The Role of Financial Advice in Early Retirement
Today’s post is written by Jeremy Zuke, one of my financial planning colleagues at Abundo Wealth. Jeremy achieved financial independence in 2022 and left a corporate marketing job to pursue work he is passionate about.
A longtime Boglehead and hater of fees, he joined Abundo (with a nudge from me!) to further the mission of changing the financial planning industry with high-quality advice at affordable prices. Today, he’s going to share some of the ways we help people who start as DIYers on the path to FIRE and retirement more generally.
Take it away Jeremy….
Can a Financial Planner Help on the Path to FIRE?
Having consumed a full 10,000 hours of blogs, books, and videos on investing and financial independence over the years, I developed what might generously be called a healthy skepticism about both the financial services industry and paying any fees above and beyond the couple basis points I pay for my index funds.
If you follow anything close to the 4% rule of thumb, it is just so obviously a bad idea to give 25% of your retirement income (or more) to an advisor in the form of a 1% AUM fee. And commissioned sales is a complete non-starter.
Related: Conflicts of Interest With Investment Advice
But what I have come to appreciate in this encore career is that we can separate the value of a financial planner from the terrible legacy fee models that dominate the industry. It can be extremely valuable to have a personal trainer, therapist, primary care doctor, and many other professionals provide guidance in their field of expertise. Likewise, a (low cost) financial planner can amplify your path to FIRE in many important ways.
Why not just DIY?
Well, it’s definitely an option! There are many great resources out there for interested people to use. At a baseline level the math behind achieving financial independence is not especially complex.
Because we are an advice-only firm (our clients self-manage investment accounts). We have a lot of DIY-positive clients at Abundo – including many on the path to early retirement. This post is about what we hear from those folks and how they tell us we have helped them on their journey.
Determining Retirement Readiness
The most common thing we hear from clients pursuing FI is “I think I have enough (or am on track to have enough), but I’m just not sure.” I suspect part of this comes from the ever-increasing complexity of withdrawal rate methods, constant inflow of new study findings, and a general sense of anxiety that the person might just be missing something.
When you’re ready to make a big life-changing decision, there’s just no real replacement for detailed modeling of your own situation. Online retirement calculators and broad guidelines like “the 4% rule” are a great start.
Modeling the impact of Social Security, pensions, taxes, inflation, unique expenses, home purchases, part-time income, and other things that make up your expected future can be tricky. That’s where detailed planning software really shines, along with open discussion to uncover all the details you might not have thought about.
Most people in the FI community tend toward being overly conservative, as a general rule. There are plenty of reasons why you don’t need quite as much as you think to leave a job you don’t particularly like. We love helping people find that answer.
Getting Emotionally Ready To Take The Next Step
So the numbers tell you there’s a path to making the big exit later this year. Exciting, right? Well, sometimes I would say the reaction is more like “a blend of excitement and fear”. This was, without question, the hardest challenge I faced when leaving a high-paying career I had been successful in for over a decade.
Related: Should You Work One More Year
I came to associate a sense of self-worth with a prestigious position and high earning potential. That was strangely hard to shake off. You could have told me I had a 100% chance of success. I might still have gulped at the opportunity cost of leaving all that money behind.
Having someone to talk to in that situation who can help not just on the math side, but on the emotional side of financial independence can really help keep things in perspective. We embrace that role of being someone our clients can talk to and act as a sounding board for ideas.
This is an underrated role. It’s especially useful for people who otherwise don’t have many people they can talk to about ‘million dollar problems’ like this.
I love to challenge my clients and brainstorm. How could they use their time and energy to fulfill emotional needs currently provided by their jobs in more personally satisfying ways?
Related: Does FIRE Make Life Harder?
Spotting the Things You Might Not See
As I said earlier, the general principles of financial independence are fairly straightforward. But there’s also a lot of detail in the financial planning space. Even people who pay a lot of attention relative to the general population (like readers of this blog) can’t possibly be expected to be experts in everything. Even financial planners aren’t experts in everything!
We hear tons of questions from even our most knowledgeable clients on topics like:
- Withdrawal strategies
- Tax location diversification
- Buying vs. renting
- Paying down debt vs. investing
- Roth conversions
- Social Security claiming strategy
- Reducing health care costs in retirement
- How to set up estate planning documents
All of these are solvable questions. But you can significantly reduce your time spent (as well as the possibility of making a significant mistake) by working together on your plan with an expert who knows your situation. And the answer to these questions can change significantly from year to year as your life changes!
While much of the industry is stuck in the mindset of being investment managers, we view that as only a tiny piece of the puzzle (and one that has been solved for a while with broad, low-cost index funds).
