The decision to hire an advisor to help with your financial planning isn’t a step I recommend lightly. I’ve been lucky: over 16 years of practice I was hired mostly for good reasons, although some others were….not so much.
Most people don’t need a financial advisor.
I’d tell individuals before they hired me that 90 percent of what I did, they could do themselves. My job was to guide them through sometimes stormy financial waters. As a bonus, I’d save them time and money by already knowing tricks they could probably find online. My staff would fill out annoying paperwork, and we had access to the best professionals in related fields. If you needed good advice, I either could provide it or knew how to find it fast.
In fact, at some points I was more of a concierge than a financial advisor….while most of my contacts were finance-related, I knew good babysitters and how to get a table at the top restaurants in town!
Here are five good reasons to hire a financial advisor:
1) You don’t have time.
I worked with many successful people who could have easily completed their plans alone. Most of my clients were engineers or executives working for Microsoft and Chrysler. These were intelligent people (often financially savvy, too).
They recognized that they needed a good plan drafted that they could examine and sign off on. They also needed someone to facilitate the legwork. It had to be someone knowledgeable who had their back. They needed to be able to review everything on a plane or between meetings.
2) You aren’t going to look at the stuff yourself.
Some of my clients were smart people, but in completely different areas. I had a client who was a very well-known artist. He needed to be forced to have consistent meetings about his meetings. Without me, he wouldn’t ever review how he was doing.
3) You don’t want a full financial education.
This type of client would sometimes frustrate me, but I had a large number of them as clients. Different from my artist and executive clients who were generally well educated, financially savvy people, these clients would just rather pay me to do it.
These clients were very happy to meet with me and talk financial planning. They’d listen and nod. I was pretty sure that they were getting the basics about what we were talking about. I tried to keep it entertaining, because I knew they hated being in my office.
Some were looking for the concierge treatment. For those people, we had client dinners, good coffee in the lobby and occasionally went to sporting events or concerts. They didn’t care about how the money was managed, as long as it was done with as little input on their end as possible.
These clients sometimes scared me, because if things went wrong, they had no idea why and didn’t want to learn from anyone but me. If this sounds like you, it’s better to hire a good advisor than wreck your financial ship because nobody’s at the helm.
4) You want a smart coach in your corner…
…to steer your plan in the right direction.
Some of my clients I knew were only going to be with me for a short time. My job was to educate them how to do it themselves. Some advisors won’t do this. I was happy to help. I liked talking strategy anyway, so if I had a willing client who was coachable, I’d take them through the process. As a bonus, I handled most of the annoying parts (like filling out Roth IRA forms) because they were paying me a fee. It wasn’t why they wanted me as an advisor, but it was definitely icing on the cake.
5) You want an ally to point out flaws in your strategy.
This was probably my least profitable type of relationship, but the one I appreciated the most. I had a few Do It Yourself investors who already had a complete strategy and just wanted to hire me for a couple of hours a year so they could tell me their strategy. I always had questions, then feedback, and nearly always, adjustments I’d recommend.
One client, Paul, said he specifically hired me because our philosophies clashed and he wanted to make sure his strategy looked good from the other point of view. He thought about his plan so often that he usually had a winning approach, even though I definitely would have rarely completed the plan the way he did.
There are a couple of important reasons NOT to hire an advisor:
1) You want someone to do it for you.
There’s a subtle difference between this person and the one in #3 above. The person in #3 was happy to meet with me every few months and talk about money. They wanted some small amount of “here’s why we’re doing this.”
Then there’s the person who just wanted “take this cash and make it work.”
I care about my former clients. I never can care about your money more than you do. I’m the money babysitter, you’re the parent. Act the part.
2) You want to day trade with a partner.
I had two clients who could never get through their skull that I was very happy that they day traded…but leave me out of it.
Initially we’d separate the portfolio into two sections: the “long term investment” portion, that I’d help steer, and then the “play money” portion that they’d day trade. I’d make clear that they were on their own with the play money account.
Invariably, these two clients would call in a panic and tell me that Jim Cramer had just said something on television and they needed to sell…but what did I think first? Should they sell? Should the go contrarian and buy more? Could I look up some charts for them? Maybe call a couple fund managers and ask their opinion off the record?
No thank you.
