Celebrate The Fourth Of July By Firing Your Financial Advisor!

Every year America has a national holiday to celebrate our independence. Over 200 years ago enough people were tired of being mistreated that they fought for our independence and ultimately signed the Declaration of Independence. Today everyone seems to be more comfortable than ever to conform and do what they are told even if it involves a bad deal. This is especially true in the world of personal finance. Many people are either not willing to learn or are too scared to do anything different then what their peers and family have done in the past. It is time to channel your inner Thomas Jefferson and draft your own personal declaration of financial independence!

Now before I get into why most financial advisors are not worth the money, I want to make one thing clear, there are times when you benefit by having an advisor on your team. I am not here to bash anyone or demonize an industry, I just want to inform the normal hard-working individual trying to do the right thing with their money. Hopefully this article can give you a better understanding of what type of advisor to use if any at all.

Not All Advisors Are Created Equal

What do you think of when you hear the term financial advisor? Is it someone on wall street close to action calling you up providing hot stock tips? Or do you picture someone who you sit down with a couple times a year to discuss how little Johnny’s trust fund is coming along? Well you would be right with the image of either of these because the term “financial advisor” is a blanket statement for many financial professionals. Half the issue is knowing who you can trust and if they have your best interests in mind or if they just want a big bonus so they can get that Miami condo.

So where do you start? The best thing to do whether you are looking to get a financial advisor or make sure your current advisor is worth the money is to make sure they are acting as a fiduciary. A fiduciary is basically someone who is acting in your best interest. You would think that everyone who is a “financial advisor” needs to act in your best interest but unfortunately that is not true. Many advisors are out to make quick commissions and generally don’t care all too much about how you do in the long run. The good news is that on Jan 1st 2018 the Department of Labor will implement a new fiduciary rule aimed at protecting investors. As with anything in Washington people will be arguing about how it shakes out down to the last pen strokes but in my humble opinion any enforcement is good news for investors.

No matter what happens with the new rule you can rest easy by asking your advisor if they are under the fiduciary standard or not as a starting point in your search.

How much will this advice set me back?

Investment Advisors: Investment advisors are groups of people that take full control of all your investments. Generally, they charge a percentage of assets under management that falls around 1% for most firms. Some charge an hourly fee or a retainer fee if you are looking for full management all year. This is in my opinion not worth it for most investors. You will be eaten alive by fees if they take 1% to give you advice on going into actively managed funds that take another 1%. For most people, a low-cost indexing strategy can be implemented and will help you reach all your goals and keep your money. Don’t get fooled by the mahogany desks there is a reason they have a nice office their clients pay for it!

Securities Broker: This is the old model of having someone call you up and sell you individual stocks. I would not recommend this to anyone as most of the time they are making up a story to sell a stock and create a commission. No matter what the stock does they will have another story for you in no time and will be recommending you shift your money so they rake a commission. These folks must be registered to be a securities dealer but this doesn’t protect you from receiving costly bad advice.

Financial Planner: Someone who looks at your overall financial picture and gives you advice on the next best move. They can bill you in various ways but the reason I like this model is because many can create an overall game plan to get you started for a low flat fee. Or you can pay them a retainer each year to do checkups. Just make sure you do your research before taking advice.

Accountant: Finding a CPA (Certified Public Accountant) is a great move if you are dealing with estate planning, or a major tax issue. These professionals bill quite a bit for their time so in most cases I would recommend only doing a checkup or having them help with your taxes and then avoid going to them for additional advice on how to invest.

So, What Is The Best Option?

Everyone’s situation is unique and that is what makes personal finance personal. Depending on where you are in life you may need more help than someone else in managing your financial picture. My advice would be to educate yourself in the beginning using the amazing tool that is the internet, no one with under 100K should be considering a full-time advisor. However, there are many educated honorable people who charge a flat fee to sit down and discuss your overall financial picture. This is something I would recommend if you are looking to get started and need some additional help beyond reading and educating yourself in the beginning stages.

Resources to Get Started with Assets Under 100K




If You Have Broken The 100K Mark

Maybe you have six figures sitting in all your accounts and are starting to feel nervous because you fell you might mess up. The reality is if you are young and in the accumulation phase of life you really need to understand only two major things, save as much as you can and then invest the surplus wisely. If you feel like you could use some guidance on how to invest contact a fiduciary fee-only financial advisor that charges a flat rate. See how much they will charge and what you get in return if you feel like it will help you on your journey there is no harm done. You can also ask if they will do a consultation for a couple hours to get you on track and then you can call them back up when you have big changes in your life. Just don’t overdo it, you wouldn’t change the oil in your car once a week because you are paranoid about the engine, same thing applies here when you are in the accumulation phase. Set a plan and stick to it.

If you are in a later stage in life or looking to enter retirement I would recommend meeting with a trusted CPA. Ask around and find someone who you can trust to help with your planning. In general, the trickiest part of having large sums of money is tax avoidance and estate planning later in life and they can help set you up with a plan to get the most out of your money.

Whatever you decide to do make sure you are educated and comfortable with your situation and then have the discipline to stick to your plan.

Happy Fourth of July!

What Are Your Thoughts?        

  1. Do you have a financial advisor?
  2. How much do they charge you?
  3. Do you feel they deliver the value for the price you pay?

Spread The Wealth!