munKNEE.com Your Key to Making Money
Traditional financial services companies have convinced the public that financial planning and
advice are reserved only for the wealthy – that without substantial assets to invest or a high income there is no need for a financial advisor. Let’s take a look at some of the common misconceptions about working with a financial advisor that are being proven to be no longer true.
The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.
This message has been so ingrained in the minds of investors via marketing, business models and the actions of financial professionals, that the individuals whom arguably need financial planning and advice MORE than the wealthy have gone without–they’ve cheated themselves because they believe they do not need/deserve/require financial advice. Young professionals – millennials, women, minorities and middle America…are all groups that have historically been underserved, but a change is underway.
It’s Time To Treat Yourself
While many advisors and firms still adhere to asset minimums, income requirements, or minimum fees, there is an increasing number of financial advisors working with clients regardless of income level or portfolio values…By leveraging technology, lower barriers to entry for investing, and innovative business models, these advisors are bringing financial planning and advice to more people than ever, and because of this, the story told by the financial services industry is being rewritten.
As the story continues to be rewritten, let’s take a look at some of the common misconceptions about working with a financial advisor that are being proven to be no longer true.
1. I don’t have enough investable assets.
The rise of the subscription model and hourly planning has allowed individuals without the investable assets required for the traditional percentage of assets under management (AUM) relationship to find financial advisors.
The typical subscription model includes:
- annual meetings with the financial advisor,
- a financial plan with actionable recommendations,
- on-going consultation,
- possibly investment management,
- and technology
to help manage the plan throughout the year. Everything a young professional needs. It should come as no surprise that the subscription model for financial planning is so appealing to Millennials; after all, they are already used to subscriptions for most everything else in their lives: Netflix, Apple music, Spotify, gym memberships, Evernote, etc.
An hourly relationship may make more sense for some as they first get started. Working with a financial advisor in an hourly relationship is very similar to working with an attorney or CPA. The financial advisor charges an hourly rate for the time required to meet, create and review the recommendations. It’s a fairly simple and cost-effective way to receive financial advice and a plan.
When considering an hourly relationship, keep one thing in mind: the responsibility to implement the plan is on you, the client, and not the advisor so, while the hourly relationship may result in a lower fee, there is more responsibility on the client to make sure the plan is carried out, which may not make it the best relationship for everyone. Hourly planning tends to be best for do-it-yourselfers with the discipline and interest in carrying out their plan, or for straightforward planning needs.
While charging a percentage of assets under management will most likely continue to be the preferred method of compensation for many advisors, it is becoming easier to find financial advisors working with clients via subscription and hourly relationships.
2. I don’t make enough money
See Above.
I will add one caveat. Income may not be a limiting factor from the advisor’s standpoint, but it could be from the client’s. With subscription and hourly relationship, there does need to be enough income to be able to afford the monthly or hourly fee so, yes, for some people income may still be a limiting factor, but the subscription and hourly relationships allow for individuals with enough income to afford advice to access it when they could not before.
Unfortunately, there will always be individuals who are not able to afford just the hourly planning relationship—for these individuals, there are advisors that offer pro bono work and other programs available to help get at least a start to a plan but, for more people than ever, income is no longer a prohibiting factor from getting financial advice.
3. The advisor is just going to try and sell me something
Ok, this is fair. For many years financial advisors were really salespeople selling various products, but thankfully, the industry is pivoting away from product toward advice. Whether you pay am AUM fee, monthly subscription or hourly fee you are paying for advice, not product. Since the advisor’s compensation comes directly from the client, there is no incentive to use and recommend an inferior or more expensive investment—there is less conflict of interest than before. Now, whether or not the recommendations are any good is another story!
If you are unsure of how your advisor is compensated, ask.
- If they are compensated by the products they recommend, then you have a salesperson. This does not mean they are a bad person, or even give bad advice, just that there may be more conflicts with the recommendations that you are aware of.
- If they are compensated by fees from their clients, then you have a fiduciary advisor.
It’s up to you to determine which type of advisor you’d like to work with. Just know if you are not wanting to be sold, there are advisors providing advice and not selling products.
