Should I engage with a financial planner? Hiring a financial expert is one of the most critical decisions every investor must decide. Let me start by saying I am not a financial adviser, and I don’t want your money. I am an outsider, in that respect, with some opinions about the industry overall. I’m a regular guy living here in Salt Lake. I have teenagers, bills, and all the normal stresses of family finance. I’ve tried to be smart with my money, save, live conservatively, and enjoy life. I often wonder how I stack up against my peers, and if I’m doing everything to live a good life while planning for retirement.
For these reasons, I have studied the financial services industry. I have several close friends who make a career in the planning business. I find them to be wonderful people who generally enjoy helping clients plan for retirement and achieve financial peace. I believe they are providing a valuable and needed service to many seeking help and guidance with their money.
That said, here are some of my concerns about meeting with a financial planner. If I meet with a planner, am I going to feel obligated or pressured to invest with him? I’ve made some mistakes with money, and I should have more saved up. How will this person make me feel about that? Is this planner just a sales rep who is just repeating the product training? How good are they? Does this person know how to manage their own money?
Many studies show that less than 20% of investment advisors beat the market in any one year and less than 5% can do it two years in a row. Is this person a fiduciary, or will they put my money into whatever makes them the most commission?
It’s important to understand that these professionals get these questions every day. If they are any good, they have spent significant time practicing their responses and coming up with ways to resolve your doubts and concerns. Many of these planners are experts at making you feel comfortable while highlighting the reasons you should not manage your own money. These relationship skills are essential, but there is no guarantee they will do a great job with your money.
I want to point out there is a darker side to the financial services industry. There are the occasional bad actors that hustle the vulnerable or embezzle money from clients. I believe this is rare and not the problem I want to highlight today. The bigger problem I see, as an outsider looking in, has to do with the following points:
Many advisors are personally broke or have very little net worth. They are pushing whichever product their broker pitched as the best. They may even show you evidence that they, too, have invested in the strategy. Planners investing in high fee, low return products is common.
Many planners push front-loaded mutual funds, annuities, and cash value life insurance because it pays the highest fees/commissions.
Most advisors have minimums of 250K or more. The less experienced advisors are typically the only people willing to take on lower balances and then have the challenge of getting enough fees from you to support themselves. It doesn’t take a lot to become a financial advisor. Very few are skilled portfolio designers who can beat the market. Even with they do, it’s rare to repeat it for long. Some firms don’t even try to hide their secrets. They spend every planning minute figuring the most effective way of legally transfer your wealth to their pockets using fees and other creative charges.
Now that I have scared the crap out of you, you need to decide if you need a financial planner. Your choices are a Robo advisor, an online financial advisor, an in-person advisor, or yourself. No matter what you choose, it’s probably best to first get educated, pay an advisor for a check-up, and figure out what trading platform you like. After you do these steps, make a decision, and don’t worry about it anymore.
I believe most people have not spent the time to get educated on money management and should, therefore, hire an online or in-person financial advisor. You should pay no more than 1% of your assets under management and meet with them at least annually. For this fee, they should spend several hours learning about your goals and building a plan to make it happen. Your plan will include your home, retirement, risk tolerance, insurance, and estate planning. You should be asking tons of questions and writing everything down that you learn.
There seem to be more and more investors who enjoy studying the industry and using the latest technology to go it alone. Robo-advisors or index strategies are both simple options. Choosing one of these and then paying an expert financial planner an hourly rate to watch your back isn’t a bad option either.
To learn a little more, check out these articles on the subject.