Your financial adviser’s job No. 1: Protect you from yourself

There are plenty of good reasons to seek out the help of a financial adviser. Your personal-finance plate is likely quite full: Save for retirement. Save for emergencies. Save your sanity when staring at college cost estimates.

A good pro will of course be able to help you sort through your financial life and develop a plan for how best to proceed.

But actually, that’s the easy part. Where an adviser can add the most value is serving as a financial psychologist of sorts. Chances are you’ve heard something about behavioral economics, a field of research that has established how our humanness gets in the way of making smart financial decisions. Intelligence isn’t what’s lacking. We often know the mechanics of what is a good or bad financial strategy. But our decisions are often held hostage by our emotions.

For instance, our fight-or-flight kicks in when stock markets plunge

Another example: We tend to 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. But this bias, called anchoring, can keep us from dropping a loser and reinvesting in something with better longterm prospects.

One more: Recency bias could be a lurking risk in your retirement portfolio right now. This is a quirk that makes us overly focused on what we’ve been experiencing lately, like a 10-year bull market for stocks. Your stocks have been doing so well for so long, you – even if only subconsciously – assume the good times will continue. But we know bear markets happen. That’s an argument for rebalancing your portfolio to make sure you have the right mix of stocks, bonds and cash. When was the last time you did that?

Separate research from Morningstar and Vanguard estimates that a financial adviser’s biggest value-add 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.

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, with half of that value-add being the result of helping a client steer clear of behavioral biases.

If you’re working with an adviser, or considering starting, recognize that a really good pro is going to earn his keep (yes, they are mostly men) 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.