Hosted By: Wyatt Yates
Money Myth: I Don't Need a Financial Advisor
In this episode, I discuss the value of a Financial Advisor. Do you need a Financial Advisor? Are they really worth the extra expense? When does it make sense to hire a financial professional to help you? How do they get paid? What are some things you need to watch out for to make sure you are protected and served properly? What types of Financial Advisors are there? Do wealthy people use Financial Advisors? Listen to find out.
10 Questions to Ask Your Financial Advisor
1) What does your typical client look like and do you have experience working with clients like me?
2) How do you get paid? Are you fee-only or do you receive commissions from the investments and products you recommend?
3) How much do you charge and do you have an investment minimum?
4) What services do you offer?
5) How often do you meet with your clients to review their plans and investments?
6) How do you communicate with your clients? Is there a preferred method? Is there a limit to how much I can contact you?
7) What are your qualifications?
8) Who is your custodian?
9) What is your investment philosophy?
10) Do you have any current clients that I could talk to?
Wyatt Yates Host 00:00 Money doesn't have to be complicated. You can achieve financial independence. This podcast gets to the truth behind the money mess you hear from your grandma, your broke uncle, the latest social media influencers and the so-called money experts. Welcome to Money Myths with your host, wyatt Yates. This week's myth is I don't need a financial advisor. Now, first we have to understand what a financial advisor is. 00:32 Financial advisor is kind of a broad catch-all term that really describes a lot of different professionals and services. It can be anywhere from investment managers, financial consultants, financial planners, asset managers, and it can now even. It varies from you have robo advisors to online advisors and your traditional kind of in-person advisor that you probably pictured in your head when I said financial advisor. So it's really basically someone that's going to help you with your personal finances, and it can vary from how do I get out of debt, or how do I budget, or I just got some money, what should I do with it? To I want to invest in. How can you do that for me? Can you help me invest? So it really is a broad spectrum. Anything related to your personal finances is what we're talking about here. So first I want to talk about reasons you may not need a financial advisor, and then why do some people try to do it themselves? And then when do you really need a financial advisor? 01:47 So for why people may not need a financial advisor, there's really three reasons. The first reason you may not need a financial advisor is you're very disciplined with your personal finances. You have a budget that you can stick to. You understand how to budget. You have good spending habits. You're not taking on a bunch of personal debt to maintain a lifestyle you can't afford. You're saving and investing every month. So if you have really good habits and you're very disciplined, you may not need a financial advisor. If you kind of meet these next two points, you really need all three of these. The second reason you may not need one is you have the education and experience to manage your own investments. So, managing spending habits and budgeting and not taking on debt you don't really need an education experience for that. Right, it's pretty self-explanatory, but when you dive into the actual investment piece and investing in the stock market and the different types of investment vehicles that are available out there and the different tax benefits, it really takes education and experience to understand how to maximize your dollars and your returns and reduce your tax liabilities. So if you have that education and experience, then you may not need an advisor. The last point is let's assume you met the first two criteria. You're very disciplined, you kind of got to handle on what you're doing with your money and you have the education and experience. So you met those two criteria. 03:31 So the last thing you got to think of is this the best use of my time, or is my time better spent somewhere else? And typically what I'm referring to is time spent somewhere else. Your income is your biggest driver in your reaching financial independence. So your big focus should be on increasing your income or time spent where your income is coming from, not necessarily managing investments, especially early on, when you don't have a lot invested in and it's not earning a lot of income. So the best place for you to spend your time is increasing income and doing what you are an expert in. So if that is something outside of managing investments, you should be doing that. So those are really the three points you need to think about, need to meet in order to say I don't really need a financial advisor. First, I'm very disciplined with my personal finances. I got a handle on it. Second, I'm also have the education and experience to be able to manage my own investments and it's the best use of my time. So if you meet those three criteria, yeah, you probably don't need a financial advisor and it probably makes sense for you to do it yourself and save you the fees that a financial advisor would charge you. 05:02 Now let's look at you know why people try to do this themselves. You know what's the rationale behind the people that kind of believe this myth or follow this myth In. Specifically, really, the people that don't necessarily meet those first three criteria on when you want it need a financial advisor. So why do people try