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5 Reasons You Need A Financial Advisor

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I’ve shared my poor experience working with a financial advisor and spelled out inherent conflicts of interest that are present when paying for financial advice.

You may think I chose the title of this article as “clickbait” to draw readers in for a bait and switch. If so, you’re wrong.

Maybe you think I sold out to make money from financial advisors. Wrong again.

I became a DIY investor and financial planner several years ago. I began writing about my experiences to be an educator and consumer advocate. Naively, I thought everyone could and should be DIYers when I started writing about these topics. I was wrong.

Since I’ve started writing and sharing my story publicly, I’ve received many questions from readers. I’ve also become the defacto expert among family members, friends, and former co-workers to answer investment, tax, and retirement planning questions.

These interactions made me realize my ignorance in assuming anyone could and should be a DIY investor and planner. Many people need individualized advice. Here are five reasons why.

An Investment Plan is Easy, A Financial Plan is Not

When it comes to investing, simpler is often better and more profitable. Every investor should have a written investment plan. Write it when you’re thinking rationally to guide behavior when you’re not.

My investment plan easily fits on one typewritten page. It’s probably more complex than necessary. Investment planning is easy.

But developing an overall financial plan is not easy. Your financial plan should also consider retirement planning, asset protection, estate planning, tax planning, developing a strategy for claiming social security, educational planning, and insurance planning.

Tying together all the variables of a good financial plan can be challenging. A coherent strategy can drastically alter the amount of taxes you will pay, the wealth you accumulate in your lifetime, financial risks you’re exposed to, and income available in retirement.

These factors will substantially alter the quality of your life. A good retirement calculator can demonstrate the impact of even small changes when compounded over many years.

I say that I am a DIY investor and financial planner. Full disclosure, I have a lot of help. My wife is an engaged partner. I share my thoughts publicly and receive feedback from this knowledgable audience. I’m part of a mastermind group with four other couples with similar financial and personal goals. We meet once a month to exchange ideas and vet one another’s plans. I still pay a CPA for tax advice and an attorney for help with asset protection and estate planning as needed.

Most people don’t take the time to develop the social support group I have. A good financial advisor who can help tie together all the variables required to develop a comprehensive plan can add tremendous value, far in excess of what they may cost. Having a knowledgable person to vet your plan and offer a detached unemotional perspective is valuable. Being dogmatic against paying for financial advice can cause you to be penny wise and pound foolish.

You Need An Advisor Because You Had An Advisor

You may be contemplating becoming a DIY investor because you had a bad experience with a financial advisor. Ironically, the fact that you had a financial advisor could be a reason you now need another one.

“Advisors” frequently sell investment products that lack transparency and are difficult to understand. These include variable annuities, equity indexed annuities and whole life insurance. These products may require paying surrender charges or other penalties if you choose to sell.

Holding investments in a taxable account is another potential problem. You may want to sell funds because they are more expensive than you would like. Ignoring tax consequences and selling off these investments may cause you to lose more in taxes than you save in fees. It’s vital to understand the tax consequences of selling off investments and compare it to the cost of holding the investment before you make any hasty decision.

Technical details of investment products and tax consequences of switching investments can be complicated. Errors can be expensive. You must develop a comprehensive plan.

A bad financial advisor may be the reason you have this predicament. A good advisor may be the person with the expertise you need to help you out of it.

You’re Focused on the Wrong Things

Many people think investing is about figuring out the magical asset allocation, doing Roth IRA conversions, and other technical wizardry. But they underestimate their behavior.

The rise of robo-advisors demonstrates this point. Robo-advisors’ selling point is providing the services that a traditional advisor can at a fraction of the cost. Apparently people are buying. According to Barron’s, both Betterment and Wealthfront have accumulated over $10 billion in assets under management.

Each robo-advisor touts a different computer algorithm to design, in theory, the optimal investment portfolio. None have been around long enough to know if they will do any better than, or even match, an S&P 500 index fund or any of the simple Boglehead’s lazy portfolios.

