There are good reasons to seek the help of a financial adviser. A good pro will be able to help you sort through your financial life and develop a plan for how best to proceed.
That is the easy part. Where an adviser can add the most value is serving as a financial psychologist of sorts. After all, our decisions are often held hostage by our emotions.
For instance, our fight-or-flight kicks in when stock markets plunge. Or we can be overly wedded to what we paid for something. Waiting for an investment that has fallen in value to "just get back to break-even" has a strong emotional pull. This bias, called anchoring, can keep us from dropping a loser and reinvesting in something with better long-term prospects.
Research from Morningstar and Vanguard estimates that a financial adviser's biggest service can be in helping a client navigate the emotional speed bumps that get in the way of reaching long-term goals. Sure, investment advice is important. Tax planning can be a solid win, especially in retirement planning
But both studies agreed: The role of adviser as financial shrink/behavioral coach has the biggest potential payoff. In Vanguard's estimation, a good adviser might be able to boost net performance for a client about 3 percentage points over the long term.
Yet that is not what individuals think is important. Morningstar recently surveyed nearly 700 people and more than 150 advisers and asked them to rank 15 services or attributes of an adviser from least important to most. The list included "can help me maximize returns," "helps me reach my financial goals," "has a clear fee structure so I know what I am paying for" and "helps me stay in control of my emotions."
That last one was ranked dead last. We don't value a service that research says could be the biggest help. This represented the second biggest disconnect between individuals and advisers in the Morningstar survey, as advisers ranked controlling emotions higher. The biggest gap was about portfolio performance. "Can help me maximize my returns" was ranked fourth-most important by individuals and 14th by advisers.
Those gaps suggest that individuals are looking for help in the wrong places.
If you are working with an adviser, recognize that really good pros are going to earn their keep by helping you stay committed to your strategy in the face of all the emotional tugs that want to pull you in the wrong direction. At the end of the day, helping you maximize your returns is highly dependent on helping you avoid behavioral biases.
Carla Fried writes for Rate.com.