I'm in several Facebook groups that discuss retirement and taxes (I know - super exciting!), and I see a recurring theme in many of the posts by members in the group.
"My financial advisor charges 1% of my portfolio. Is he ripping me off?"
"My advisor charges 1.5%. I can save that money and manage the portfolio myself."
"You should just use a robo advisor, they only charge 0.5%," and on and on.
That all sounds reasonable on the surface but....
Why should you pay a financial advisor?
Should you focus on price alone? Or maybe should you focus on the value that an advisor actually brings to you?
What if I told you:
managing investments/portfolios is not the reason you should pay any advisor
an advisor's greatest value is keeping you from making financial mistakes from which you can't recover
without an advisor you basically stand no chance statistically from making one of those mistakes
Would that make you look at the fee differently? Maybe it's not a fee at all...maybe it's more like an insurance policy protecting one of the largest assets you own.
A true financial advisor fee is much more like an insurance policy.
Why do we buy insurance on anything? We buy insurance to protect the asset and to transfer the risk from us to the insurance company. A financial advisor fee is the same thing. It's insurance. You're transferring the risk of protecting your assets to an advisor who has the knowledge and resources to do just that.
Would you quit paying insurance on your home because it cost too much? Or would you instead shop insurance companies to find a rate you felt comfortable paying and that you felt protected your home also?
We buy insurance to protect something we own in hopes we never need to use that insurance and cheaper doesn't mean better. It means cheaper.
What does a financial advisor charge?
It depends on the type of advisor (here's my blog about that) but if you are working with a Fiduciary Financial Advisor/Planner like 80/20 Financial, they will typically charge a percent of the assets they manage for you. That fee is referred to in the industry as AUM or Assets Under Management. If they manage one million dollars for you and their fee is 1% you will pay $10,000 per year for their services. ($1,000,000 x 1% = $10,000). The industry standard is around 1% but it can be from 0.5% to 2.5%, depending on the advisor.
Is that too much money? It depends on your personal situation and how much risk you are willing to take in managing your own investments. I would ask you what is your time, money, and peace of mind worth?
Time- Does it seem likely to you that we could increase your time by at least 1% per year by managing and monitoring your retirement plan?
Money- Does it seem likely to you that we could increase your long-term investment return by at least 1% more per year than you might obtain on your own?
Peace of mind- Does it seem likely to you that we could increase your peace of mind by at least 1% per year by helping you avoid financial mistakes that you might make on your own?
As your advisor we are a walking talking insurance plan hired to protect one of the largest assets you own, your retirement nest egg. The difference is that unlike most insurance plans we protect you before a disaster strikes, not after the damage has been done.
You need a plan
A goal of retiring - without a plan - is simply a plan to run out of money. At 80/20 Financial Services we work to insure the money you need in the early years of retirement is safe and not subject to temporary market fluctuations, while at the same time putting the money you'll need in the later years of retirement in a position to receive the long term market returns necessary to provide an income that increases and outpaces inflation.
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80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). We work with clients in Missouri and throughout the United States. Being independent allows us to work exclusively for YOU.
We specialize in helping electric cooperative employees create their retirement income and investment plans. Retirement can last 20-30 years. You need a plan!
Sketch by Carl Richards-The Behavior Gap