBA, is the chief investment officer for Asset Management Resources, LLC. His responsibilities within the firm relate to investment research, portfolio design and implementation. He has education and experience in portfolio risk management, asset allocation, fixed income security selection, equity security selection, and macro-economic analysis. 

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