to do this themselves? The biggest point is, first, they think they're saving money and fees Because obviously if you engage somebody help you with your finances, they're going to charge you a fee. You're going to need to compensate them for their time and their expertise In the fees very greatly dependent on what they're doing for you. Right now, say, on the investment side, it's pretty standard. You know, roughly one percent of your invested asset Is what somebody is going to charge you to manage your money. So if you don't have somebody managing your money, then you're in your mind you're saving that fee. So that's really the big rationalization people use for not using a finance professional. You know, similar to that and coupled with that is you know I can't afford one, but so they kind of go hand in hand. But the whole fee savings standpoint is really the number one reason. 06:20 Now, another reason people try to do it themselves is they really don't have financial goals. They don't have a plan with their finances. They aren't saving and investing for their future, so they're just really just going along, not really thinking about it. They know they need money to pay their bills, but they're really not on a plan. So why would they need a financial advisor? And they just don't make their finances a priority in their life. You know that's another reason they're doing it themselves, even though they don't realize, maybe, that they're doing themselves and there's a better way. 06:55 And the last reason is there's a lot of people out there that think they can do it themselves. You know we're in the information age. Information is readily available. You could find out how to do it. It's really easy, right? And that's what some people think. And I'll be the first to tell you if your strategy is kind of a mix of winging it and a Google search result on how to do it, your strategy is going to have a lot of flaws, because you don't know what you don't know. You don't necessarily know what types of questions to ask her to put in the search engine to research, because you don't know what you don't know. So if you're relying on that, you're going to miss stuff and you're going to have mistakes and it's going to really cost you. So that's kind of the three reasons why a lot of people will rationalize why they do it They'll do it themselves or they can do it themselves is, you know, they think they're saving a lot of money by doing it that way. They really aren't following a plan to begin with, and they think they can do it themselves because there's so much information out there. 08:14 So when do you need a financial advisor? When do you need somebody to help you with your finances? So here's six times that you probably need somebody to help you with your finances, the first one being, if you struggle with managing your personal finances, maybe you don't understand how to budget, you can't control your spending and you find yourself going into debt just to get by, or maybe you find yourself unable to save and invest your money for the future, or you find yourself making financial decisions based off of internet search results. These are all times when having that expert help you and guide you will go a long way. So if you're struggling with managing your personal finances, you really need to consider hard getting somebody to help you. The second point being if your finances are disorganized and you don't even know where you stand and this kind of goes coupled with the first one. But if you don't know where you stand financially, you really need somebody to help you kind of get organized, figure out a plan and get moving forward. 09:32 The third reason or time when you may need a finance professional to help you is if you're going through a life changing event. So say, you're nearing retirement, or maybe you recently inherited some money from a relative, or you recently got married or divorced or widowed, or you're a new parent, or you were taking a new job, or you maybe had a business idea that now you're going to start doing, or maybe you sold your business. Anytime you have a major life changing event, there is typically some type of financial component tied to it or financial planning component tied to it that needs to be addressed if you want to minimize taxes, maximize your investment returns and just really get on a plan. So when you have a life changing event, it can go a long ways to have somebody that has experienced with working with people going through a similar situation to be able to guide you in that process, so you don't make any emotional decisions that could hurt you down the road. 10:45 The fourth point and I kind of touched on it on reasons why you would maybe not need one, but the fourth time you would want somebody to help you with your finances is when your time is better spent in your field of expertise that generates your income that you are able to then invest. So you should be focused on whatever is generating the income. That should be your primary focus, because that's going to generate the cash flow you need to be able to invest and take control of your finances. So your time is best spent in that. Having somebody else manage the day to day of your investments frees up your time to be able to focus on generating that income. 