Some financial advisors charge a lot for their advice. But how much work are they really doing for the money you’re paying?
Most good financial advisors will give you a free initial consultation. They’ll get all of your information (which could be a 6-page questionnaire or longer, if they do it right) and then you’ll sit and talk about money.
It won’t be easy, because we all know it’s easier to talk about anything (food, sex, work, politics, bullies from kindergarten) than money. But, you’ll have some sort of conversation about your assets, cash on hand, budget, and investing philosophy.
Then, the financial planner will decide whether you fit neatly into the constructs he or she has created for his or her other clients or if your needs require a few tweaks. I’d venture to say that once the plan is set up, your planner doesn’t have to spend all that much time hanging out with you or even working with you.
Sure, some clients will need more hand-holding than others. Some will want their advisor to check in with them regularly. But as one financial advisor recently put it, “I have lots of time to work on building my business.”
That’s not to say you shouldn’t work with an advisor or that the advisor isn’t worth the money you’re paying. But the idea that you pay for what you get – so the more you pay the higher your returns – is one of the big fat lies of investing.
I had a conversation with a financial planner this afternoon who has 2,000 clients and says she has created a successful business on just two-tenths of a percent of assets. In numerical terms, we’re talking .20 of a percent.
She mostly gets paid by the shared 12b-1 fees, which are marketing fees charged by every mutual fund. She takes a piece of that action, only charging when recommending Vanguard funds, because Vanguard requires it.
Is her advice – and her returns – any less stellar because she charges less? I don’t think so. Her philosophy has booked great returns for her clients for 25 years.