Is a Financial Advisor Worth it? 3 Things to Know

June 1, 2023

There are many people you shouldn’t trust with your hard-earned money. So how do you know who to trust?

After all, choosing the wrong advisor can lead to years of wasted efforts and potentially bad advice. Today we are discussing three things to know, before hiring a financial advisor.

Is a Financial Advisor Worth it? 3 Things to Know

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Full transcript:

SPEAKERS

Alex Okugawa & Anthony Saffer

Alex Okugawa 0:00
There are a lot of people you shouldn’t trust with your hard-earned money. So how do you know who to trust, after all, choosing the wrong advisor can lead to years of wasted efforts and potentially lost money. So today, we’re going to talk about three things you need to know before hiring a financial advisor.

Hey there, it’s Alex and Anthony from One Degree Advisors, and we help you gain confidence in your retirement. Hiring a financial advisor can be a pretty big deal. I mean, you’re trusting someone with a large portion of your nest egg, which can be critical to the success that you have in retirement. So it’s not necessarily something that you should be taking lightly. Now, there are plenty of people who should not and do not hire a financial advisor. But let’s talk about some cases where and certain specific factors of when it does make sense to reach out to a qualified professional to say, Hey, can you help me with, you know, XYZ area?

Anthony Saffer 1:01
Yeah, often people will look for an advisor when they have big decisions coming up. So you may have a transition that’s taking place or a milestone, maybe it’s retirement, getting married, spouse passes away, could be a divorce, sending a kid to college, all these types of things tend to foster that idea of having someone to delegate to.

Alex Okugawa 1:23
So again, the first thing is looking at, well, what situation am I in right now. But the second thing you really need to know is when you’re evaluating a financial advisor, is understanding how this advisor that you’re looking at is being compensated.

Anthony Saffer 1:39
Yeah, so often people don’t know how they’re paying an advisor if they’re already working with somebody. And people charge in all different kinds of ways. So even when we use the term advisor, it’s somewhat loose, because there can be financial professionals. And they operate in all different kinds of ways and get charged in different ways.

Alex Okugawa 1:56
And there are some, let’s start with, you know, one of the common ways that advisors could be compensated, and that’s in the form of commissions.

Anthony Saffer 2:03
Yeah, and this is often for transactions that are taking place. So you really shouldn’t expect that you’re going to get ongoing advice when it’s really related to transacting on a specific product.

Alex Okugawa 2:15
Yeah, and those are the things that you can like, ask the adviser, you know, how do you get paid. And if they say, well, it’s XYZ, or if I sell a product, again, that’s a good indication that they’re typically paid via commission, nothing necessarily inherently wrong with that compensation model, but you need to understand the incentive structure. I’d say the other way, you know, some advisors will choose to get paid like a fee for a service model. So sometimes you can have advisors that will say, you know, I’m going to charge a flat fee every single year, or they might charge like an hourly rate. Oftentimes, this can be one of the cheaper alternatives, or the cheaper ways to get advice, especially if you’re someone who’s more of like a do-it-yourself investor, where you want to kind of come in, give this advisor a certain set of circumstances or objectives that you’re trying to accomplish, have them analyze the situation, they can give you some advice, and then you’re on your way, you know, doing it on your own. And then that way, again, you’re not necessarily in a long-term relationship, because that’s probably not what you were looking for in the first place.

Anthony Saffer 3:20
Yeah, oftentimes, that’s more of like a second opinion, you can certainly get some planning and some direction some steps to take.

Alex Okugawa 3:26
Yep. So I’d say the other option is what’s called assets under management, and financial planning fees. And so assets under management often which means the investment advisor will be managing assets for you. And they typically charge a percentage of those assets every single year, in many cases that can range from 1% to 2%, to 3%, it really depends on how that advisor has structured their business. But typically, in a relationship like this, there tends to be and I say tends to be because this is not always the case, tends to be a more in-depth relationship. So that is more of like an ongoing relationship where the advisor is meeting with you, or at least they should be often throughout the year reviewing several things to make sure that your financial plan and your investments are all aligned and working in unison. And the thing to note about this relationship is it is typically more expensive than the hourly or the more consultative relationship, which is the second one we talked about. Because again, it’s more focused on that ongoing relationship. Rather than, you know, hey, you typically come to me with one specific problem. And then I send you on your way with a solution but you have to go implement it yourself and then you and then you come back if you have another problem.