11:28 The fifth point would be when you just want a second opinion on something. So maybe you know you're pretty good at handling all of this, but you just want to make sure you're thinking correctly and you're following the right plan and you just would like a second opinion and that's a good time to reach out to an expert to see their thoughts on what you've put together. And the last point would be, if you just want that peace of mind and be able to reduce money stress that having an expert walking along with you would give you, so if you feel like it would really just help reduce stress, give you peace of mind that you're everything's going right and that you're on the right plan and you have a strategy and you are working towards your goals, having that expert walk along with you makes sense. So those are the six reasons when you would want a financial Expert to be able to help you with your finances, and I imagine Most of you fell into one of those six reasons. And then I also would bet that most of you don't have a financial Expert helping you with your finances. So if you fall in one of those six reasons or categories and and just to say them again, if you're struggling with managing your personal finances or your Disorganized and don't even know where you stand, or maybe you're going through a life-changing event or your time is better spent doing what your field of expertise is, or Fit number five if you just want a second opinion. And lastly, if you just have a lot of fight, financial money, stress and and and would really like that peace of mind of having an expert be able to kind of walk with you In. Almost everybody's gonna fall in these categories. Very rarely is Someone gonna meet the first three points that I laid out on when you don't need one, you know, because very rarely are you gonna have the education and experience to be able to manage your investment specifically and in your field of expertise and where you're generating your income probably isn't even related to investments In one of the biggest red flags to you should be. 13:55 Well, what do wealthy people do? What do people with money? What do? What do they do? Do they have financial professionals and financial advisors help them with their money? In the data, it's clear on this and as well as with the people I've worked with, wealthy people understand the value of having a financial professional help them with their finances. They understand and Know that their best way to spend their time is what's generating their income, whether that be their business or or their career, if they don't own their own business. So 82% of millionaires have a financial advisor that they work with, while Only 29% of the US population Works with the financial advisor. 14:47 Wealthy people, people with money, get it. They know that they're gonna do better with their investments and their returns if they engage an expert to help them shoot. Some of them even Employ financial experts to be on their team, so they only work for them. So you have to get Past this. I'm saving fees. I'm not wealthy, so I don't need one. I don't need help. I can figure it out. I can use Google to save the fees. 15:20 So what kind of value do Financial professionals provide to you? Well, vanguard does a advisors alpha Measurement and they did a white paper on this. If you want to Google Vanguard advisor alpha white paper, you can read through it, and this is Basically. Vanguard is trying to say what type of value do Financial planners, specifically, and investment advisors, provide to their clients? And in their white paper they go through a bunch of areas that they improve value and To try to drive it back into Well, do you earn more money in this, vanguard advisor alpha white paper concludes that the value of financial Professionals provide their clients is typically a 3% greater net return on their investments. So if they're charging you 1% and they're getting you 3% more, is it worth it? It should be a no-brainer. 16:29 Now, yeah, not every financial professional adds 3% value. You know there are bad ones out there, but when you have a good one and you have somebody that can walk along with you, you're gonna do better on your investments. You're gonna do better with your finances because you have expert counsel Helping you along the way so you can make the best decisions. Because this environment is ever-changing and they're gonna be on top of the new Investment vehicles, the new tax laws, everything that impacts your finances. It's their job every day to get up and understand how that affects their clients. So that's where you get the value. 17:14 So now let's kind of dive into what type of financial professional you may need to engage with and and kind of how they're paid, so you can understand that. And then just ten questions. You should ask them before you pick who you're gonna work with. So the type of finance professional that you work with is gonna depend largely on where you are at in your journey. So if you're just getting started, it's gonna be a different person. Then, once you get along and you've built your wealth, it most likely will be a different person you're working with or a different type of finance Professional that you are gonna want to work with, and there's a wide variety of these financial advisors. So I just kind of want to summarize the different types that you can work with and when you would want to work with that type of person, so that way you can kind of narrow down with who should I be working with and you can find somebody that's gonna be a good fit for you. 18:16 So the first person you could work with is a Financial coach or consultant. So these people are gonna help you develop financial goals and making certain financial Decisions. Maybe it's helping you get out of debt or learning how to budget or really addressing Financial habits and spending habits. They're not gonna help you with investment decisions or managing your investments. They're gonna be more of your coach or consultant that just helps you with some of