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Before COVID-19, investors would meet face to face with their financial advisor. However, a small but growing percentage of investors would use an advisor virtually, either they never met them in person in the first place, or one of them moved. In the case of retirees, moving to a different state but keeping their advisor has been fairly common.
The Coronavirus has forced all investor-advisor relationships to be virtual for the time being, but it does beg the question: what is better, a local advisor or a virtual relationship with an advisor not physically close to the investor?
The short, simple answer is that having your advisor close by is better, with the caveat that “all else is equal”. The problem is that “all else is almost never equal”.
The Benefits of Being Close
There are many advantages to the investor of having your advisor close by. First, financial advice is part art, part science, and part psychology. Because of this fact, this service is best delivered face to face. Only in face to face contact can you see the subtle but important body language that conveys frustration, confusion, or a lack of understanding. When your advisor sees these signs from you, its easier to educate on whatever topic is at hand. Phone calls and video conferencing either do not provide for all the sensory inputs or limits what you see, but moreover the human interaction is unmistakably valuable. We are learning this in real time that even with tech like Zoom, Facetime, and the like, as those practicing social distancing are severely missing being with others.
The benefit of having your advisor close also helps the investor see if the advisor is not making the best suggestion. These same subtle interpersonal nuances help the investor understand when something is wrong with your advisor. In the extreme example, if you see your advisor park his Rolls Royce at the Starbucks to meet, and the last time he was driving a Volkswagon you should be asking yourself and him new, probing questions.
When Being Face to Face is Irrelevant
An investors’ ideal financial advisor might be clearly across the country, but as stated, closer is better “all else being equal”. But how do you know? If your advisor has a specialty, niche, or client base that uniquely matches to you, then them being 3,000 miles away does not matter.
For example, there is an advisor in the Chicago area that only has female clients that have at least a $2,000,000 portfolio and are divorced from professional athletes and actors. If you are an investor that fits that demographic profile, then the odds of an advisor with this niche being in your home town is quite low and he may very well be ideal for you.
If you are in a very specialized profession, have unique assets or a complicated health issue an advisor that specializes in clients like you will drive your decision to finding the advisor that knows your needs over being local. Because of technology, there are now many more advisors that cater to those just starting out, so if you cannot find an advisor that wants small clients, then an advisor in a different state will be perfect for you.
If you can find an advisor that best knows you and your situation and they are locale, then that is always to optimal decision to make. Otherwise, find the advisor that suits you regardless of how far away they might be and not having the face to face benefits will pale in comparison to having the ideal expert on your side.
Related: How to Invest through a Pandemic