Robo-advisors tout rebalancing your portfolio, though there is little good evidence how much value this adds. Rebalancing may actually be harmful in taxable accounts where it can create capital gains taxes.

Robo-advisors also promote automatic tax loss harvesting. While this one size fits all service will benefit some, it is counterproductive for others who would benefit from tax gain harvesting. It can also create problems with the IRS if it triggers a “wash sale” when not coordinated with other investments like a 401(k).

Robo-advisors emphasize the importance of technical help they provide, but they neglect behavior modification, the area where an advisor can add the most value. 

Many investors underestimate the importance and overestimate their ability to control behavior. The websites of Betterment and Wealthfront both crashed on the same day in early February when the S&P 500 dropped 4.1%, presumably because panic caused a rush to the websites.

Your behavior is the most important factor in your ultimate success or failure as an investor. If you can’t control it, an advisor to guide you adds tremendous value.

Times Change

Most people can be DIY investors through most of their accumulation phase. Adding advisory fees while you’re following a set plan of contributing to your investments regularly can create a major drag on investment performance. If you are able to control your behavior and have a simple tax situation, an advisor adds cost while adding little to no value.

But times change. We get married. Sometimes, we get divorced. Babies are born. Those babies grow up and go off to college. We get new jobs. We quit or get fired from old ones. We start businesses. Businesses fail or are sold. Loved ones die.

Ultimately, we have to decide when to retire. This comes with more decisions like buying health insurance, developing withdrawal strategies, and claiming social security.

These life events have major financial implications. They may invoke emotional responses not conducive to making ideal financial decisions.

We also can’t be an expert on every situation. When I quit my job in December 2017, I spent hours researching whether to roll over my 401(k) to an IRA, determining whether it made sense for our family to switch to a high deductible health plan and contribute to an HSA, and then deciding which HSA is the best for investors.

My decisions saved me over a thousand dollars on my 2017 taxes and will save many thousands more in taxes and fees in future years. If you’re not willing to put in time and effort necessary to research these decisions, it may be worth it to pay a financial advisor to help you through them.

You’re Not Getting Any Younger

In most relationships, one person has more interest in household finances and investments. This can work fine, provided the interested partner is able and willing to take on the task. Consider others who are dependent on you, including your spouse or significant other, children, and other relatives when deciding who will handle this important task when you can’t.

According to the Alzheimer’s Association, one in ten people age 65 and older has Alzheimer’s disease and one in three seniors dies with Alzheimer’s or other dementia. Even if you avoid this fate, we will all die at some point.

If you are the person who controls the finances in your household, ensure that your loved ones will be taken care of when you are no longer able to fulfill this role.

Simplifying financial strategies, organizing financial documents, and having a will make it easier for a partner or other family member, who may be cast into having to take over, to navigate. Another solution may be to establish a relationship with appropriate financial professionals.

You may not need a financial advisor, but your dependents may. If so, it is better to initiate the process now when you can be part of it, rather than leaving your loved ones, who might be taken advantage of, to have to go it alone in the future.

Being proactive can assure that your loved ones don’t have to try to wade through murky financial waters while dealing with circumstances that left you unable to fulfill your role as your household’s money manager.

One Size Doesn’t Fit All

Personal finance is full of oversimplifications and one size fits all rules. Unfortunately, these rules don’t always work.

I am as committed as ever to shining a light on the conflicts of interest inherent in the financial industry and helping as many people as possible become financially literate.

But the reality is that many people either can’t or won’t manage their money competently. If you fit that description, you still need to have enough education to be part of the process, ask the right questions, and protect your interests.

Even many who are engaged, intelligent, and interested hit roadblocks. That’s normal. You shouldn’t be shamed if you need help.

When you need help, your best bet is to find a fee-only advisor. One with Certified Financial Planner (CFP) credentials who works under the fiduciary standard shift the odds of getting good advice further in your favor. A good place to start is the National Association of Personal Financial Advisors.

