Advisers who pick stocks are hurting clients — and the value of their firms

Advisers who pick stocks are hurting clients — and the value of their firms
Too many advisers spend too much time each week watching CNBC and Bloomberg, and imagining they can outsmart the market.
JUN 25, 2019

If you're an adviser and you pick securities for your clients, you're not only wasting time and money, you're probably doing them a grave disservice. I've been a financial planner and adviser for almost three decades, and it never ceases to amaze me how many advisers think they are adding value by being stock pickers or market timers. Rather than spending time guiding clients through life events, developing financial plans or giving tax or estate planning recommendations, too many advisers spend too much time each week watching CNBC and Bloomberg and imagining they can outsmart the market. It's bad business. Stocks? Bonds? Real estate? Most active fund managers can't outperform the indexes of the securities they manage. How in the world can a retail financial adviser expect to do better? Think of some of the best active managers in the marketplace. They've got highly educated researchers and employ teams of CFAs. Yet if history is any guide, even the managers with the best 10-year track records will probably underperform their benchmarks over the next decade. And, even if you somehow outperform over the short term, given enough time, you'll certainly underperform in the long run. But it's not only middling (or worse) returns that hurt your clients. All this takes you away from you managing and advising them on their entire financial lives. And if all that wasn't enough, it's not only your clients who pay the price: The value of your firm suffers when you position yourself as an ace portfolio manager. Case in point: Over the years, both in my time running the Hanson McClain Retirement Network, as well as doing M&A with Allworth Financial, I've interacted with hundreds of financial advisers. We go deep into the DNA of the firms we work with. And here's the reality: Those firms whose approach to advising is to focus on the overall financial life management of their clients are almost always more valuable than those firms that emphasize investment management. Obviously, managing portfolios is incredibly important. But it's clearly not where a good financial adviser should focus. After all, asset allocation is a low-priced commodity that can be done for, at most, 25 or 30 basis points. Your real value is in other areas, such as financial planning, guidance, distribution strategies and behavioral coaching. And when the day comes to sell your firm and retire? Advisers whose primary focus is portfolio management are going to find their firm a tough sale. Because, in that scenario, what's left of your practice after you leave? What's the advisory process and how does the next principal step in? (More: 'Retire in place' doesn't cut it as a succession plan) For those advisers who outsource investment management, and have a highly defined, repeatable and holistic advisory process, you'll absolutely have more loyal clients and more options available to you when it's time to retire. (More: Digital is the present and future of adviser marketing) Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with over $4 billion in AUM.

Latest News

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

Apella Wealth comes to Washington with Independence Wealth Advisors
Apella Wealth comes to Washington with Independence Wealth Advisors

The Harford, Connecticut-based RIA is expanding into a new market in the mid-Atlantic region while crossing another billion-dollar milestone.

Citi's Sieg sees rich clients pivoting from US to UK
Citi's Sieg sees rich clients pivoting from US to UK

The Wall Street giant's global wealth head says affluent clients are shifting away from America amid growing fallout from President Donald Trump's hardline politics.

US employment report reactions: Overall better than expected, but concerns with underlying data
US employment report reactions: Overall better than expected, but concerns with underlying data

Chief economists, advisors, and chief investment officers share their reactions to the June US employment report.

Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading
Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading

"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.