I was recently attending a baby shower with some friends and I ran in to an old friend who I hadn’t seen in probably six or seven years. We did the typical “what’s new, how have you been” small talk, which inevitably leads to the question of what you’re doing in your career. I hadn’t seen him since I left the banking world, so I shared with him that I’m a financial planner now. He asked, with a bit of sarcasm, “aren’t we all financial planners”?
His question is valid, to an extent. We all have money. Some of us have a little, and some of us have a lot. And we all make decisions of what to do with it. Even if we don’t think about it, we make decisions with our money. So, you might argue that in that respect, we are all financial planners. So why would someone hire a financial planner if they are a financial planner? How much value do they actually provide, and when does it make sense to pay for that value? In a new age of transparent fees, more consumers are asking this very question (if you are getting financial advice but your fees aren’t transparent, you need to rethink how you’re paying for advice).
History Of Financial Advice
To answer that question, it’s worth rewinding the clock to look at how financial advice has evolved over time. Decades ago, the primary financial “advisor” was simply a stockbroker. Stockbrokers facilitated a transaction between a buyer and a seller, and collected a commission for doing so. Discount online brokerages made that service much less valuable, which encouraged advisors to act as stock pickers, or to be good at picking stock pickers. In other words, craft a portfolio of stocks, or craft a portfolio of mutual funds. Then, advisors could charge clients based on the size of their portfolio instead of charging to buy or sell securities on behalf of the client.
That last particular service isn’t really financial planning; it’s investment management. Investment management has real value. Vanguard, Envestnet, and Morningstar have all researched the value of having a professional manage your investments. The consensus is that a professional who manages your portfolio can add up to 3% in value relative to the size of the portfolio they manage, which outweighs the investment management fee of, say, 1.50%, or 1.00%, or whatever it may be.
Financial Planning Fees
That’s all great, and is (sort of) easy to quantify, but what about fees paid for financial planning, not investment management? It’s becoming more and more popular for advisors and financial planners (Flagstone included) to have a service offering option for people who want financial planning but don’t meet typical investment minimums, so they charge a planning fee that is unrelated to the size of someone’s investments. Remember, investment management is all about the investments – crafting a portfolio, coaching an investor through volatile markets, rebalancing a portfolio, and coming up with an appropriate mix of risk/reward. Financial planning goes far beyond that. It covers things like helping clients create and clarify financial goals, helping them get on track to meet their goals, analyzing (not selling) insurance coverage, reviewing estate plans, encouraging saving, managing behavior, helping evaluate employer benefits, managing taxes, and more.
More Than Just Money
While it’s not that difficult to list all the things we might do in the process of financial planning, it’s not as easy to define the value. I believe that it’s because much of the value is qualitative, not quantitative. Sure, there are numbers involved in the value we create, like finding ways to reduce taxes, increase savings, reduce the portion of spending that is wasteful or unfulfilling, or lower costs of insurance to name a few. But so often the value we create has more of an emotional benefit than monetary. What is the value of peace of mind that you are on track to meet your goals? Or, for that matter, knowing that you have even created goals? What is the value of enjoying how you use your money instead of feeling guilty about it? What is the value of impacting those in need around you because you were introduced to charitable giving opportunities that you wouldn’t have otherwise known about? What is the value a third party opinion when you don’t agree with your insurance agent about how much coverage you need? What is the value of accountability for your financial decisions? What is the value of big-picture clarity from what used to be complex moving parts that have always been segmented from one another? What is the value of confidence when you have a conversation with your coworkers about your new benefits package offered by your employer, and you’re the only person who isn’t confused about what you should do because you talked to your financial planner? What is the value of the security that comes from knowing that if you pass away, your spouse is in the hands of someone who knows where every investment account, insurance policy, and bank account is held, and with whom you had conversations about your purpose behind your end-of-life gifts or bequests that you identified in your will?
All of those questions are examples of conversations we have every day with our clients. It’s the purpose behind what we do, and it’s the reason we love our jobs. Now that we don’t have investment minimums, we can help anyone who wants the help of a qualified professional, sees the value we provide, and is willing to pay for that value. When it comes to how much value we provide, you’re really the only person who can answer that question, because people value those benefits differently. With transparent fees, we make it easy to see how much you pay for that value – easier than if you were paying commissions. If you ever feel like you’re not getting the value for what you’re paying, we make it as easy as we can to wrap up the relationship without any back-end hooks, charges, or fees. If you are wondering what kind of value we could provide in your situation, let us know, and we can talk with you about how we might be able to work together.