Financial Planning

Misconceptions Of Working With A Financial Advisor

“Don’t cheat yourself, instead treat yourself”
-Richie Rich “Rather Be Ya…” from 2Pac All Eyez On Me (Disc 2)

Traditional financial services companies have convinced the public that financial planning and advice are reserved only for the wealthy; without substantial assets to invest or a high income, there is no need for a financial advisor. 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. Middle America. These 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 (This is not the first time you’ve seen me sing these advisors praises). 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.

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.

Although a subscription model may be ideal for many young professionals, 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, 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.

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.

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.

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.

Now, there is a slight conflict when working under the AUM model since as 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. However, many times the investment options recommended and used by the advisor are better than the options available in other investment vehicles like 401(k)s. This is why working with a fiduciary is important.

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.

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 you’re in luck, there are financial advisors helping young clients in these areas. Check out the XY Planning Network’s Find An Advisor page.

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.

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.

So go ahead, and take Richie Rich’s advice and treat yourself when it comes to your financial planning.

This post was co-authored by Silas Castelli







Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.