Anthony Saffer 4:47
Yeah, and we think it’s really important to work with an independent fiduciary advisor. This is someone that puts your best interests first. And oftentimes this does align with a planner or advisor that’s really going to dive deep on investment planning, tax planning, putting projections together for retirement to say, okay is my income sustainable through the years and this type of in-depth planning tends to be a very personal approach. And in a lot of ways, an advisor like this is maybe going to work with, say, 60 to 100 clients. And so it becomes very personal. If you’re looking for that type of relationship, where you’re not just a number, but someone that knows you deeply on the financial end, this is probably the way to go.

Alex Okugawa 5:30
So again, recapping those either commission, a flat fee or hourly or assets under management with planning fees. With different structures, one is not necessarily always better than the other, you have to look at the individual what services is this advisor providing to me? What value am I going to get at our get out of this? This leads me to the third and final point here. Which is our the value in the benefits that I’m going to receive from this relationship? Are they going to outweigh or be greater than the costs? And in many ways, this is the ultimate factor to determine if working with a financial advisor is worth it or not.

Anthony Saffer 6:09
Yeah what’s the advisor doing for you, you do need to ask, and oftentimes, upfront, that advisors should be talking to you about not only what are they going to do, but even starting to give examples of how we can build strategies to be able to help, are they going to be able to look at Roth conversions and help you with Social Security and Medicare and these types of things.

Alex Okugawa 6:27
They have a plan to meet with you regularly to make sure that you’re on track and you’re not having to be the one to reach out be like, hey, when’s the last time we met? I mean, I don’t know if I’m still on track or not.

Anthony Saffer 6:37
Right, and by the way, any advisor is not going to know everything or be a specialist everywhere. But can they coordinate the plan and then also align with other professionals on your team to help you get that specialized advice.

Alex Okugawa 6:49
Yeah. And we’ve talked a lot about financial planning subjects. And the truth is, investment management is a big part of this. In many ways, it’s a very important part that sometimes, you know, people think is an afterthought, but it really isn’t. It needs to be very stressed and make sure that you have a good solid investment plan in place. Yeah, absolutely.

Anthony Saffer 7:09
Yeah, absolutely, and so when we ask the question, is it worth the cost? And everybody has to make that decision for themselves. I mean, you have to look at it and say, with my objectives, are they aligned with what this particular advisor can give me? Everyone is not the same, you have to be able to ask those questions and find out. Vanguard did a really good study that they talked about the value of an advisor, someone that really looks comprehensively, and it’s super tough to quantify. So I don’t know how accurate it is really, but they really quantified the benefit as about a 3% return added on. Now, again, everyone’s situation is going to be very different. And so that can be a little bit difficult to quantify, but it does maybe give you some idea when you look at the depth of what an advisor can provide. Absolutely.

Alex Okugawa 7:51
Absolutely. And again, as we go through this video, these are all good things to know these are things that again, you should know before even considering hiring a financial advisor. Hopefully, it makes you more equipped before you begin to have those conversations with a potential adviser. But the truth is, you could interview 10 different financial advisors. And they could give you very similar things that they do, right? Well, yes, I do Roth conversions. And yes, I can manage your investments. And yes, I will do this. The truth is that you know because every financial advisor is different. There are specific traits that we personally believe that you should be looking for in a financial advisor that are separate from the services that they provide. And we posted a video called for financial advisor traits to look for, folks can watch that.

Once again, this is Alex Okugawa with One Degree Advisors and if you enjoy today’s video, please like and subscribe for more. It helps us reach more retirees so that we can help them retire with confidence. We also created a guide called Five retirement mistakes to Avoid these are five of the most critical mistakes that we find most retirees make that can prevent them from having a successful retirement. Again, this is a free guide. It’s our gift to you. You can download that for free in the description below.

Transcribed by https://otter.ai

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures