5 Myths of Working With a Financial Advisor (Plus a Bonus Myth)
I think a lot of people make assumptions about financial advisors, traditional financial planners and even financial life planners like myself. Let me dispel a handful of those myths.
1. You need to have a lot of money to invest to work with a professional advisor.
Traditionally, professional financial advisors have charged a percentage of the assets that they manage for their clients, which is usually 1%. So a client with a $500,000 investment portfolio would pay $5,000 a year to work with an advisor. Under this model, many advisors wouldn’t even meet people with smaller investment portfolios because the advisor couldn’t justify the time it would take to create a client’s comprehensive financial plan for a small fee.
But a new fee model has become more popular in the last few years where advisors charge their clients a flat subscription-based monthly fee for unlimited access to professional financial advice. Just like you pay your streaming media on a monthly subscription, this type of fee model makes working with an advisor more accessible and easier to understand. To give you an idea what that looks like, I charge a one-time fee of $1,500 plus $225 per month, which gives you access to a professional who can help you organize your financial life and make sure you’re prepared for the future.
2. Financial advice is only for people at or near retirement.
It would seem from all the commercials that only retirees need financial planning. Words like “near retirement,” “at retirement” and “social security” dominate messages. The reason it appears this way goes back to the first myth that it’s usually this demographic that has the assets necessary to justify an advisor’s fee.
But this myth could not be further from the truth. In fact, it’s usually younger people that are in greatest need of financial advice. Younger families tend to have more financial decisions to make: How much should I be saving for retirement? What about kids’ college? How do I balance saving with paying off debt? Can I afford to make less money and still be financially secure in the future? Should I change my asset allocation? What types of insurance do I need and how much coverage of each? Given their long horizon and the effect of compounding, each of these decisions can significantly alter a young family’s financial future. It’s best to start early making the right decisions, and not wait until retirement when you have fewer levers to pull.
3. All advisors focus on money goals.
People have the misconception that financial advice revolves around reaching money goals. This is understandable, as the typical advisor tends to speak in terms of dollars and cents. But there is a growing faction of forward-thinking advisers that have upended the traditional dialogue. These advisors, known as Financial Life Planners, are committed to putting their clients’ lives, and not their money, at the center of the advice. By asking reflective questions, digging deeper in their conversation and, most importantly, truly listening to the needs and wants of the families they serve, Financial Life Planners create financial plans that truly speak to their clients’ values.
4. Financial advice is all about investing.
We would be remiss to say that proper investing is not an important topic that an advisor can help you with. After all, Albert Einstein once called compound interest the “eighth wonder of the world.” But investing is only one piece of a big puzzle in a comprehensive financial plan. Things like cash flow analysis, debt management strategies, insurance planning, tax planning and estate planning can be just as important, if not more so, than having the right asset allocation.
At The Coleridge Group, we’ll use a personalized discovery process to create your financial life plan, which will dictate your investment management strategy. Working with the right financial advisor allows you to take a full view of your financial standing and create a comprehensive financial plan, instead of just focusing on one piece of the puzzle.
5. All advisors are fiduciaries.
The word fiduciary gets thrown around a lot in the financial advice industry. Since just about anyone can call themselves a financial advisor, knowing who really is a fiduciary and acting in your best interest is almost impossible to know. So let’s clear this up: A financial advisor working only as a broker-dealer (think someone selling individual stocks, bonds or mutual funds and earning commissions) is not obligated to act in your best interest. They only have to recommend something that is suitable for you. Fortunately, this type of financial advice is in decline.
The problem with this is that now a lot of these broker-dealers are also investment advisors. And as investment advisors, they should be acting as fiduciaries. Yet they are also allowed to collect commissions from the products they sell you. This ability to wear two hats is where it gets messy. Who recommended that you buy the mutual fund? The fiduciary or the suitability guy who can collect a commission from it? While the fiduciary must always act in your best interest, having the ability to earn commissions presents all sorts of conflicts of interest. At the very least, the fiduciary must disclose all conflicts of interest that might impact their advice.
Thankfully, another forward-thinking group of advisors have decided to be fee-only. This means that they cannot collect any commission or third-party compensation based on the advice they give. This minimizes the conflicts of interest inherent in the other two service models. But be careful with the term “fee-based.” This is just another way to describe an advisor who wears two hats and it’s designed to confuse people. Look for fee-only.
Bonus: All advisors like gigantic, mahogany desks.
Although many advisors like to prove their financial success by buying ridiculously huge mahogany desks, many like myself don’t have traditional offices and prefer to meet clients at coffee shops or over Zoom. I’ll accommodate whatever you prefer and what works best for your schedule. After all, my job as a financial life planner is to enable you to live your best life right now, not when you’re retired.
If you’re ready to move beyond the financial planning myths, get in touch. I’d love to hear more about what you’d like to do with your life.
