Who Said You Have to be Rich to Hire a Financial Advisor?

The general public has only a vague idea of why financial advisors are important and the impact they have on our lives. They’re doing far more than providing financial advice. They’re customizing advice to meet their clients’ unique financial goals and objectives. Customized advice leads to smart investments, increased savings, and often a marked jump in disposable income, which translate to a better and stress-free lifestyle. While most consumers understand the importance of savings and smart investing—albeit often too late—they need help with organizing their finances.

A recent Gallup Poll found that two-thirds of Americans prefer saving to spending, and most need help fashioning a savings strategy that positively affects their lifestyles. But that hasn’t always been the case. Until fairly recently, most Americans were lax about financial planning, especially the baby boomer generation (1946–64). The following alarming statistics drive this point home:

1. More than 40 percent of Americans can’t afford to retire, according to a report by the American Institute of Certified Public Accountants.
2. Four of ten Americans have retirement savings of less than ten thousand dollars, and three out of ten Americans have retirement savings of less than one thousand dollars.
3. In recent years, Americans spent more than they earned.
4. Social Security provides 73 percent of the typical retiree’s income, compared with 17 percent from pensions, and 10 percent from savings and other sources.
5. Without Social Security, more than 40 percent of Americans ages sixty-five and older would live in poverty.
6. Boomers’ retirement accounts are grossly underfunded, according to a survey conducted by the Insured Retirement Institute (IRI). The IRI survey found that only 19 percent of boomers have two hundred fifty thousand dollars or more saved for retirement, while four in ten have nothing saved.

Everyone Can Benefit from an Advisor Contrary to popular opinion, everyone—regardless of savings, income or investments—can benefit from a financial advisor’s services. That’s because today’s advisors offer a robust list of services, from cash-flow planning and reducing taxes, to paying for college, to investing in specialized securities for enhanced returns. There are more than two million financial and insurance advisors in the United States. Many are generalists, while others offer specialized advice based upon clients’ needs and goals. More important than whether we’re poor or wealthy, or how good we think our investing or planning skills are, there is a local advisor who can improve our lives—not just our financial lives, but our entire lives. When we think about the totality of our lives, which encompasses our lifestyles, our family’s health and welfare, and our disposable income, our finances dictate how we live. Our finances create both opportunities and limitations. They dictate the type of neighborhoods we live in, the type of friendships we cultivate, the schools our children attend, and the type of restaurants we frequent. Our finances define our social status, and—most important—how we feel about ourselves. Most people don’t realize that financial advisors can level the playing field for everyone, especially the millions struggling to make ends meet.

Broad Spectrum of Services and Diverse Clientele

Advisors offer a smorgasbord of services that cater to clients in all income categories. The following four groups are excellent examples.

1. Garrett Planning Network
   • The Garrett Planning Network is a nationwide group of financial planners who offer reasonably priced hourly financial advice geared for the average household, with no asset minimums. Hundreds of advisors are in the network. The advisory community has lauded the network for its unique platform, which helps clients and also trains advisors to provide advice that anyone can take advantage of. While the Garrett Planning Network is well-known and highly respected in the industry and has received a significant amount of positive press, after more than fifteen years, it still doesn’t have the name recognition that it deserves among consumers. That means thousands of families are not getting the help they need.
   Sheryl Garrett has been enabling advisors to provide financial planning for middle America clients for over eighteen years. Through her Garrett Planning Network, Sheryl estimates that between ten thousand and twenty-five thousand people per year have benefitted from her group’s fee-only hourly financial planning services. Over 230 advisors are in her network, which provides a turnkey solution to teach planners on how to serve the middle market. Sheryl has been in the financial industry for thirty-one years. At the age of twenty-four, she started at IDS, the predecessor firm to Ameriprise. From there she worked at a traditional financial planning practice—that catered to affluent families—but she had a yearning for serving middle income families and decided to leave and start her own planning practice in 1998. After only two years, Sheryl had so many clients and so many referrals from other planners for her unique brand of no asset minimum and hourly planning services that she was at her personal capacity. With the support and encouragement of others in the industry she started the Garrett Planning Network. Through her years of experience, Sheryl has learned many things through serving middle market clients. She also has learned much from her network of over two hundred advisors, as they as a group heavily share knowledge across her network. For example, many times we get second opinions from another doctor when we hear a diagnosis; why not apply the same idea to financial advice? Sheryl shared that sometimes she meets investors who are under the false belief that the advice they have been getting is free and did not understand that indeed they were paying a fee, but it was through the investments recommended. She firmly believes that everyone should at least have access to an advisor at the right time, because there are consumers and/or investors that like to manage some of their own financial affairs, but want to reach out with situations they are uncomfortable with. For example, if you are not sure if the cost of your retirement account is appropriate or if you are thinking perhaps you could minimize taxes in your holdings, getting a planner to offer an opinion might make sense. When searching for an advisor, Sheryl offers that you should get everything in writing before selecting an advisor, including the all-in costs of the advice so you are clear. It’s vitally important to have a very good relationship with any potential advisor. Finally, the investor-advisor personal relationship is critically important. If you are not communicating with each other well, the best advice in the world is not helpful if the advice is not followed.
2. XY Planning Network
   • The XY Planning Network is a nationwide planning network that caters to the Generations X and Y demographic. For a reasonable retainer fee, the network offers monthly virtual advice. This technology-enabled service provides monthly budgeting and financial planning advice, which is highly desired by younger investors. I share much more about XY in my interview with their co-founder in the chapter on Millennials.
3. Foundation for Financial Planning
   • The Foundation for Financial Planning is a national nonprofit organization that offers free financial planning advice to those in need. The foundation supports dozens of local nonprofits that help disaster victims, returning military personnel, and others. Over the past year alone, tens of thousands of free financial planning hours were donated to those in need. The last chapter of this book cover pro-bono planning and advice, and also my interview with the Foundation’s CEO.
4. Financial Planning Association of New York
   • This is one of many groups around the country affiliated with the Financial Planning Association. The FPANY group provides free advice to more than twenty New York City organizations, including departments that serve battered women, the indigent, and single parents. Also, in chapter 20 I share an interview with one of the volunteer planners, as well as details on other chapters that have a pro bono effort.

