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The Value of a Financial Planner: Delegation

When I first started writing personal finance articles, I was still on active duty.  To help me figure out what everyone wanted to read about, I joined a relatively small group of military personal finance influencers.  These were largely people who had been there, done that, and were trying to show other military folks how they could do it too.   

Over the years, I’ve often thought the following question:   

“Why would someone pay me good money, as a financial planner, when there are people out there showing you how you can achieve these results…for FREE?”   

This very question forced me to think long and hard about my value proposition.  This article outlines one of the reasons why someone should hire a financial advisor:  delegation. 

What is delegation?   

According to Merriam-Webster, delegation is simply the act of delegating or being delegated.  In other words, delegation is entrusting something to another person that which you are not able to (or not willing to) do yourself.   

We delegate tasks all the time.  Every time we go out to eat, we delegate the task of preparing that meal.  If we hire a lawn service, we delegate the task of mowing the lawn.  So on and so forth. 

Sometimes, we delegate things, even when it’s not so obvious.  For example, let’s look at depositing money into a bank.  While we might open a savings account because we’re chasing that whopping 1-2% interest, we’re really delegating the responsibility of safeguarding our money.  After all, we could (in theory, anyway), decide that we’ll handle the actual storage of cash ourselves, by cashing every paycheck and physically storing it somewhere.  Why?  Well, some people might be concerned about the safety of deposits, even if they’re backed by the full faith and credit of the U.S. government.  Some people might only receive paychecks in physical form (or cash), and have immediate spending needs.   

Why would we delegate? 

Whatever the case, most of us delegate some things to people or companies for one of several reasons: 

  1. Doing it ourselves is not the best use of our time.  You see this with menial tasks (like mowing your lawn), or with highly paid professionals.  For example, a doctor who earns $500,000 per year might choose to hire a lawn service simply because her best use of time is practicing medicine.   
  1. Complexity.  We also often delegate tasks that might require an expertise, even if we might be able to figure it out on our own.  For example, WebMD has not caused doctors to flee to another occupation.  Why?  Because doctors happen to know a lot about medicine.  And when we are confronted with something we can’t figure out online, we’d like to talk to an expert about what’s going on with our bodies.   
  1. Someone else can do it better than we can.  Another reason to go to a doctor.  You might be able to google what a cancerous mole looks like, but would you trust your guess over that of an in-person doctor?  At least if your doctor isn’t sure, they’ll refer you to a specialist.  You can be pretty certain THAT doctor has seen more moles than you.   
  1. Resources.  Some professions, like woodworking, require investments in equipment that you might not want to make.  You can probably do ‘well enough’ with a few basic tools, but you probably won’t have that artisan polish of an accomplished woodworker. 
  1. Education.  In today’s world, education is essentially a ‘free resource’ in a lot of fields, including financial planning.  However, free educational resources only work if you use them to educate yourself.  Owning 50 different financial independence and investment books will do you zero good if you never bother to read them.  Like any other resources, you can educate yourself to do ‘well enough’ fairly easily.  However, you might find yourself ill-equipped to deal with an emergent issue if you’ve never done so…and you might not have the time to find the right book on how to deal with it. 

What delegation is NOT 

Delegation is not abdication.  Anyone who delegates a task still owns the results.  In other words, most of the time, you still have to deal with the results.  This is true even if there is recourse for negative results.   

In the fast-food example, if you get a food-borne illness, it’s YOU who gets sick.  While you might be able to sue the restaurant, you still have to deal with the fact that you ate bad food.  A badly cut lawn?  You have to deal with that, whether it’s by waiting for the grass to grow back or firing the lawn service and hiring someone else.  Same is true in financial planning.

There are a lot of things you can delegate to your financial advisor, but you do have to live with the results.   

So, why would you delegate?  And what exactly would you delegate? 

This depends completely upon you and your specific circumstances.   

Many people feel very comfortable doing their own personal finances.  They might choose to hire a financial planner to ‘validate’ that they’re making sound decisions.  These people haven’t delegated much of anything.  Instead, they have hired someone with experience, education, and expertise to help them fine-tune their financial lives. 