4. The answer is always to invest more with them
- When working with an advisor in an hourly or subscription relationship, there is no incentive for the advisor to recommend saving and investing with him, unless it is best for your plan. The hourly rate and monthly subscription fee are not impacted by the amount of money invested with the advisor.
- …When working under the AUM model…[however], the amount of money managed by the advisor impacts the amount of the fee charged by the advisor. An advisor does stand to make more money by managing more of your assets…
Saving and investing more is usually a necessary recommendation; with AUM, subscriptions and hourly planning, the motivation behind this recommendation is not to make a quick buck, unlike a product sale.
5. I’m too young
You’re never too young. Youth is actually an advantage; the sooner you can get started with financial planning, saving and investing the better. Paying down student loans, creating a budget, building savings, and starting an investment plan are far more effective if they are started early…and there are financial advisors helping young clients in these areas…
While we’re discussing age, “I’m too old”, or “it’s too late” are not reasons to continue cheating yourself out of financial advice. Getting an early start is ideal, but continuing to delay planning because you think you’re too old or too far behind only continues to put you further behind. If youth is an advantage and you’re getting older with each passing day, it would make sense to start searching for a financial advisor today.
Conclusion
I’ve been a financial advisor for a little over thirteen years, and I’m still saddened when I hear someone say they’ve never worked with an advisor because they knew they didn’t meet financial advisors standards. If you’ve ever felt this way I hope you now realize the industry is changing and more financial advisors are evolving to help you…
Related Articles From the munKNEE Vault:
1. The Way Your Financial Advisor Gets Paid Could Harm Your Portfolio
Just as it’s smart to question the doctor suggesting test after test for you at a facility he or she owns, it’s important to know how your financial advisor’s pay structure creates incentives that may harm or help your portfolio in the long run. Let’s review the various ways there are for you to pay a financial advisor as well as the various ways a financial advisor can get compensated for how he/she “manages’ your portfolio.
2. Self-manage Your Portfolio? Think Again! Here Are 10 Reasons You NEED a Financial Advisor
Irrespective of any active v. passive investing debate, good advisors are an absolute necessity. Here’s my top 10 list of reasons why
3. What You Need to Know About Financial Advisor/Planner Fees
Understanding how financial advisors get paid and what your advisor fees are will help you make smarter decisions about your money. Here are a few of the different ways financial advisors get paid and what you need to know about advisor fees.
4. Is It Time To Fire Your Financial Advisor?
As more and more investor education and information is freely available online… investors now have an important choice to make. Should you go it alone, stick with your financial advisor, or fire him and find another, perhaps this time a fee-only planner?
5. Should You Fire Your Financial Advisor? (6 Warning Signs)
Investors should take a long hard look at their broker/financial advisor/planner and rethink what they expect of him/her while at the same time empowering themselves to take control of their own situations. This article identifies several warning signs that it may be time to cut ties with your current broker.
6. A Field Guide to Lousy Investment Advisers/Financial Advisors
You can easily hire people who claim to be good investment advisers but they hardly ever are. They’re usually downright lousy investment advisers, and it’s worth learning how to identify them and I group them into three categories: The delusional, the liar, and the secretly mediocre.
7. 4 Tricks Some Financial Advisors Use On Their Clients
Trust is obviously a huge aspect of any client relationship in the financialinvesting6 services industry, but there are some red flags people can look for to make sure their outsourced investment advice isn’t coming from a charlatan. Here are four tricks the finance industry plays on their clients.
8. Many Financial Advisors Are “Super-Slimy”! Here’s Why
The odds are that you will run out of money in retirement and much of the reason can be attributed to the “super-slimy” so-called financial advisors who are bleeding savers dry as they line their own pockets with excessive fees at the expense of their clients. Here are the details:
9. Should You Replace Your Financial Advisor With A “Robo” Advisor? Here Are the Pros & Cons
In the last few years a new “advisor” has entered the fray – the robo advisor, now being called “automated investment services”. Automated investment services are platforms that automate your investment portfolio and try to help you reduce fees, increase efficiencies and streamline your process through a simple computerized interface. Here’s a look at 4 primary benefits and 4 potential problems to help you decide if such a service is for you.
For all the latest – and best – financial articles sign up (in the top right corner) for your free bi-weekly Market Intelligence Report newsletter (see sample here) or visit our Facebook page.