The math on my practice worked this way: 150 families, all of whom paid for and should demand my attention.
If I met with each client on average 3 times per year for an hour and a half, that meant 675 hours of meetings. Additionally, I’d call each client twice a year minimum and talk for 20 minutes (assuming there weren’t urgent financial events afoot or you hadn’t called me first). That was another 50 hours.
We won’t even approach all of the emails I sent or returned daily. Remember that I mentioned Microsoft employees? Those people love email.
After 10 hours of preparation time a week and 10 hours of strategy/internal and analysis time (not to mention any marketing we were doing), that left 30 hours for client meetings. After holidays, I worked about 48 weeks a year.
Where was I going to find time to day trade your account?
That’s my story. Now it’s your turn: have you interviewed advisors? How did the meeting go? What did you like/didn’t like about their approach?
Dr Dean says
I would love to hear my advisers unbiased opinion on where I fell in your list.
We meet once a year formally and then on the phone or brief meeting if something weird or unusual is going on. After 7 or 8 years he is finally getting used to my sense of humor. I have forced him into buying a small position in gold, have pushed him into some of my favorites like Berkshire. He has done a good job managing the bond portion which I have very little interest in. He has done a pretty good job satisfying my partner and I who come from a completely different end of the investment spectrum…from a risk tolerance and financial knowledge. We are managing a pension plan, so we do have to be careful.
We’ve added some real estate over the past year and have been adding some to our BRIC exposure during this drop in valuation there.
Average Joe says
When we talk in person, I’ll tell you the quote one advisor gave me about working with physicians….you’ll laugh, but this isn’t the forum.
I’m curious who’s idea it was to add the real estate and BRIC exposure, yours or the advisors? It sounds like the type of thing I’d be doing right now with the right client. Round out the portfolio and buy low all wrapped into one….
I love all of your points! Being a financial advisor myself, I’m of the belief that everybody needs to have one!
What I’ve found is that most people assume that they cost A LOT more than they really do. It’s so important to have a planner and to know how much you need to be saving to reach retirement.
…if only people cared…
Average Joe says
Jason – I went back and italicized “need” in the phrase “most people don’t NEED a financial advisor.” Ultimately, I agree with Suze Orman: your money is important enough that you should make decisions yourself.
That said, you and I live in the real world, with jobs, families, school, and other commitments. Although there may not be a “need” for everyone, I totally agree with you….most people will hopefully read my list and say, “you know, if I could get someone like that guy….it would definitely speed up the process.” And on your point…speed it up so much that people make the fee back many times over because they’re able to make so many more good decisions instead of wasting it on looking every point up on the internet….
…and by the way, I totally care. As the guy on Entourage says, “let’s hug it out, b%%ch” 😉
I won’t say that EVERYBODY “needs” an advisor. But most people do. Most people are ignorant, broke, and have the financial knowledge of a 7th grader.
Most people have no idea what they’re doing when it comes to investing (or budgeting or living on less than they make). I agree that everybody should have knowledge and know how things work and why/what they’re invested in. You should never just trust somebody because they’re an “advisor.” That’s why it’s important to find somebody that teaches instead of sells.
Hugging it out…
SB @ FPR says
Wonderful insight in to a financial planner’s work life. My job does also require me to spend most of the time in meetings and calls. Its frustrating.
Elizabeth @ Broke Professionals says
When we interviewed advisors, we were looking for someone who could not only give us financial advice but legal advice – ie, setting up a trust, estate planning – as well. I could have handled the financial stuff on my own, but not the legal stuff!
Sometimes I just think that it is best to invest your money in the safest instruments and that’s it, but then again, what is really safe these days? For me, the Fiancial Advisor is a partner that knows what he’s talking about, so that we can partner-up and make together a sound investment strategy…
I love bad reason number 2. It’s funny because people tend to think since you are a financial advisory you will day trade or be on the hot stocks. no no no.. I don’t do that. I’m longterm baby.. you can keep the quickies
Stephen W says
This article truly speaks to me because my advisor handles all of my long term investments and I have a online trading account that I basically use to lose money….I mean, day trade. My advisor, Keith Steidle, is top notch. He has steered my business and personal accounts over the rough years very well. I am so happy to have him handling the long term investments.