Getting Your Spouse Involved
It’s the rare couple where both members have a keen interest in financial planning. The vast majority of the time, you have one spreadsheet nerd and one person who lovingly tolerates the spreadsheet nerd. That brings up two really important, but not all that often discussed, considerations where a planner can be immensely helpful.
The first is the case where the spreadsheet nerd becomes very sick or even passes away earlier than expected. All those detailed plans are almost certain to be lost in cyberspace and very difficult to access for the spouse who is left behind with a large sum of money to manage.
Where is the surviving spouse likely to go? High-fee advisors with smooth sales pitches and big advertising budgets are going to come knocking. And all that great planning and years of savings might be undone. Developing a long-term planning relationship while both spouses are healthy greatly reduces that risk.
But there’s another benefit that is even more important than that. Improving money communication in a relationship – ensuring each spouse’s perspective is heard, solving spending disagreements, and ensuring a level playing field of education on key concepts – is a role tailor-made for an unbiased third party.
When you have time on the calendar to talk with a financial planner, it creates the habit of having constructive money conversations. This helps ensure everyone is on the same page. Especially for a huge choice like when to retire, that sense of alignment can be extremely comforting.
Summing Up
DIY investing is easy. Index funds and great interfaces at low-cost brokers have solved that problem. DIY financial planning, on the other hand, ranges from easy to very complex.
A quality financial planner helps provide you the confidence you need to make important decisions. They can also remove some of the mental load so you can focus on other things you love doing. Just don’t pay too much for the privilege!
Have you used a financial planner to assist you in making the retirement decision or at other points along your financial journey? If so, what has been the greatest benefit, or downside, of your experience?
If not, what has stopped you from engaging with a financial advisor? Do new advice-only financial planning models in contrast to traditional commissions based or assets under management models make you more likely to engage with a planner?
Let’s talk about it in the comments below….
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- Our Books
- Choose FI: Your Blueprint to Financial Independence
- Can I Retire Yet: How To Make the Biggest Financial Decision of the Rest of Your Life
- Retiring Sooner: How to Accelerate Your Financial Independence
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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to chris@caniretireyet.com. Financial planning inquiries can be sent to chris@abundowealth.com]
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Hi Jeremy,
Pay for financial advice? NO, NO, NO!
It is so easy to invest nowadays. In my opinion, there are so many low fee ETF’s and mutual funds that paying for advice is a waste of money.
Here’s my free financial advice: (I don’t want to mention any investment companies here, otherwise I’d want a commission).
1) Find a low fee target date fund or total stock market index fund.
2) Invest as much as you can.
3) Every raise you get, make sure your investing amount gets a raise too.
4) Enjoy watching your investment grow!
5) Educate yourself on withdrawal strategies. This isn’t that difficult. If you have the discipline to invest, you’ll have the discipline to educate yourself on making your investments last.
Hi KingJoey!
You’ll find no better ally in the battle against ridiculous fee for investment advice than me. AUM is a total waste of money as are high fund expense ratios.
I’m reminded of how people who are skilled at home DIY sometimes fall into the trap of assuming that home projects are easy enough that anyone could do them. But imagine someone with less interest than you who:
– invests their savings at a big bank, earning no interest
– uses mutual funds with a 0.50% ER
– doesn’t know how to execute a backdoor Roth
– didn’t know they could open a solo 401k for their 1099 income
I had such a person as a client, and it’s a conservative estimate to say that our simple advice saved that person over $10,000 this year alone with only those basic pieces of advice. Is that worth the $189/month they are paying? It’s hard to see how it isn’t.
I used to say “never” to all financial advice also. I changed my position on it after seeing there was a positive ROI way to go about the profession. Just like how many people are fine with TurboTax but some value paying a little extra for advice from a CPA, the same can be true here.
Totally agree with KingJoey. I find it so hypocritical of people denouncing the needless fees to manage one’s money except for the services they offer. I find it analogous to those advocating to tax the “rich” and then defining the rich at just above their level of income. How Abundo can rationalize those exorbitant fees is beyond me.
On a $1M portfolio, the fee is analogous to about 20 basis points. On a $2M portfolio it would be closer to 10 basis points. The typical AUM shop will be at about 150 basis points all-in between fees and active fund expense ratios (15x the Abundo fee for that $2M person).
The fee may be more than many DIYers want to pay (I get it), but I don’t agree with characterizing it as “exorbitant”. Especially because it doesn’t go up as assets go up.
I am fully FI and earn a fraction of my corporate salary doing this because I have enjoyed making a difference in an area I care about. From the inside, I can see how much it helps people who otherwise didn’t know about critical things that feel obvious to this community. I hope that comes across.
