Only you can determine if financial advice is worth paying for. The question you need to ask is what your time is worth? I use this rationale when evaluating almost everything in business and my personal life. Now, I wish I was the man’s man who was extremely handy and could fix anything. The truth is I’m not, and if I do attempt to tackle a project, you can bet it will take at least 4x longer than average. The twenty-minute YouTube video turns into a multi-hour project. My only saving grace is I do ask questions when hiring someone to understand the costs and the time involved. That’s saved me hundreds of dollars this year alone when deciding on financial advice ask questions, but also answer some questions about yourself. What value do you place on advice? Do you have an interest in managing your finances yourself? What is your hourly rate?
We’ve covered what financial advice should look like in previous posts; I’m not talking about paying for financial products from a salesperson. I’m talking about true financial planning from a fiduciary providing value. In a 2014 study by TIAA-CREF 25% of people spent two hours deciding what new TV to buy, while only 15% spent that amount of time on retirement planning. I’m not an advocate for everyone needs a financial professional if you have the time, knowledge, and consistency go for it. The truth is too many people want a lottery ticket type way of becoming wealthy. When in reality they should be implementing reasonably simple guidelines to begin. One sound resource for the medical community is The White Coat Investor. He does a fantastic job of providing insight and guidance. If you are not reading his work, I’d encourage you to.
Time is the most valuable resource we all have. If you spend 30 minutes a week working on financial planning related items, how quickly does outsourcing become the optimal decision? I mentioned consistency above, that was done very strategically. We all are emotional beings, and when the markets fall people panic. We do dumb things. When Bitcoin is charging up from $1,000 to $20,000, people chase and buy high. We do stupid things. Solid financial advice, allows you to understand that time is on your side. Solid financial advice, reminds you that while cryptoassets are revolutionary perhaps dip your toe in instead of diving head first. Solid financial advice, at times, can merely be a speed bump to remind you to slow down and think things through before making a potentially dangerous decision. Solid financial advice helps you keep those “fun coupons.”
Financial advice’s returns are generally lumpy. In the beginning, there is a significant benefit of getting organized and formulating a plan. The value then can be “forgotten” over time if the market returns are strong and there is limited volatility think 2014 through today. Again, there is often too much financial advice that is tied to investments and not planning. Yes, you can invest in the S&P and be getting fantastic returns without guidance, but that’s not financial advice. Financial advice is implementing a donor-advised fund for your charitable giving desires while converting a traditional IRA to a Roth, to help offset the taxable gains in the calendar year. Financial advice is showing you how expensive the US stock market is and reminding you that historically each time this has happened there is a reversion to the mean. Explaining that international investments will take their turn outperforming in the future, which is why we continue to own them. Financial advice is deciding on a repayment plan for student loans and understanding the long-range impacts of forgiveness and refinancing.
What is your time worth? Ask yourself honestly do you want to learn and educate yourself? What time can be spent with family, friends, and hobbies you love if you were able? Can a true financial professional do a better than you? Trading money for time, when leveraged properly is an excellent trade-off. As my business grows, I know there are high dollar projects I want to focus on which fit my specific skill-set. The areas of the firm that remain critical and I’m not as keen on I will have to outsource to leverage my time. That is how I’ll be able to grow and maintain a high-quality experience for clients. Your financial life can be no different, leverage quality advice to improve your financial health.
If you have decided to hire someone to help you, how do you make a wise decision? I promised a simple, actionable guide from the beginning. Below are the resources I’d tell anyone to utilize. Some of it might be overkill, but as I do when there is a home repair, ask the dumb questions and ask a lot of them. Be sure you clearly understand what you are getting, as you learn more about any advisor if you don’t like the responses or have a feeling of “not a fit” move on.
The first step is finding a fee-only planner. I’d make zero exceptions here. Fee-only means that an advisor is only paid from you the client. Fee-only will weed out so many of the bad apples. Namely the insurance salesperson and the investment only product person. Are their good people that aren’t fee-only? Yes, there are. I know how quickly a good salesperson can spin a web of confusion, so I’d rather avoid them from the get-go. The second step is to find a CERTIFIED FINANCIAL PLANNER ™. I’d make zero exceptions here. A CERTIFIED FINANCIAL PLANNER ™ should be par for the course and not a nice to have. CFP®’s have the basic training to construct and develop a financial plan based on providing advice. They have met a minimum standard of industry experience and knowledge. As I’ve mentioned there are CFP®’s who are not fee-only. That’s why we want the combination of a CFP® and fee-only advisor. The third step is an interview. Begin talking to these advisors, and they don’t need to be down the street. Find the best fit for you and your needs, whether they work virtually with you or down the road. Utilize the resources that the CFP® board and National Association of Personal Finance Advisors (NAPFA) have developed. The ten questions from the CFP® board are here. The checklist and questions from NAPFA are here. The fourth step is fit. Do you like them? What do they stand for? Are they open to the barrage of questions you asked? Do they know your specific industry? Can they bring industry-specific knowledge to help your business? The fifth step is execution. Can this advisor or firm execute on the vision they’ve shared with you? Whom will you be working with? Did a senior member meet with you initially, but now you are transferred to a junior member? Is the key person at the firm nearing retirement? Does that change your decision? Do they have a repeatable process both from financial planning and investment management? The sixth and most important is action. If you know financial advice can help, don’t delay and put it off. As I’ve discussed actions and behaviors are the key to growing your economic well-being. By not having that trusted partner sooner, are you going to continue to make the same mistakes? Fall farther behind? Implement the recommendations they develop for you, advice that goes on without action is worthless. The same is true for a recommendation for a patient that doesn’t follow a treatment plan. You can lead a horse to water, but you cannot make it drink. That’s why it is so critical to have quality financial advice whose recommendations are not driven by a transaction paying them.
Finally, in closing this series, we all value the quality of relationships in our lives. I know I have some of the best family and friends a person could ask for. I’m truly blessed. Financial advice is only worth it if you find value in the relationship and advice rendered. You should never be sold you need it. You either see the value in an expert who’s looking out for how they can improve your financial life or you don’t. The news never likes to highlight the financial advisor who takes care of clients, does what they say they’ll do, and never compromises on quality. We all hear about the scammers and con artists. The six steps I’ve outlined above can help you find quality advice that will grow your net worth. The key is that’s only if that’s what you are seeking.