Being a consumer advocate doesn’t mean giving an oversimplification and telling someone what they want to hear. It means telling the whole truth. The truth is, you may need a financial advisor.

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Comments

  1. Chris I think you hit most of the valid reasons, good article. I’m 57, up until I was 47 I did all the investing during our accumulation period. I found that I wasn’t disciplined enough to always rebalance when I should have. I also found that I didn’t always make the best choices (funds / etf’s), especially when I was younger. I thought I was pretty well read on personal finance, but still, looking back, I could have done better. I just didn’t have the time to learn in the same way that an advisor does – they live personal finance all day every day.

    For those reasons, we sought out an advisor. First selection was with Schwab where we have our account, and that wasn’t a good fit. The advisor relied on various reports, mostly automated, and often was unwilling to schedule phone calls when both my wife and I would be available. In the end, they offered little advice and poor fund solutions. We moved to another advisor based on information from Paul Merriman’s podcast. Best decision we made financially.

    Now that we are nearing retirement (December), we need help with distributions. In my view, distributions (and tax consequences) are far more difficult to get right than accumulation. And, along with an early retirement, there are many decisions that need to be made – more than I ever anticipated. With our advisor, they offer us – tax advice (he is also a CPA), access to non-correlated funds we cannot get on the retail market, much better knowledge about asset allocation – based on historical data that I don’t have access to, and a second opinion on many financial decisions from a non emotional perspective.

    One of the most important reasons for an advisor, that you mentioned, is your spouse or loved ones. My wife, although interested in and participating in all decisions, is less interested in personal finance than I am. So, if something were to happen to me, she knows who to call for solid advice. Our advisor knows our plans and history, so I trust them to help my wife if needed.

    The other consideration – I don’t want to spend my retirement time trying to keep up to date or monitoring all the moving parts of our retirement portfolio / income – what to sell, when to sell, tax planning, what to buy, when to buy, when to take social security, how to take social security, etc. Sure I’ll read blogs like yours and follow the financial markets, but at my leisure and because it’s always interested me – not because I have to. I’d rather be traveling and living!

    For all of these reasons (and those you mention), I’ll pay the .5-1% fee. To each his own.

    • Mike/Chris, I couldn’t have said it better myself.

      I’ve been using an advisor for 15+ years and couldn’t be more satisfied with their level of service and value. I am good at what I do, but don’t have time to keep up with the market changes and big events.

    • I totally agree on the point of having someone my wife can work with! That is my primary reason for having an advisor.

    • Chris Mamula says:

      Mike,

      Agree with you 100% up to your last two paragraphs.

      Re: paying the .5-1% fee for AUM on an ongoing basis. I personally hate that model for three reasons.

      First, .5-1% will have a huge impact on what you accumulate and what you can live on in retirement. Most people don’t understand the massive impact of those seemingly small numbers.

      Second, AUM creates big conflicts of interest between you and your advisor that can mostly be eliminated when you simply pay for advice on a fee only basis.

      Third, AUM just doesn’t make sense. It just doesn’t cost 10x more to give advice to someone with $5M than someone with $500K. In fact, it’s probably a lot easier to advise someone with $5m.

      Also, you don’t have to spend much time watching the markets and managing your portfolio. I write about this stuff and spend virtually no time watching the markets, which is mostly noise, and doesn’t change what I’m doing with my portfolio at all.

      That said, the whole point of the article is that we need to find what works for us as individuals. It sounds like you’re happy with your arrangement so more power to you.

      Best,
      Chris

  2. Hi Chris,
    Wow! did you get me thinking after reading your article. So I wrote this lengthy response.

    I have been told for many years the same thing you write in your article that you thought everybody can be a DIYer. And you say you were wrong. And you might be right. I think the jury is still out over the fact that I think anybody with common sense can become at some level a DIYer too. But you have to have common sense, and common sense is worth more than all of the distractions coming from the financial news feed 24/7.