@Steve, I think you’re being a bit too harsh of Abundo fees. $499 for the first month and $189 a month going forward isn’t that expensive compared to other firms. However, to make a conclusive judgement about the price vs. the benefit to you is really looking under the hood. If they offer very superficial help then yes, I agree with you and I would KingJoey’s advice instead, but if they can help me clearly determine whether I should perform Roth Conversions or pick subsidies of ACA HC insurance or even both and implement the whole plan, then I would consider Abundo very worth their price. I am actually considering to hire a fee-only FA to review our retirement planning especially from the tax efficiency perspective, but I will wait until 2026 at least since ACA subsidies and current tax rates are supposed to sunset at the end of 2025.
Also, another concern of mine would be how really knowledgeable and experienced are the FAs at this firm. To be honest, even though Chris writes nice articles but so far he hasn’t written anything that I would want to seek his advice by paying him a fee despite him taking an expensive FP exam. It’s just very general inspirational advice and it’s cool to read sometimes for sure. If all FAs at the firm offer the same level of expertise then I’m happy to pay Bogleheads’ prices in that forum and get some serious meat to chew on. Oops, it sounds like that I’m being harsh myself right now, so I’m sorry if anyone feels offended here.
Sincere apologies, Chris, I didn’t have mean spirit by what I said above, so I hope you will not take it as an insult. I do like this blog for inspiration and especially the ME summary of other interesting articles on other blogs. I haven’t read David’s article about account security, but I’m very positive that reading his practical advice will be worth it.
@ Sandy, I respect everyone’s opinion, including for them thinking someone else’s is harsh. Even if someone needs some advice on the scenarios you reference, it doesn’t come close to justifying Abundo’s fees. Not to mention there is so much easily understood free information available.
@ Jeremy, a couple of thousand dollars needlessly spent is exorbitant to me. Because the fees are not as bad as some other ways people are charged does not make them good, just less bad. I was in the business years ago but left because of how it operates. Sorry, but as simple and easy as things are today, any iteration of the fee structure is just repackaging how an investor can waste money.
Sandy,
I want to respond to “how really knowledgable and experienced are the FAs at this firm.” I think this is a fair question and one everyone should consider before engaging with an advisor.
The Abundo team is a mix of people with industry experience and career changers. Those with experience include our founder who saw how the financial services industry traditionally worked under AUM and commissions based models and wanted to create something radically different and scale it to as many people as possible. As much as I like the advice-only model for those that need help, it is an inherently hard business model requiring consumers to pay a transparent fee compared to those that have ongoing revenue from hidden fees. Most people who are successful in the advice-only space are solo practices with limited reach. Once successful they often raise prices considerably as demand increases. Neither staying small or maximizing profitability is Abundo’s mission. This is what drew me to work with them.
We have a few advisors similar to myself and Jeremy who were career changers or in an encore career, well along their own journey to financial independence and looking to make a difference in the lives of others. We have an advisor with a PhD in psychology and recently added one who worked as a CPA. All of us either carry or are working towards CFP designations. I am extremely proud of the diversity of experiences and knowledge sets of the people on our team.
If you are seeking advice, I encourage people to understand the level of knowledge any advisor or firm brings. Know that many people who call themselves advisors have only completed a Series 7 exam which can be passed with a couple of weeks of study and enables one to sell securities. Many advisors with a lot of “experience” are experienced in the old models that are loaded with conflicts of interest. Buyer beware.
Best,
Chris
Thank you for this post. I believe the advice only advisor is an excellent way to go for DIY FI pursuers.
Thank you Jeff! Agree 100%. The high fees and conflicts of interest are just not a sustainable path for the profession, and advice-only is a simple solution to both.
During my 22 years of early retirement I’ve mostly been a self-directed investor but did use a fixed annual fee advisory firm for about 4 years, and recently paid for a one-time review from a well-known FA from the Boglehead world. I don’t regret either experience, but the business models are different from (and in my opinion likely superior to) what I see offered on the Abundo Wealth website.
In the first case I hired Evanson Asset Management, a well-known MPT/DFA advisor, who charges a fixed annual fee (around $3000 for a joint account and a couple of IRA’s) and offers a comprehensive initial evaluation and planning session and custodial management of investments (using Schwab) as well as access to DFA funds and a quarterly update on both investment performance and the state of the markets to clients for that fee.
In the second case I paid $1800 to have the FA review my overall situation, write a report with recommendations encompassing all of the areas detailed in your post (so not just portfolio recommendations), and spend two hours on the phone with me, with the possibility of paying for additional hours (@$450) should I need further advice in the future.
I prefer both of these approaches to paying $2578 the first year and $2079 per year in perpetuity to Abundo , which I see as being kind of a muddled middle ground between fixed fee and percentage of assets models. The worst situation of all is of course something like Vanguard’s Advisory Services, where the investor pays a percentage of assets to be put in a simple three or four fund portfolio they could manage themselves at a cost of 30-60 minutes a year of their time, or Schwab’s “Intelligent” portfolios that intentionally include outsized allocations to cash sitting in their sweep accounts earning next-to-nothing. As professor Edward McQuarrie recently quipped in the Wall Street Journal, “beware the law of conservation of Wall Street profit: If we’re not going to make it one way, we’ll make it in another way.”
