hey might be nice and have a cool business card and wear comfy sweater vests, but they are probably charging you four times more than they need to for things you don’t use. Here’s how to know if you really need your friendly neighbourhood financial advisor.
Breaking up is so hard. Right? You have to say, “It’s not me, it’s you,” in a way that seems totally convincing. You have to sit and hold hands all night crying and get back together again three point five times before it really works. Unless the person you are breaking up with is a financial advisor. Then all you need to do is send a short well-worded email. She, or he, will be cool with that. This is a non-emotional person by trade! And they probably have 847 more clients anyway.
Know Why You’re Breaking Up
Now that you know it’s easy, it’s time to get to the reasons why you should break up with your advisor. Because while advisors are definitely a good call for people in certain financial situations, for a whole lot more of them the reasons to move on are more than compelling.
1. They took your retirement savings and flew to Aruba with your spouse.
Ok we’re kidding. This is probably not the reason. Unless they really did, in which case: it’s for sure the number one reason.
2. The fees are out of control.
Financial advisors tend to charge flat fees based on “assets under management,” which can be anywhere between 1%-2%. That means if you have $100,000 invested with an advisor, they might charge between $1,000 and $2,000 per year. That’s a lot. If you don’t think it’s a lot, consider this: over the course of your lifetime, an extra half a percent will likely cost you upwards of $120,000*. High fees are simply the enemy of smart investing, and it’s one thing (unlike the fluctuations of the market, for instance) you can control.
3. You don’t even know if the fees are out of control.
It’s hard to even know what you’re paying in fees. Banks, investment companies, advisors and most other entities that manage your money all seem to have different fee structures and they’re all confusing. That’s often by design. Because when you do the math (once you’ve finished your degree in math) you’ll see they’re pretty high. See rule number two.
That’s why we aim to be as transparent about fees as possible.
We asked our portfolio manager Michael Allen what to look for to see if you’re being taken for a ride. “If, after your introductory session with your financial advisor, you’re coming across fees they didn’t tell you about, that’s not a good sign,” he said. “The advisor is supposed to be protecting your money; you shouldn’t have to feel you need to protect your money from your advisor.”
4. You’re not getting any value for those extra fees.
There are basically two reasons you might want to pay higher fees in order to have a financial advisor. The first is because they’re providing services that you can’t or don’t want to do yourself. The second is that they’re there to hold your hand on demand, any time, for any emotion.
Let’s tackle the first one. The biggest reason a lot of people think a financial advisor is worth it is that they are providing superior returns. This is a fallacy. Reams of data across the history of markets prove that investors who follow a strategy of tracking the broader market have better results than investors who have someone picking and choosing stocks and other investments. (There are other, better reasons you might need a financial advisor — like that you need someone to actively ensure you’re properly covered when it comes to estate planning, insurance needs, budgeting, debt management, charitable giving and tax planning. You just need to be sure you actually need that stuff, and you’re getting it.)
If the main reason you want a financial advisor is the second reason — to always be there, on the other end of the line, to be reassuring and calming and answer every question you have when you have it, because over time you’ve actually become good friends — it might be good to have one. You just have to decide how much you’re willing to pay for that, and how much hand-holding your advisor actually does.
We hasten to note, is basically the same as a financial advisor. We design portfolios tailored to your goals and financial situation, our portfolio managers all have years of experience managing high net worth clients, you can call us to answer questions whenever you want, and we often wear nice sweater vests. We’re just a lot more efficient.