    I hope you are happy that I have been a bonafide DIYer for many years because I got the most self-conflicted and horrific financial advice in the world, insurance agents working with public school K12 districts 403(b) plans (I wrote a free book about my experiences). From then on I vowed to never hire a financial adviser again.

    Just about everybody who doesn’t know the investing process tells me that I have the motivation, the skill and the talent to be a DIYer, but not themselves. Some ask for my card thinking I am a financial adviser. Nope, I am a retired elementary school teacher by profession, and I will never be a financial adviser. I get negative feedback from friends and relatives and sometimes laughed at because they don’t care or have an interest in personal finance. They get the wrong impression that it’s all I do and that I am some kind of a miser and just thinks about money all the time. Nothing is further from the truth.

    The fact is that I don’t like investing and I spend minimal time with it. I let Morningstar monitor my portfolio, and my very simple low cost (.07%) fully diversified (among the major asset classes) and balanced between stocks and bond (30% stocks/ 70% bonds) do all the heavy lifting. Similar to what the famous sculptor Michelangelo said about creating “David”. He said that God created David and that “I just removed the excesses.” Brilliant! That’s all I did to become a DIYer. I ignored the excesses of financial mumbo-jumbo everywhere. For example, I will never buy individual stocks. That’s way too complicated. Wall Street has done the heavy lifting by creating the four major asset classes and Vanguard created the passive strategy with index funds. I use the four core asset classes (stocks, bonds, cash, international).

    I hired an attorney and paid him ONE set fee to set up a trust. It is very simple.
    I think that if people just knew the investment process with Vanguard and the asset classes, that all of the other financial planning you listed in your article: “asset protection, estate planning, tax planning, developing a strategy for claiming social security, educational planning, and insurance planning” would fall into place. I kid you not!

    Taxes: if people know that investing in the passive strategy with an index, they would get tax efficiency and lower taxes.

    Asset protection: if people understood that a balance between stocks and bonds according to your age and willingness to take risk is all you need. For example, I am 70 years old so I have 30% stocks and 70% bonds. This simple AA, called the stock/bond split, which all endowments, pension plans, and foundations also employ saved me during the last crash when I only lost 11.8%. I realize that many financial advisers reject this split.

    Estate planning: if people knew the investing process, they would know who in their family can handle an inherence and who can’t and take precautions for those that can’t in a nanosecond. I did hire a financial adviser to take over my plan when I become incapacitated, but he is not getting paid now. He will get an AUM when I cannot handle my affairs.

    Education Planning: if people knew the investing process, they would already be planning for their own retirement AND planning for their childrens’ college. Perhaps some would realize because they are also living below their means to teach their kids a little about money as examples. It is also good for their kids to work through some of the college (like many of us older folks already did). Working through anything and living below my means paid great benefits later on in my life, BIG TIME!

    Insurance planning: The only thing that people need to know is to keep insurance coverage and investments SEPARATE. Don’t try to be cheap when it comes to insurance protection (umbrella, auto and home, earthquake). But I have none of my investments mixed with insurance products, NONE!

    Social Security: Not sure why social security has developed into this big complicated. Heck, my mother started taking SS when she retired at 65 and she did not need an adviser. If you delay your benefit gets higher, nothing complicated about that. If you need it now, then people will take it early at 62. Yeah, I agree that they should run the numbers and perhaps a financial adviser could help, but that should be a one time cost and then be done. After you decide and are taking SS you cannot change anything. End of Story.

    If people knew that my BORING portfolio (which I share on my website) returned 9.0% in 2017 and I only paid about $1100 in portfolio costs (.07%) they might take another look at their portfolio.

    When I showed a friend my portfolio and a table that lists different investment costs and compared it to what I am actually paying for my portfolio, she wrote an email; “The difference between your costs and mine are staggering. You are inspiring me to do more myself. Thanks.” It made my day, another DIYer is coming developing.

