When asked in a recent Wall Street Journal poll as to why most folks don’t hire a financial planning firm or an RIA (registered investment advisor), the number one reason cited was the fees they might end up paying for using their services. Really? Let’s just put it this way…if the fee was not worth it, nobody would pay it yet millions of people do so clearly there must be something worthwhile they are getting in return. So why pay a financial planner or an advisor when you could go get the same or similar investments on your own. The answer is simple. It’s because there is a lot more to it than just giving you a basket of investments.
- As financial planners, we improve the asset allocation you have, we reduce the risk in your portfolio, we help you increase the return of your portfolio and we re-balance the portfolio for you barring any tax consequences. And that tax thingy is a big deal to make sure that re-balancing is done in the right way and in the right account. All of that reduces risk, increases returns and minimize taxes and that is the goal.
- We want to make sure that you are saving in the right kind of account and that you have the right type of investments in each of those accounts, whether it is tax-deferred, tax-free or taxable. When it is time to generate income, we want to make sure that you are withdrawing from the right account at the right time to reduce your current taxes and your future taxes. We want to make sure that you are using the right account registration. Is it a joint account with your spouse, tenant in entirety, tenant in common or is it a trust account? Which one is best for your unique situation?
- We want to make sure that you have the right beneficiary designations on your accounts and the information related to these designations is correct and accurate. What would happen if you got the beneficiary wrong on your IRA and you named your estate as the beneficiary instead of your children by name? That can cause the kids to lose half the money to taxes and suffer a year of probate before they can get their inheritance.
- We want to make sure that you are increasing the amount you are saving. How much extra wealth will you accumulate because we got you to save more, not merely because we got you in the right investments? We want to make sure that you keep your investments and that you don’t sell during a panic like in 2008 and that you are not buying tech stocks during the frenzy of 1999. How much extra wealth will you accumulate because of that?
- What if you don’t have life insurance and your advisor convinces you to get one and then later you discover that your life expectancy is suddenly a lot shorter than you thought because of a major medical crisis that develops. We can’t begin to tell you how many times we encounter that situation. That airline crash or that road accident in which a parent dies. When such events happen, the first thing that comes to our minds is whether that dad or that mom on that unfortunate flight or in that accident had adequate life insurance so that the family that remains has one less thing to worry about. Your family’s life can change in a heartbeat and if your advisor navigates you through that process, how much is that worth?
- We want to make sure that you have the right amount of life insurance and that you are not overpaying for it. If a spouse dies and leaves $2 million to the widow, that doesn’t show up in the investment returns but do we not get credit for that advice and recommendation. And there’s no fee for that.
- What about the pointers and the advice we will offer for probably one of the biggest purchases you will make in your life, your home. What about making sure that you don’t get in over your head on that next rental property investment you are about to make? How much is that worth?
- We want to make sure that you are maximizing your employee benefits at work. How much value is there in that?
- We want to make sure you don’t make hugely expensive mistakes with college savings and paying for college either in terms of unnecessary expenses or lost opportunities and capturing the entitled profits that otherwise you might not have grabbed.
- Say you are a business owner and you have a 401(k) for you and your employees and you don’t even know that it is not complying with the rules. You might be at risk of having the plan declared invalid by the Department of Labor, costing you huge taxes and fees that could easily be fixed by having a talented financial advisor on your side.
- Say that you got no idea that you are entitled to spousal benefits under social security. You might actually be able to double the amount of income you are getting from social security without even knowing it. If your advisor points that out to you, how much is that worth in the fee you are paying for his services?
- Say you talk to your advisor who encourages you to get an umbrella liability policy and a few months later, your dog bites somebody. If you did not have that policy in place, you could fork over $36,000 for that incident. That by the way is the average national cost of defending yourself against a dog bite. How much are you paying your advisor? Is that $36,000 a year? That was the value of the advice you just got based on having the umbrella liability policy alone.
- You find out that your retirement accounts are invested entirely in one type of asset and you weren’t aware of it and thanks to the advisor, the account was re-balanced and re-allocated into a much lower risk portfolio. How much is that worth? It doesn’t show up on the account statement.
- What if your close family member passes away and leaves you their IRA and you didn’t know that you could convert that IRA to your own inherited IRA. If you didn’t know that, you might have liquidated her IRA, paying 30, 40 or even 50% in taxes unnecessarily. How much is that worth compared to the fee that you are paying for the advice?
- What if you were making non-deductible IRA contributions and you didn’t know that you also have to file form 8606 annually with the IRS and in turn creating tax problems and penalties that otherwise are avoidable. And what if you are contributing to a SEP IRA and are contributing more than you are allowed because you didn’t realize the limitations under the law. And what if you could instead do a solo 401(k), allowing you to contribute more than a SEP IRA. How much extra value is there to make sure that you use the right kind of investment account and you are contributing the right amount in it in the right kind of investments?
- What if you were getting ready to retire and you were to move money from CREF over to TIAA and you didn’t realize that doing so will lock up your money for 10 years and were only allowed 10% withdrawal per year. How much will that be worth for an advisor to tell you?
- Or what about all the people who are about to buy timeshares or non-traded REITS or annuities or whole life insurance policies and all other products that charge big commissions for low returns with limited liquidity. What is the value of having you avoid these huge mistakes?
- Or all the widows we would help when their spouses die, helping them through that life-changing event in that very delicate time. What is the value of that?
The list goes on and on. The additional wealth we help you create, the increase in savings we prod you for, the sufficient cash reserves we make sure you have, lowering expenses when possible, avoiding bad investments and reducing your investment risk. And none of that compares though to the benefits of knowing that you have a long-term, close relationship with a professional advisor and a planner who knows you and your family and your business, knows your thoughts, your hopes, your dreams, your experiences, your regrets, fears and yes, your needs and goals. Someone who is looking out for you over many, many years, letting you focus on your career, your family and your life.
We want to make sure that you are not making the wrong mistake for the wrong reason. Not everybody needs a financial planner but if you do and if you are denying yourself one for the wrong reason, that could be expensive.
You know that old joke about a guy who has a loose plank in his house. Every time he walks on it, the floor creaks. No matter what he did, he could not figure it out and solve the problem. He finally calls a carpenter. The carpenter comes over, walks in the house and checks what is going on, walks outside to his truck and comes back in with a hammer and a nail. He puts the nail on the floor and bam…bam…, bangs the nail into the floor with the hammer. Took him all of 10 seconds and hands the guy a bill for 100 dollars. The guy was flabbergasted. You spent 10 seconds and you are charging me 100 dollars. The carpenter then gives him an itemized bill; $1 for the nail and $99 for knowing where to hit it. You get the point. A lot of what is built into a planner’s or an advisor’s fee structure is everything else you get from the financial planning perspective.
Our goal in the end is to help you manage, create and protect wealth. Basing your decision on fees alone is a silly way to do it. This is why you need to hire a financial planner or an advisor – if not us then somebody, somewhere who can help you deal with all of that.
And then go live a richer, fuller life.