How do you decide whether to get a financial advisor rather than just go it alone?
For most people hiring a financial advisor is totally unnecessary.
Why? Because financial advisors usually underperform the market index and cost you more.
In fact 86% of money managers underperform their benchmarks. 86%!
Warren buffet. John bogle and Charles Schwab all recommend average people use index funds to grow wealth as they have the most predictable outcomes.
You can also use a cam-IUL strategy to grow money when the market goes up with no risk of loss when it crashes. And you can do it all without paying a financial advisor.
How do you know whether a given advisor has experience matching your needs?
Remember financial advisors are a fancy word for stock salesperson.
Most of them are much more interested in accumulating assets under management than they are managing your money to profit you. They get paid whether you make money or not.
It’s advisable to find an advisor who has a large book of clients ‘just like you’.
You don’t want to be working with an advisor who caters to the middle class if you are extremely wealthy and vice versa.
What are the pros and cons of various compensation structures – commission, asset-based, fee-only? Which do you recommend? Why not simply ask your mutual fund company? How about the financial advice offered through your 401(k)?
A fee-based planner can be an advantage if you truly aren’t still paying a percentage of your assets under management. However often they charge high front end fees that can be prohibitive for average people to afford and you never know how well they will actually perform for you.
Counting on accurate advice from your 401k company or mutual fund broker is like asking the wolf to guard the hen house. The people who run these plans are motivated by getting more assets under management.
They usually have very little experience with real estate, private lending, or insurance backed assets for income planning. You definitely aren’t getting a well-rounded unbiased financial advice from your 401k plan administrators or mutual fund brokers.
What should you expect to spend as, say, a percentage of assets.
Anytime you are paying a percentage of assets you are hurting the compounding power of your wealth.
Take for example the difference between $100,000 compounded at 8% versus 5% over 35 years.
At 8% you have $1.48 million dollars.
At 5% you have a staggering difference of just $551,000!
That ‘little’ 3% fee just cost you a million dollars!
And who got all that growth at your expense? Wall Street and your financial adviser.
Paying any fees is undesirable, but anything over 1-1.5% is unacceptable especially if your results aren’t beating the S&P 500 index at 10%; which historically 86% of money managers never do.
Almost everyone ends up paying 2-3% between all the fees loaded into stock market investments, and most never know how to calculate how much they are paying.