    My message to you Chris, don’t be discouraged by clients who are negative about their capabilities. I know it’s a lot of IFS! If people did this or that, and they just don’t, won’t, don’t have time, or are “above all of that financial stuff,” etc. Realize that the world is changing and more people are becoming DIYers, all we have to do is look at the hundreds of websites, blogs, podcasts, twitter accounts, investment forums, calculators, radio money talk shows, and TV shows (Suzy O. for example). Many of these shows are on the air because they have viewers. Plus, Vanguard and TIAA have about 25 million clients and over $6 Trillion assets invested, so many more people are becoming DIYers. These numbers are never publicized by the financial media for good reason.

    The media and Wall Street want viewers to think they are looking for that ONE investment gem that will make them rich overnight, so they can brag at parties. But there is another side of all these informational distractions, people are beginning to realize that they can become DIYers by ignoring all of the scare tactics and the powerful delusions of getting rich quickly. It will probably take another generation for this movement to go mainstream, but the fact is that us DIYers are growing and there is no going backwards.

    I love quoting brilliant people and paraphrasing to this topic. Elon Musk said that “someday it will be illegal for humans to drive cars” because of auto-drive technology. What would you think it also became illegal for humans to managed other people’s portfolio because Robo Adviser will do it far cheaper and will not make any emotional or factual mistakes with regard to tax loss harvesting, and the emotions of getting in when the market is high and getting out when the market has crashed. It’s something to think about!
    Steve

    • Chris Mamula says:

      Steve,

      I still think anyone CAN do this which is what motivates me to keep writing. It simply isn’t that hard for someone who is reasonably interested, able to control emotions/behavior, and willing to devote some time to learning. That said, the combination of all three is rare in my experience. For those that have those three characteristics, learning to be a DIYer is the most valuable investment of their time I could imagine. For those that don’t, they need to find a way to get good advice, at a fair price, in the least conflicted way possible.

      Chris

      • Well put, Chris! I’ve found that the single best advocate for my own money and financial plan is myself, but the disclaimer is that I possess the three characteristics you’ve mentioned.

        I’d love to say that DIY financial planning is the preferred approach for everyone, but you’re dead-on that it may not be based on personality / interest / attributes.

  3. Chris,
    Any recommendation on a good place to start for a reliable/ good attorney to help with asset protection?

    Thank You
    Pete

    • Chris Mamula says:

      Unfortunately I don’t. State laws vary considerably, so finding someone local probably makes the most sense.

      Best,
      Chris

  4. Wendy Rice says:

    Thanks, I always enjoy your blogs. I know in the past you have shared your investment plan, can you guide me to your last one please.
    As a divorcee, I will be retiring one month after my “coming of age” for Required Minimum Distributions. My Financial advisor was recently provided by my investment company and intends to provide ongoing support. I also paid for a separate Retirement Advisory earlier. The input (coming at it from different approaches) is quite similar. I always learn something new that enhances my understanding/skills. Went to another the other day (retired though consults for insurance company and many, many credentials). I was amazed at the information given (no need for emergency savings-just use my roth account if emergency; avoid stock market and buy annuity-no discussion of inflation; if I want to leave an inheritance, pay for a “living” life insurance policy). The conversation was smooth, convincing and I felt like I needed a shower afterwards. Another useful experience to appreciate how easy it is for some peers to be guided right into a deep deep hole!

  5. Getting rid of my financial advisor and managing my husband’s and my portfolio myself was the best thing we ever did. I don’t care who they are, they do not have your best interests in mind. They buy a bunch of x stock and spread it around their clients and charge you a lot of money to do it. When my financial advisor wasted my money investing in GE days before it dropped in price and cut its dividend, it was the last straw. I may not be an expert but I read SeekingAlpha every day and I knew not to invest in GE. I would have expected the so called professional to have known it as well.