Thanks for your comment! One time plans are an awesome advice-only model. Especially for highly competent DIYers seeking second opinions. There are a few really good providers of that service in the Boglehead community. But many people who aren’t as knowledgeable or interested (and that’s a lot of people) prefer a lot more regular accountability and check ins. That’s when the Abundo model works well. A lot of good earners who aren’t coming close to making the most of their income.
(And of course as a bigtime Boglehead I am very DIY positive for those who are fully comfortable and want to pay $0.)
Kevin,
As always, I appreciate your feedback and insights. I will push back a bit here though.
Re: Different models of advice-only financial advice. I think we agree that the advice-only model is superior to traditional compensation models for delivering financial advice. I included a link at the end of the post to the advice-only network. This is a place to find advisors who do not work under an AUM arrangement (commonly referred to as the similar sounding fee-only model) and do not sell products and receive commissions (which can be referred to as fee-based). The level of confusion and complexity in terminology in the industry makes my head want to explode!
We can agree to disagree about which subset of the advice-only model is better for most people, but for you and others the more limited engagement seems to make sense over an ongoing engagement and I support that. I’ve had a number of prospects that want only a one-time plan or portfolio review and I am happy to refer them to another advice-only advisor who fits that need/desire. At Abundo, we’re trying to scale to serve more people in this minimally conflicted, low-cost ongoing model. That is why we only offer that single model as we work to perfect this process with the households that choose to work with us.
Re: “the worst situation of all” label given to Vanguard and Schwab, I have to laugh at that comment. While I agree that there is minimal value add from these types of services, they at least will put people in low-cost portfolios and pay some level of attention to their life stage and risk tolerance.
What Jeremy didn’t highlight in this post, but what I see frequently is that the reason so many of our clients seek us out and need help is to unwind themselves from portfolios and products that they were placed in by other advisors, leaving them with high fees, inappropriate levels of risk, and often hefty tax burdens and surrender fees that need to be navigated in order to change course.
Best,
Chris
Total respect Chris and I apologize for being unduly strident. No doubt your approach benefits far more people than anything I could come up with p.
Respect back at you. I know where you’re coming from. I just think on this topic your perspective is vastly different than the average person with regards to interest, knowledge, and temperment around money.
Cheers!
Chris
I’m a DIY but worry if something happens to me, my wife and son will likely need some training wheels to take over the investments. I personally find Abundo to be a reasonable option:
1) I like the pay-per-month option. In the FAQs, it says you can cancel at any time. So if my wife and kid needs 3 months ($877) or even 1.5 years (less than $4k) to get comfortable with DIY, it’s reads like a transition plan Abundo is willing to support.
2) On an hourly basis, the prices don’t seem bad. For comparison, if you look at the fee-only advisors listed on White Coat Investor blog, those firms I looked up charge double or more per year for fixed-fee services.
3) As a private client group member at Fidelity, I access their “free” advisors. I find my advisor can be useful for validating my DIY strategy and possibly find blind spots. But a lack of personal finance investement knowledge can make you vunerable to these Fidelity or Schwab “free advisors” (e.g. steer you to certain funds that may not be as good as a comparable Vanguard one, steer you to an RIA for alternative investments and collect incentives). So having a indenpendent third person work on your behalf for a short bit of time if you are a novice may be wise.
I do worry about the qualifications of Abundo advisors. The FAQ says their main clientel are people building wealth and not older people with higher wealth and possibly more complex situations (e.g. handling alts, optimizing high dollar roth conversions and other tax optimization strategies, optmizing legacy goals, when and how to set up special needs trusts, etc). But at their entry $500 price point, I think it’s a comparativiely low cost option to try, even if it turns out to be a bad fit for my wife and kid.
Phillip,
Thanks for the thoughtful comment. See my response to Sandy above re: advisor qualifications.
Cheers!
Chris
I don’t see this as something I would use as I am interested in the financial aspects of my portfolio. I do however see this as something that could help my spouse when I am gone. She has little interest.
I think too many of the negative comments are from people that have ( or think they have ) a grasp on their portfolios and all financial knowledge
Of course you would get that demographic by default on a financial blog !!!! It’s the people that don’t read this and aren’t subscribed that need the help.
Seems like a good option for some. Just not the only option. Chris thank you for making us aware
Advice only is a nice model for a certain slice of the client pie. I was DIYer and my wife and decided to go with a flat fee only advisor with a retirement specialization credential for an ongoing relationship in retirement-its been very helpful and we consider the fees reasonable and money well spent.
Thanks for the feedback Rob.