these basic personal finance stuff and really focuses on habit development and Goals and making just wise decisions. You know they're not gonna take your money and invest it for you. So these are really good people to work with when you're just getting started and you're just trying to get a handle on your personal finances or if you're disorganized and don't know where you stand, these can be really good people to work with. 19:17 The next one is an asset manager. So an asset manager is just gonna help you build up an investment portfolio of stocks, bonds, etfs, other securities. They are an asset manager, meaning they're gonna do the actual investments. They may not do a lot of the other stuff, they're just gonna handle the investment side buying and selling the securities. So if you have a really good understanding of Finance and and investments, this may be a good fit because you're not paying for the other piece of you know planning and all the other stuff that goes into personal finance. And then you have you have a an actual financial planner where, if you're looking to set yourself on track to reach a financial goal down the road and you want the investment side, you can engage a financial planner that tends to you know, have specializations, they understand tax, they understand all the retirement plans, estate planning, college planning, all that stuff. They're gonna have more of a knowledge base on that and be more of an expert in that stuff. Then maybe a financial coach or an asset manager. 20:34 Asset managers are mainly focused on you know that's buying and selling securities, where financial planners gonna take your whole picture and be able to. They can also buy and sell securities, but they're gonna be able to put your whole plan together and then you have a wealth manager. So you built up the wealth. These wealth managers have Experience working with high net worth individuals. So once you build up your, your wealth and have accumulated wealth, a wealth manager maybe a good fit, like further down the road, because they're gonna be able to maybe get you access to Different type of investments that a financial planner can, whether it be privately held businesses that you can invest in, and in partnerships that you can invest in and as well as the stock market and just other investment vehicles, and they're gonna just have a better Experience in knowledge base on generational wealth and how you transition wealth to your beneficiaries and and all of that. That's when a wealth managers can come into effect in. 21:45 Financial planners can kind of serve both where they're gonna be Doing a lot of the wealth management and asset management type activities, and you have financial planners that specialize more so on the the fluent or the high net worth people, and you have financial planners that specialize in, you know, maybe people just getting started. So you want to Know what the person you're working with, where their typical client falls in that spectrum and if that client kind of looks similar to you in terms of where you're at in your financial journey. So those are the kinds of people when we're talking financial experts and advisors that can help you with your personal finances and, depending on where you're at you may be at the beginning, where you just you want to get a handle on stuff and you need that financial coach or consultant to kind of help you when you may have accumulated all this wealth and you really are looking for somebody that's got a lot of the wealth management experience that can really help you figure out how you can transition that wealth to your kids and your other errors. Now, how are these people paid? Because that's what varies greatly in what you want to know from who you're working with. How are they getting paid? And there's Three ways. Typically, when I'm talking about someone that handles your investment, so like a financial coach or consultant is just gonna charge you a dollar fee and they get paid the same way regardless. But a An asset manager, a financial planner or a wealth manager can get paid in one of three ways and you want to know this. 23:32 So First, you have what they call a fee only advisor, so it's fee dash only advisor, so these advisors are only paid by their clients. So they're going to get paid by you and get paid the same amount, no matter what type of investment or investment vehicle they put you in. And when I say investment vehicle, that's different retirement accounts. So if you have just a normal brokerage account or an IRA or something like that, those are different vehicles. Now the only advisors are going to get paid either as a percentage of what you have invested with them or a fixed dollar amount that you'll pay like a retainer that you pay either quarterly, semi-annually or annually. That's typically how these fee only advisors work. And the nice thing about the only advisors and why they're your preferred type of advisor is they get paid by you, not someone else, so they're going to be held to a higher standard than a lot of these other financial professionals are in terms of their responsibilities to their client. Because you're the one paying them, you are truly in their best interest. Because they're not conflicted on whether or not they're going to get paid more if they put you in investment A versus investment B, even though they both have similar returns. You're truly working in your best interest and you'll see when we get to the next two on why you would probably want a fee only advisor, because so the second way an advisor gets paid is a fee based. 