    In the three months since I moved to TDAmeritrade and self-managing, I have increased the value of our portfolio more than the big name brokerage firm did the entire two years they had the account. I have my best interests in mind and will never trust anyone else to do it for me again.

    • Chris Mamula says:

      Janice,

      I relate to your horrible experience with a financial advisor. I’ve heard about and seen many others that are similar. Education is your best defense. Even if you feel that you need an advisor, you need to be an active part of the process and look out for your own interests.

      That said, there are some good professionals in this space, even if they are the minority. I will do my best to help those that need help find those that are genuinely doing their best to provide it.

      Best,
      Chris

  6. I suspect that for many of us you might as well have written an article entitled: Reasons why you need to catch a unicorn.

    Never again.

    Stephen has it right. These kinds of issues and decisions are dealt with over many years. In that time it’s more than possible to self-educate yourself beyond the expertise of most “professionals.” Not sure why robo advisors haven’t replaced these professionals already since they access these themselves when they’re not talking to you anyway. Fancy software and graphs doesn’t automatically translate to better planning.

    • Chris Mamula says:

      Agree that it can be hard to find good financial advice, but I’ve met some good people in the industry and seen how they can add value.

      As per robo-advisors, as addressed in the piece, I think they are part of the problem in that they reinforce the idea that investing is more complicated than it is or needs be, while neglecting behavior and holistic planning which IMHO are the keys to financial success.

  7. Phillip says:

    As a DIY’er for quite a long time, I use financial advisors as a specialist, similar to an estate attorney or tax accountant. I hire on a fee-for-service basis (AUM model is a rip-off) and have very focused agendas on what I’d like to cover. I collect and organize all my paperwork, research stuff online and prepare questions before our meeting since time-is-money (I do the same for my accountant and attorney). A while back, I had an advisor review our goals and asset allocation just to see if I missed anything big. No need to waste my money on figuring out the right asset allocation, etc. since there’s a wealth of free tools and information online to figure that out. IMO, this is something you MUST do for yourself and must take the time to learn (it’s not hard to understand and implement the basics) and IMO, just too important and risky to outsource. But I wanted an advisor to review and “poke holes” in my plans as a sanity check. With my advisor, I am most interested in tidbit advice that I don’t catch. Some of my “catches” included: 1) getting umbrella insurance coverage to protect my assets (I hate insurance since it’s statiscially a losing proposition), 2) updating my will so that assets are designated in a disclosure trust to avoid some state taxes, 3) learning about new free tools to analyze asset allocations, 4) learning my parent’s will may be invalid since they moved which can lead to messy probate issues (they are updating it after my gentle probing) 5) validating some Roth-IRA conversion timing strategies I had in mind 6) validating my portfolio and ongoing asset buy strategy was income tax efficient relative to alternatives (he did suggest some asset classes that were worth looking into). Once things are set and on autopilot, there’s really no need for another consultation until a new, relevant life event happens but when it does happen, getting focused, customized advice to deal with this new situation is prudent. I agree with Chris that fee-for-service is the way to go and IMO, only used sparingly.

    • Chris Mamula says:

      Thanks for making me look bad. You said that better in one paragraph than I did in 1,500+ words. Spot on!

      Cheers!
      Chris

  8. I agree with Janice and Phillip. My experience is that I have often ended up “advising” the advisor after I did my homework via the web.

    The first advisor in question told me that the rules I was trying to apply to maximize my Social Security were no longer valid. His was thinking of changes made to “file and suspend” a few years ago by congress however there are still options in place for increasing your SS. I ran my numbers at FinancialEngines.com and obtained a plan that has me do a restricted application and file for spousal benefits. It allows my benefits to continue to grow while paying me roughly $900/month while I wait and collect for a period of 4 years. With this information I eductated this first advisor who was unaware.

    Next, I told my friend about it. He got excited and now has it as an agenda item to discuss with his CFP next time they meet. Now, shouldn’t his CFP have already told him about that since he retired a year ago? Supposedly they’ve done some strategic planning.

