{"id":13761,"date":"2022-08-29T00:58:22","date_gmt":"2022-08-29T05:58:22","guid":{"rendered":"https:\/\/www.fitbux.com\/articles\/?p=13761"},"modified":"2024-11-14T16:43:04","modified_gmt":"2024-11-14T22:43:04","slug":"do-i-need-financial-advisor","status":"publish","type":"post","link":"https:\/\/www.fitbux.com\/articles\/do-i-need-financial-advisor\/","title":{"rendered":"Do I Need A Financial Advisor?"},"content":{"rendered":"

These are three of the top questions I’ve gotten from Young Professionals over the past 10 years:<\/p>\n

    \n
  1. Do I need a financial advisor or can I do it myself?<\/li>\n
  2. How much do I have to make before getting an advisor or how much money do I need to hire a wealth manager?<\/li>\n
  3. Its frustrating… I want help. Why can’t a financial advisor help me?<\/li>\n<\/ol>\n

    I cringe when I hear these question because in my opinion most advisors have:<\/p>\n

      \n
    1. Massive biases;<\/li>\n
    2. Many have a lack of knowledge across various financial products; and<\/li>\n
    3. Most aren’t very tech savvy.<\/li>\n<\/ol>\n

      Therefore, my short answer to the question “Do I need a financial advisor?” is “no” for most people.<\/p>\n

      In this article I detail:<\/p>\n

        \n
      1. Why I say no, especially for young professionals;\u00a0\u00a0<\/li>\n
      2. Answer all three of the questions listed above; and<\/li>\n
      3. I will introduce you to a new technology that makes it possible for you to build a comprehensive financial plan<\/a> without paying a ridiculous fee for a financial planner.<\/li>\n<\/ol>\n

        How Much Money Do I Need To Hire A Wealth Manager?<\/h2>\n

        In this part of the article, I\u2019m going to focus on your investments<\/a>.\u00a0 In further sections, I\u2019ll focus on financial planning<\/a>.<\/p>\n

        Many ask the question do I need a financial advisor because they believe they have a lot of money.\u00a0 Therefore, they believe paying and advisor is going to make a big difference with their investments.<\/p>\n

        My short answer to the question “How much money you need before hiring one?” is no.\u00a0 You probably don\u2019t have enough for it to make sense.<\/p>\n

        I\u2019m going to provide you with an investment solution but before I do I\u2019ll explain the answer above.<\/p>\n

        Most advisors are not going to hand-pick an investment portfolio for you. Most likely, they are going to use an algorithm their company uses to decide your allocation.\u00a0 This is known as a robo-advisor.\u00a0 Therefore you’re likely to get an cookie cutter recommendation, not a truly customized approach.<\/p>\n

        When I tell young professionals this, they turn around and say:<\/p>\n

        “Advisors are paid well…should I not get more for my money?”<\/p>\n

        Well, most advisors charge around 1% of the assets they manage (an Asset Under Management (AUM) fee).\u00a0 For instance, if you have $100,000 they collect $1,000 a year in commission.<\/p>\n

        However, they will split that with their company.\u00a0 When it’s all said and done, they may net $200 – $300 a year for managing $100,000. That’s no where near enough to get personalized advice.<\/p>\n

        But what if I have a lot of money?\u00a0 That has to change how much time they are willing to spend on my account right?\u00a0 WRONG.<\/p>\n

        Below is an example to illustrate this.<\/p>\n

        Example Of How You Overpay For Investment Advice<\/h3>\n

        A family friend came to me one day asking if I\u2019d review her investments.\u00a0 She had a financial advisor for 15 years so I asked her why she wanted me to review it.\u00a0 She said she talks to the advisor for about 15 minutes a year and that is it.<\/p>\n

        Some background, this family friend was 68 at the time and had $3.5 million invested primarily in retirement accounts.\u00a0 She was paying 1% per year which was approximately $35,000 in fees to the advisor!\u00a0<\/p>\n

        As I mentioned, she\u2019d been working with the person for 15 years.\u00a0 That means she had paid this advisor about $400,000 in fees!<\/p>\n

        Most would think she was getting some great service for that money right?\u00a0 Something like investing in handpicked stocks such as investing in Facebook when it IPO\u2019d or buying Apple 15 years ago.\u00a0 However, based on my experiences, I knew that probably wasn\u2019t true.<\/p>\n