25:31 Now there's a big difference between fee only the first one and fee based. So a fee based advisor gets paid directly by you, but they also receive commissions for products that they sell you and invest you in. So typically where you'll see a fee based advisor is an advisor that maybe gets paid directly by you for your investments in the stock market and the equity markets or bonds. So typically maybe they'll charge a percentage of assets for investments they manage. And then they're also getting commissions for insurance products they sell you. So they may sell you and tell you hey, we'll get you on this life insurance policy or in this annuity and they're getting a commission from that. So that's the big difference. A fee only their only source of income is from you. A fee based they're getting an income from you as well as commissions for stuff they put you in. So you can see where there could be a conflict here with a fee based, because they're getting paid by somebody else to put you in products and you're their client. 26:45 And the last fee structure that advisors have is a commission only. So these types of advisors only receive commissions from the products they sell you. So the company that owns the product that they're putting you in as their client. They're getting a commission from them. So you don't actually directly pay them. You're paying indirectly via the company's product that they put you in is making money for you being in their product and then pays them a commission. So you can really see where there could be a conflict here. How can you be sure they're putting you in the best product that makes the most sense for you if how they're paid varies because of the commission they're getting amongst these different products? 27:33 Now I'm not saying fee based and commission only advisors are all bad. There definitely are good fee based and commission only advisors that truly do look after their clients and I actually have some that I recommend to some of my clients when they're looking at investments. But the overall structure of how they're paid is flawed, especially in my opinion as well as many others, and that's why you're seeing this big rise in fee only advisors, because they want to make sure the fee structure is in line with the whole purpose of what they're doing, which is to serve their clients that come to them. And you're seeing a decline in fee based and commission only advisors. Yes, there can be good fee based and commission only advisors, but if I had my choice, I want my advisor to be fee only. I want them to have my best interest in mine and I want them to get paid the same, no matter what type of investment they put me in or investment vehicle they put me in. So that way I know they're putting me in something that doesn't conflict with my goals or is the best option for me. That they believe, and it's not because they get an extra dollar if they put me in that one versus the other one. 29:00 So when you're looking for who you're going to work with, it's going to depend on where you're at in your journey that we kind of went through whether you have a financial coach and consultant or an asset manager or a financial planner or a wealth manager. So it depends on where you're at in your journey and then you really got to know how they're getting paid and that they're going to be acting in your best interest. So you really want to push and lean towards fee only advisors or people that are not getting paid by a third party to sell you stuff. So for the action steps today, I just wanted to give you 10 questions that you could ask whoever you're going to work with. So we know basically everybody falls in the spectrum of needing a financial expert to help guide them and work with them If they want to truly maximize what they can earn and what they can do with their personal finances and wealth. You really should get an expert to walk that journey with you. So what are 10 questions you can ask them so you can know if you got the right person. Here are the 10 questions as part of our action steps today. 30:13 Question number one ask them who are your typical clients and do you have experience working with clients like me? Because you want an advisor that has experience working with someone in your situation, because they're going to know what to do. So ask them who they typically work with. The second question you want to ask them how do you get paid? Are you a fee only or do you receive commissions from the investments and products you recommend? In general, want a fee only advisor that's going to work in your best interest. Now I'm not saying that commission people are all bad, but if you had your choice over the two, you want a fee only advisor. That's going to work in your best interest. 30:59 The third question how much do you charge and do you have a minimum investment? Because some of these people have a minimum. They've been doing it long enough and their minimum may be more than what you can invest with them when you're looking on the investment side. So you want to know if they have a minimum and that may rule them out right away. Or maybe their fees really high in comparison to the other guy you talked to or the industry average. So typically on investments, you're going to see on average, roughly 1% of your assets are invested is the fee. There could be minimum fees if you don't have a lot invested with them and then a lot of times, the more you have invested, you're going to get discounted fees. So you want to understand how you're getting charged and if they have a minimum investment. 