    Additionally, this friend discovered through me that he could restrict his income using after tax money and be eligible for Advanced Healthcare Credits (Obamacare) thus saving a huge monthly outlay for health care benefits. He called his CFP and asked about it at which time his advisor seemed to scramble to make it sound like it was “his idea” and “oh yes, that would be a good idea”.

    So, I agree with Jance. Nobody cares about your money as much as you do. Take the time to learn the ins and outs. Fortuately, I enjoy it so it is no chore for me. I realize it is for some people. I also agree with Phillip. Use focused agenda items for a fee only planner. When I retired, I paid for an hour of a fee-only advisors time to review my spreadsheet as a sanity check.

    What saddens me are my relatives who have no clue even though they are smart people. My close relative has a doctorate in dentistry but doesn’t have the interest in finances so he delegated all of it to the first high fee, non-fiduiary that came along. I can’t even discuss it with him without offending him because “he likes this guy”. I want to tell him just to send the guy a few hundred dollars every month and get a new planner because it will probably be cheaper in the long run.

    • Chris Mamula says:

      Thanks for adding to the conversation. Great point that many people focus only on their only little piece of the puzzle, be it taxes, or investments, or insurance while being blind to the bigger picture. This makes sense b/c most financial professionals are paid for their one area of expertise, so they have little incentive to understand the other areas or take the time to help you with them.

      This is why even if you are seeking out an advisor, I recommend you be an informed part of the process rather than blindly placing your trust in someone else with the expectation that they will do well by you. This is also why I recommend if using an advisor that you seek out a CFP who is trained to look at the whole situation as compared to someone who will manage investments.

  9. I could not agree more than with Phillip and Thor as our experiences and actions are very similar. I became a DIYer in 2009. Many mistakes were made before I decided to spend some time learning how to do better than the professionals were doing for us. I hated to have to do this at first but now find that I not only enjoy it, but could help others succeed even better than we have because they are younger. Still, mostly to no avail (outside of our own family, to some degree) because some just want to leave the decisions to me or they simply have no interest in making the most of their own situation. Pretty frustrating when we have learned these people could use some help but won’t even try.

  10. It’s only 1%. Or 2%.

    That 5.75% front end sales load doesn’t make a difference because my funds will out-perform.

    Ouch.

  11. Yeah…of course the 5.75% load is less egregious than the 1% to 2% of AUM (Assets Under Management). That fee occurs every year and adds up to a ton over time (like the price of an average house).

  12. I decided to spend some time learning how to do better than the professionals were doing for us.

  13. I came into this article loaded for bear given the title, as I’m a fierce believer in the benefits of the DIY approach. And while I’ve never had a bad experience with a financial advisor, I’ve had enough bad experiences with many other so-called professionals that I’m not interested in testing the waters.

    I’m both analytical and detail-oriented by nature, and my independent streak means I’m a big believer in the DIY approach. I usually pride myself in becoming knowledgeable enough about any given topic or issue that I can install / perform / repair the project myself. There’ve been a few times when I’ve felt I may have been in a bit over my head despite the research I’d performed, and turned to a so-called professional for help. One such time was during the process of buying our first home, when we invested in the services of a Buyer’s Agent.

    Despite having good references, I was highly disappointed in our agent’s services. He had no answers for my detailed, specific questions, and I often found myself “advising the advisor” as Thor put it so well in an earlier comment. While our agent may have been perceived as an “expert” in the eyes of an average home-buyer, he certainly was not in my eyes. I had managed to become more knowledgeable about the circumstances, potential pitfalls, and hoops to jump through regarding the purchase of our home than he was with just a few weeks of dedicated research.

    I think Phillip’s approach of strategic consultation is an excellent one, and I’ve used it before myself in areas other than finance. Unfortunately, My experiences in so doing have been unimpressive. Auto mechanics, HVAC technicians, midwives, registered nurses, nurse practitioners, doctors. I’ve found in my experience and interactions with individuals in these professions that while they possess a BREADTH of knowledge and experience which far surpasses my own, their DEPTH of knowledge on my specific issue which I’m coming to them for often fails to meet or even exceed that of someone who has done some dedicated research.

