Do you consider your Financial Advisor more of an artist or a scientist?
The definition of science is the systematic study of structure and behavior of the physical and natural world through observation and experiment. Money management fits this definition - one of the primary roles in investing money is studying asset classes, such as US Stocks, International Stocks, Commodities and Bonds, and using historical returns, standard deviation, and correlation of returns to build an investment portfolio with the optimal level of risk versus return for each investor’s individual circumstance. That can certainly be seen as science.
But, like most experts in their field, a Financial Advisor should also be an artist. The definition of art is something created with imagination and skill which is beautiful or expresses important ideas or feelings. Is an investment portfolio beautiful? It is when it achieves what the investor wants and allows them to enjoy a secure future. The imagination part comes from the Advisor’s ability to anticipate the future. What unknowns should we prepare for? How can we help the client manage turbulent times without selling? How do we manage the good times without allowing greed to tempt us and take too much risk?
There are many questions a Financial Advisor must answer and most of them warrant creative and unique answers and are not driven solely by science:
Which investments belong in retirement accounts?
What account type should you use when adding money while saving?
Which account should you withdraw money from when income is needed?
How do you diversify a portfolio while keeping trading costs low?
How do the past experiences and personal preferences of the client effect the portfolio and how?
A Financial Advisor requires education, research, experience, and imagination when answering these questions. If you could merely plug facts into a computer and generate the right answer every time, then a scientifically-based Robo Advisor could do the job. However, while computers can be a great tool for the Advisor, they lack the imagination necessary to personalize the output and consider the subjective inputs.
It is the art of financial advice that makes being a financial professional rewarding and challenging to us, as well as beneficial and unique to you.