31:52 The fourth question is what services do you offer? You want to make sure the services they offer match what your needs are. So if you're looking for somebody to do your investments as well as help you with budgeting and planning and financial goals. You want to make sure that person offers that, because they may not. Some people may only do the investments and say I don't really get into the budgeting and your financial goals and in the planning aspect. So you want to make sure the services they offer match your needs and what you're looking for. 32:29 The fifth question is how often do you meet with your clients and review their plans and investments? You want an active person going alongside with you. You want them active in your financial decisions. So if they're not going to meet with you as much as you want, then you need to find somebody else. So ask them how often they are willing to meet with you to see if that's acceptable to you. 32:57 The sixth question you're going to ask them is how do you communicate with your clients? Is there a preferred method? Is there a limit to how much I can contact you? So you want to make sure you're both on the same page with what the communication is going to look like and if that's acceptable to both of you. The seventh question you're going to ask them is what are your qualifications? You want to make sure they're qualified to do what you're asking them to do. 33:24 The eighth question you're going to ask them, especially if it's on the investment side. If you're just doing the financial coaching and budgeting and that type of stuff, this doesn't apply. But when you're having somebody handle your investments, this definitely applies. So the eighth question is what are your qualifications? Who is your custodian? So you may not know what a custodian is. So I just want to give you a quick idea on what a custodian is and why it's important to know who their custodian is. 33:55 So you want an advisor that has hired an independent custodian, such as a brokerage firm, to hold your investments rather than acting as their own custodian. That is the preferred method. So you want to advise her, regardless of whatever their firm is. Maybe they say our custodian is TD Ameritrade, or our custodian is Fidelity, or our custodian is Charles Swab. Those three are all independent custodians, and three of the largest ones in the US anyway. So why is this important? Well, remember Bernie Madoff does that kind of ring a bell in his Ponzi scheme. So he was his own custodian. He didn't have an independent custodian for his clients. So when they have an independent custodian, so say they have a TD Ameritrade. When your advisor sends you a statement saying this is how much money you have in your account and this is what it's earned, you can actually double check it because you can log in to your TD Ameritrade account or your Schwab account or your Fidelity account and you can see from this other party, this independent party, if it agrees with what your financial advisor is telling you. That's why it's important to have an independent custodian and why you really want to know who the custodian is that this advisor uses and you don't want them to be their own custodian. 35:31 The ninth question you're going to ask them is what is your investment philosophy? You want to make sure this aligns with your investment style, your beliefs and values. So maybe your belief is in clean energy, for example. That's a big one now among a lot of people. You want to make sure you're not invested in maybe oil and gas stuff, because you want to be invested in clean energy stuff, because that's important to you. So you want to make sure that their investment philosophy matches up and aligns with your beliefs, values and investment style. And then the last question you're going to ask them is do you have any current clients I could talk to. You want to talk to people that worked with them. How do they like it? Do they like the relationship? What are the good things, what's the bad? So ask them if they're willing to refer you to some people that are currently clients that you could talk to. So those are your 10 questions. You want to ask your financial advisor If you currently have one in your next meeting, it might be a good idea if some of these questions you didn't ask them at the beginning. 36:40 You go through them with them. If you're looking to bring somebody on after listening to this podcast and realize the value that they do provide and that you really want to succeed with your finances, so you're going to look at maybe talking to somebody to see what your options are. These are the 10 questions you should walk through when you meet with them. So understand the value. Wealthy people know the value financial experts provide and they engage them to help them along the way. If you want to win with money, look at people that are winning with it and follow what they do and go get yourself an expert to help walk the journey with you. 37:23 Thanks for listening. Want to achieve financial independence? Go to ruggedfinancialcom where you can download my free PDF of the 12 things to do to win with money, and you can also sign up for my weekly money tips emails, where I cover the same tips and tricks and advice I walk all my clients through so you can begin your journey to financial independence. Thank you for watching and listening to this episode of the Money Myths podcast. Please do me a favor and, if you found this episode interesting, subscribe to the podcast so you can make sure you get all the future episodes. Also, leave a rating and review so you can help us grow this podcast so we can leave more people to financial independence. And, lastly, please take a screenshot of the episode, share it on your social media channels and tag us using at ruggedfinancial. We will see you later.