Being in the position of hiring a financial planner to validate sound decisions is probably best left for people who: 

  • Have decided that financial planning is a fair use of their time 
  • Feel comfortable with the complexity of their situation 
  • Decided they can do a pretty good job managing their financial decision-making 
  • Feel that they have access to the resources and education they need to handle their own decisions 

In other words, the five reasons to delegate the task of financial planning just don’t exist.  And that’s perfectly fine.  Conversely, there are people who might feel any of those five reasons (or a combination of them), and decide that they do want someone to help them.   

The biggest danger of not delegating 

The most dangerous thing that I usually see is this:  Someone decides that they don’t need to hire a financial planner.  They have access to resources, education, and all the information.  And they never use it.  Their ‘access’ to information means that they always put off until tomorrow those decisions that might need to be made today.  Then, by the time they come to a financial planner, that professional is dealing with: 

  • The impacts of costly decisions 
  • Additional work to get the client back on track 
  • Expectations that might not be realistic 

The example that I use is that of my neighbor’s lawn.  He has no need for a lawn service.  He meticulously tends his lawn on a regular basis.  He knows exactly how to treat his lawn, how much to water it, how and when to cut the lawn, and all the other things you would expect a lawn service to provide.  And he does this every single week.  In other words, he doesn’t just know what to do…he actually puts in the work. 

Conversely, you’ve all seen the neighbor with a poorly attended lawn.  It doesn’t get watered regularly, never treated, and the grass is always ridiculously high.  When he does mow it, he cuts it really short so he can go longer between mowing sessions.  As a result, his lawn starts to deteriorate over time.  This person has access to all the ‘resources’ my neighbor does.  He knows exactly what to treat the lawn with, the proper watering schedule, and how to cut the grass.  The difference is that he just doesn’t put in the time to do it properly.  Whether it’s because of a busy work schedule, other competing priorities, or sheer laziness…it just doesn’t matter.  Not putting in the work leads to the inevitable result of having a dying lawn.   

But then, he decides that he wants to sell his house.  He knows that he needs to improve his lawn to enhance his curb appeal.  So he hires a lawn service.  The lawn services tells him that it will take at least a full year for the lawn to go through the entire growth cycle and fully recover.  The homeowner is upset at the lawn company’s ‘unrealistic expectations.’  Of course, this might not have happened had they been hired earlier. 

The same thing happens in financial planning all the time.  

Client example 

For an example of how delegation CAN work, let’s take a client that I started working with.  He’s recently retired, having just sold his business for a decent amount of money.  He’s managed his personal finances for his entire life.  He now wants to make sure that he is: 

  • Not going to overspend in retirement 
  • Making tax-efficient decisions  
  • Investing properly 

So he decided to hire a financial planner.  Why?  He’s got more time on his hands than ever before.  He can do all the research he wants.  Access to resources is not an issue for him.   

The main thing is that he feels that his situation has changed.  He has spent a lifetime earning and accumulating wealth.  Now that he’s no longer earning an income, he wants to make sure that his money is able to help him and his wife live the life they want to live.  And given the major decisions they still face (like when to take Social Security, how to manage Roth conversions, and how to manage required minimum distributions), they want a financial planner to help with those decisions.   

But what have they delegated?  In this case, they’ve delegated: 

  • The task of analyzing information necessary to make major decisions, like the ones mentioned above 
  • The task of developing and implementing an investment philosophy 
  • Many of the administrative tasks associated with their investment accounts, like tracking their investment performance, executing trades, etc. 
  • The task of collecting all the pertinent financial information, analyzing it, and updating the plan. 

What they haven’t delegated is the actual decision-making.  While a financial planner is expected to do the analysis and come up with sound recommendations, each decision is ultimately the client’s decision to make.  In order to make this easier for the client, financial planners will (or should, anyway), take as much information as possible, then distill it into 

  • Key decisions the client needs to make 
  • What the client needs to know to make those decisions 

Whether it’s buying insurance, getting wills updated, or deciding upon investments—the client is still in the driver’s seat.  That’s the way it should be, and most financial planners recognize this. 

Conclusion 

There are many reasons why people might want to hire a financial planner.  Sometimes, they just need a validation of the good work that they’re already doing.  Other times, they might be too busy to do much of the work, even if they know they can do it.  And yet other times, there might be a new situation, where hiring a professional will help make good decisions.  

Are you on track? Or do you need a little help trying to make sure you're making the good decisions? We don't mind taking a look and giving you our two cents. Schedule your initial consultation here.   

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