        She sent me the statements and I was correct.\u00a0 All her assets were invested in what is called Index ETFs. An index fund is a type of\u00a0mutual fund\u00a0or\u00a0exchange-traded fund (ETF)\u00a0with a\u00a0portfolio\u00a0constructed to match or track the components of a financial\u00a0market index, such as the\u00a0Standard & Poor\u2019s\u00a0500 Index (S&P 500). Not what one would call customized financial advising.<\/p>\n

        Now, there is nothing wrong with Index ETF investing.\u00a0 In fact we do it and our technology recommends your allocation based on the risk you have the ability to take.\u00a0\u00a0<\/p>\n

        However, this is where the story gets good.<\/p>\n

        For $35k the financial advisor should have been giving her more than investment advice.\u00a0 In reality she wasn’t doing anything.\u00a0 She provided no services in regards to how she should withdraw her money for retirement, start gifting it to grand children to help save on tax, nothing!<\/p>\n

        I had my family friend transfer her account to FitBUX\u2019s investment service.<\/a> We dropped her fee more than 50% because that is what technology is supposed to do.\u00a0 Its more efficient than a person.\u00a0<\/p>\n

        Her old advisor was using technology (albeit really bad technology) but still charging her the way financial advisors charged clients 25 years ago before the advent of technology!<\/p>\n

        When the previous advisor found out the money was being transferred she called my family friend immediately and asked why.\u00a0 My family friend told her that she was going somewhere for half the cost.<\/p>\n

        Did her advisor try to convince her not to move the money because of the service she was receiving?\u00a0 Absolutely not!\u00a0<\/p>\n

        Instead her previous advisor\u2019s response was, \u201cIf you wanted to pay less all you had to do was let me know.\u00a0 I can drop it down to .50% also.\u201d\u00a0<\/p>\n

        The reason she was so willing to drop the fee was that she was only spending about 15 minutes a year with my family friend.\u00a0 It did not matter if she was getting paid $100 per year or $35,000 a year.\u00a0 Legally, all she had to do is touch base for 15 minutes a year and do nothing else afterwards.<\/p>\n

        And this is how most investment advisors work nowadays.\u00a0 And\u2026 this is for someone with $3.5 million dollars in liquid assets!\u00a0<\/p>\n

        Obviously, most young professionals don\u2019t have that much money.\u00a0 Most young professionals would be doing well if they had $50k or more.\u00a0\u00a0<\/p>\n

        What Should I Do With My Investments Then?<\/h3>\n

        You have 3 options with your money:<\/p>\n

          \n
        1. Go to an financial advisor (which we\u2019ve already seen is not worth it in most cases);<\/li>\n
        2. Use a robo investment advisor; or<\/li>\n
        3. Do it yourself.<\/li>\n<\/ol>\n

          The good thing about robo-advisors is they are a lot cheaper than investment advisors.\u00a0 The issue is that most do a horrible job at analyzing how much risk you have the ability to take.\u00a0 Therefore, they recommend horrible allocations.\u00a0<\/p>\n

          Also, most will only manage the financial assets you have at their firm.\u00a0 They don’t know enough about you to asses your level of risk and only take into account a segment of your overall financial picture.<\/p>\n

          This is one reason why I\u2019m so excited about FitBUX\u2019s new investment technology.<\/a> It shows you exactly how much risk you have the ability to take.\u00a0 Then, the assets you have invested with FitBUX are automatically invested and adjusted overtime as your ability to take risk changes.<\/p>\n

          You can also use the new technology even if you don\u2019t have financial assets invested at FitBUX. For example, if you have a 401k or you are a “Do It Yourselfer,” you can still use the technology to analyze your ability to take risk and then manage your portfolio yourself .<\/p>\n

          Doing it yourself is great for some people because, well, you do it yourself and is the cheapest way to go. Of course, doing it yourself takes work, sometimes a lot of work.<\/p>\n

          Do I Need A Financial Advisor To Build A Financial Plan?<\/h2>\n

          Again, in my opinion the answer is no.\u00a0 Below I\u2019m going to detail the reasons often stated by those saying you need a financial planner and why they are no longer good reasons.<\/p>\n