    It’s been rather eye-opening reminder that there is no better advocate for you than yourself. I couldn’t agree more with the sentiments expressed by Mark, Thor, and Ray earlier given my experience. That said, Chris makes two excellent points in the article:

    “My decisions saved me over a thousand dollars on my 2017 taxes and will save many thousands more in taxes and fees in future years. If you’re not willing to put in time and effort necessary to research these decisions, it may be worth it to pay a financial advisor to help you through them.”

    “But the reality is that many people either can’t or won’t manage their money competently. If you fit that description, you still need to have enough education to be part of the process, ask the right questions, and protect your interests.”
    If you’re not interested in or capable of researching and creating a full-spectrum financial plan, you’ll need to rely on someone else. And I think Chris does a good job of outlining how to do that while minimizing conflicts of interest, risk, and the potential for misleading advice.

    I’d love to think that the DIY approach is for everyone. But if you’re not interested in or capable of researching and creating a full-spectrum financial plan, you’ll need to rely on someone else. And I think Chris does a good job of outlining how to do that while minimizing conflicts of interest, risk, and the potential for misleading advice.

  14. I don’t even know where to start with this article! I am questioning why I even read this blog. I stopped reading about 3/4 of the way through it. I guess I am the exception but none of your “advice” applies to me, the various reasons are too numerous but suffice to say I have done well and continue to do so banking money every month since I retired. I read extensively everything I could about financial matters, behavior and investing 6 years before I retired at 56. My circumstances are different that most, divorced, no kids, on Medicare but retired with employer medical until Medicare stated and a modest pension, taking SS at 62 and I bank about $1700 per month after paying bills, the past 2 months I banked $2300 each month. I’m frugal and always LBMN. Maybe the average person has no clue and needs to pay an advisor, I don’t.

  15. Thanks for this post Chris. I was a DIYer for all of my accumulation period but with (traditional) retirement ahead, I began lI ooking for some retirement (not investment) planning. I used one CFP fee-based planner for specific analysis and advice but was not satisfied with the level of review of our entire situation. We interviewed another CFP and fiduciary who operated under the AUM model at 1-1.25% and really felt his advice was driven by getting more assets to manage-the AUM model is not free of conflicts. I did finally find a very experienced CFP who specializes in retirement planning holistically and bases his advice on our household budget and assets-he has a system but tailors it. It is AUM, but at 0.25% which I consider reasonable for what I am getting. Why did I do it? 1-I wanted to protect against downside risk. 2-I wanted to take market risk and volatility off the table. 3-I wanted exposure to a wider range of ideas of expertise than I had even with all the reading and time I invested over the years. To me the level of expertise provided by my advisor is akin to an MD and I am not sufficiently qualified to practice financial medicine. 4-I wanted someone my wife could trust and work with, she not being as interested in financial matters and significantly more conservative than I. Our plan has a good mix of assured flooring with both downside and inflation protection matching spending, reserves and opportunity for growth. 5-I wanted holistic advice, not just on investments including but not limited to SS claiming, taxes, Medicare, QLACs and annuities, Roth conversions, bond laddering, long term care insurance, keeping or selling rental real estate etc.. After 2 years, and now recently retired, I am confident in our situation long term and also believe we will do better with our advisor than we would have done without him. It is a shame that there isn’t better consumer based information on financial advisors to protect folks and to help the few good ones that are out there. Best of luck to all.

    • Chris Mamula says:

      Thanks for sharing Rob. Agree that we need to continue to shine a light on the many bad actors and the conflicts of interest in the financial advice space, but also highlight those that are genuinely doing good work and helping people. I know there are good people out there serving people well. I would like to find a way to connect them with people who need their help.