• Jeff Burke

Reasons Why You Don't Need a Financial Planner from a Financial Planner

Updated: Jan 29


In my previous article found here I explored the reasons why you need a financial planner. Now let’s explore some of the reasons commonly cited why you don’t need one and explore their validity.

1. Financial Advisors are expensive

It is true that depending on the fee structure your advisor has setup it can get quite expensive. The most common fee structure found today is to charge based on assets under management. This means the advisor charges you based on the amount of assets you have invested with them. Some advisors will even include assets they’re not managing in this calculation. Since most advisors charge roughly 1% of assets under management this can add up if you have sizeable amounts invested. But that doesn’t mean it isn’t worth it. For example, take someone who has $500,000 invested and therefore is paying about $5,000 for the services. This may sound expensive but if you are receiving comprehensive financial planning services that goes beyond just managing investments it might be worth it. However, if you are only receiving investment management services then you might want to think twice about paying that much.

You will have to keep this is mind when looking at hiring a financial advisor and determining how much you are willing to pay based on the services received. Be aware also that there are other charging models including a retainer or a flat monthly fee. This type of fee structure might be more appealing if you have more invested assets and think 1% is too much.

The other thing to note is you may have trouble finding an advisor if your investable assets are lower as it might be difficult for them to see a way to make money. In contrast, an advisor charging a flat fee wouldn’t be worried about your invested assets as their compensation isn’t based on your investments or selling you products.

2. You are young and single

There are certainly aspects of financial planning that aren’t that relevant to someone who is single and in their 20’s. Likely their only investment in in their company’s 401k plan and they can put the money in a target retirement fund or a total stock fund and be pretty safe. There might be some insurance needs to think about that many young people overlook such as disability income to protect your future income. This might just take working with an advisor who will charge a fee based on a project such as doing an insurance review, a college funding plan or a plan for debt management for example.

3. You might not get the personal attention you deserve

This is a legitimate concern depending upon what type of advisor you have. If your advisor is a broker-dealer they will more likely have a larger number of clients. I was told once by a firm that their sweet spot was for each advisor to have 300 clients. That’s a lot. If you think in terms of 2,000 hours available to work in a year that would leave less than 7 hours per client. And if you are one of those clients who doesn’t have a lot of money invested with them you will be lucky to get that much time.

When looking for an advisor ask how many clients they have and understand their fee model. If an advisor has over 100 clients they might struggle to find the time you feel you deserve. Also, an advisor who is AUM based will understandably tend to focus more on the accounts that have higher invested asset amounts. An advisor charging a monthly fee or is project based will be less likely to ignore smaller clients.

By understanding what type of client you are you will be better able to find an advisor that can give you the right amount of attention.

4. You can do it yourself with the right tools

With the advancement of the various fintech tools available many people feel like they have the tools available to do their own financial planning. While robo advisor tools like Betterment and Wealthfront have made having a managed investment portfolio more accessible as they charge lower fees and aren’t as concerned with clients that have lower amounts to invest.

Tools like mint.com are available to help people create a budget and track their spending. There are hundreds of websites and blogs dedicated to providing financial guidance that provide valuable information people can use.

The question you have to ask yourself is do these tools provide the right answers for your specific circumstances and life? Robo advisors certainly have a place but they are limited in really knowing you as a person and being able to make the adjustments needed as things change in your life. They also are limited in scope as far as what they look at. They might provide a good way to have an investment portfolio managed for a low price but they can’t tell you if what you really needed to do was build your emergency savings or get certain insurance coverages before focusing on investments. Likewise, the advice on blogs and websites might not pertain to your unique circumstances. Each family is unique with their combination of family, financial position and goals and advice that might pertain to one individual may very well might not be the right advice for you. There is a reason all of those websites and blogs (including this one) have disclaimers saying any advice contained there is not intended to work for everyone.

The only way to know how all of the pieces of your financial life fit together is with a comprehensive financial planner.

5. You don’t have to hire a financial advisor for ongoing management

If you have all other areas of your financial life on lock down (insurance, retirement planning, taxes, debt management, budgeting, college savings and estate planning) and just looking to have your investments be managed this might be the case. Here is where you could work with a Betterment or Wealthfront to address the investments. You can possibly manage this yourself as well by choosing a combination of low cost core EFTs or index mutual funds that fit within your risk tolerance.

The questions you have to ask yourself are how comfortable are you that you have all of those other areas on lock down and how comfortable are you in picking the right portfolio for yourself?

6. You love investments

This one is relatively easy to debunk. I love baseball. I geek out on the stats and in game strategy, always have. As much as it pains me it does not qualify me though to stand in the box and face a major league pitcher or chase down a fly ball in the outfield. We all have things in our life that we love but that doesn’t necessarily mean we are good at it.

That’s not to say you can’t do an adequate job managing your own portfolio. There are some basic guidelines you can follow and probably do ok. The issue is at some point you will have to factor in knowing how to mix IRAs and ROTHs, how to update your portfolio as you age to adjust for different risk tolerances, understanding the tax consequences upon withdrawing funds and managing required minimum withdrawls.

One of my main drivers for getting into this field was to help people from making costly mistakes with their money because they didn’t know all of their options. They might make a decent decision but in many cases there was another option they weren’t aware of that could have a benefit to them of hundreds of thousands of dollars.

7. You’re running on autopilot

You might think you reach a place in your financial life where things are all set and you don’t have to actively update anything. The truth is there are periods of time in your life where things might be able to be put on cruise control. How long do these periods last? How much time passes by without an event happening in your life that doesn’t impact your situation to the point of having to reassess things?

For me, admittedly my 20’s were a time when I could have done this. I had stable employment and was single. Things were pretty simple, see item 2 above. But my 30’s brought constant change. I got married, had a child, bought a house, changed jobs, started my own business and my wife started making more significant progress in her career. Nearly every year brought something that made us re-evaluate things. My 40’s have been more of the same and I imagine the future will as well with our child going to college soon, retirement on the horizon and aging parents. So while there might be a window in there where things are status quo they won’t be for long. Do you want to be jumping in and out of financial planning or have a consistent presence helping guide you through the changes life throws at you?

8. Most of your income is from pensions

There are multiple sources of income in retirement including Social Security, pensions, retirement plan distributions, dividends and interest from investment. If you are in a position where most of your income comes from pensions and that covers your expenses that can go a long way to alleviating stress over retirement spending. You could make the argument in this case that you don’t need someone to manage your investments as you are not reliant on them for your spending needs.

In this case a traditional investment advisor who mostly just manages your investments might not be of much value. That being said, a comprehensive financial planner is still in the position to add value across a number of topics as investments is just one thing they can help with. You still might need someone to review your insurance needs, help determine how to help save for a grandchild go to college, assist with making sure your estate documents are in order among other areas.

9. You just need tax help

Similar to number five above if you have all other areas on lockdown and have tax issues to deal with you might be better served by working with a tax accountant who can be better positioned to provide deeper knowledge on this particular topic. That’s not to say that a financial planner may not also be armed with this level of expertise.

Again, the question to ask yourself, as in topic five is how comfortable are you that you have all of those other areas on lock down?

Thank you for reading this latest blog entry. I hope you found this informational and not too terribly boring. My next blog topic will go back to revisit the Financial Planning 101 series where I will discuss life insurance. As always, if you have any questions feel free to reach out to me at info@7thstfinancial.com.

The foregoing content reflects the opinions of 7th St. Financial, Inc. and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

#money #financialplanning #personalfinances

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All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.