Public Has Wrong Idea about Financial Advice

Sadly, most Americans know little or nothing about financial advisors. The result is that more than half of all American households have never taken advantage of financial advisors’ services. Typically, it’s because of three biases:

1. People think their finances are not complicated enough to warrant the services of an advisor.
2. They don’t know how an advisor can better their lives by changing and improving their finances.
3. They don’t think they can afford an advisor.

These three biases are incorrect. Equally important, most people don’t know how to find an advisor who can best serve them.

The Cost of Financial Advice

Most people would be surprised, even stunned, to learn that the cost of advice can almost be literally whatever our budgets allow. Someone at the poverty level, for example, can get free financial advice. Advisors Serve a Diverse Population Now that I’ve debunked the myth that advisors serve only the well-heeled, consider that there are advisors who cater to recent grads, thirty-somethings, mid-career builders, and many others. Some firms do only hourly planning and neither sells anything nor charge based on our assets. Other firms charge an annual retainer fee, and still others charge based on our total asset value. And some firms charge a commission based on the sales of products we need. The fees can be as low as two hundred dollars for a consultation all the way up to many thousands per year. These examples illustrate that the highly regulated financial advisory community is working not only to improve its image, but also to expand its services, so it caters to people in all income brackets. The important message is that the financial advisory niche has grown and changed enormously. Thirty years ago, individual investors only had two payment options: commissions or a percent of a portfolio’s value. Today, we have a raft of options to choose from.

Financial Advice Doesn’t Always Center on Investing

Clients are surprised to learn that the most impactful advice often doesn’t center on investing. Still, making the right asset allocation, and avoiding highly speculative or overly conservative stocks or fund selections is critically important. However, for many people, far more impactful financial advice decisions can improve our lives. Consider this true story. A forty-five-year-old who cancelled a life insurance policy to save 140 dollars per month wound up paying more than ten thousand dollars per year. Several years after canceling his policy, he developed a non-life-threatening cancer. Canceling the policy was a big mistake. An advisor would have urged him not to cancel his policy. In other cases, advisors have vetted investment deals or scams and prevented clients from losing significant amounts of money. Today’s advisors are trained to guide clients on practically anything to do with money or affected by money. The following sections are a brief sampling of the benefits and services that advisors provide to individuals and families.

Retirement Preparation

Retirement planning is the best-known aspect of wealth management. Every day, TV commercials are aired by advisors on ways to retire. And the government has substantive programs to help people retire. However, as any financial advisor will tell you, retirement planning and saving is not as simple as putting away a certain amount of money in an index fund and forgetting about it. Many important decisions are to be made, such as the appropriate amount to save. With hundreds of index funds to choose from, which ones yield the best results? And what type of account—IRA, 401(k), Roth IRA—best meets our needs? Employers also factor into our decision. What kind of plans do they offer? If married, have you compared plans with your spouse? What do you estimate your expenses will be when you retire? What quality of life will meet your needs? When the layers are peeled back, the depth of the issue is astounding.

Post-Retirement Needs

Once you are retired, life is very different for reasons that are not obvious. For openers, how much of your retirement money is safe to spend each year? Is it the 4 percent many experts write about or is it a different number? Inflation and cost of living affect this number. The last thing you want to do is outlive your money. However, you also want to enjoy your retirement, if in fact you can afford to retire. How do Social Security rules affect your retirement? I doubt that you want to grope through the highly technical two-hundred-plus-page books written about Social Security and how to take advantage of all the current rules. Advisors take this depressing chore off our hands.

Insurance Needs

Insurance is one of the hardest wealth topics to deal with because it’s not only complicated, it’s also emotional—far more so than any other aspect of wealth management. We don’t like to talk, or even think, about our death. And we don’t like thinking about getting ill, yet both are inevitable. And if we don’t plan for these eventualities, our lives and those of our loved ones may be devastated. Being properly insured for the unexpected is more important than beating the S&P. An insurance advisor will explain what is needed given our lifestyles and future plans.

Investing Needs

Most, but not all, advisors provide guidance on which securities offer the best short- and long-term returns. When it comes to investing, there are many decisions to be made and thousands of securities from which to choose. Advisors can choose a group of mutual funds, or select individual stocks and bonds, or both. They can also set up what is called a Separate Account, which is managed by other advisors who only manage money. There are thousands of Separate Account providers. Financial advisors can replace Separate Account providers much like selecting and replacing funds, stocks, or alternative investments, such as hedge funds, private equity, venture capital investments, and options, normally bought and sold by wealthy investors who can afford the risk these investments carry. Generalist advisors provide advice on all the above, and others specialize in providing one service, such as the following.

Cash-Flow Needs

Advisors who offer financial-planning services or wealth management services analyze our cash flow. By evaluating what we spend our money on every month, they can suggest areas for savings. Most important, they educate their clients on what our money can do for us if saved or invested. For many Americans, this service is critical, because as a consumer culture, the pressure to spend for immediate gratification is irresistible. For many, the urge to spend money on things we want but don’t need lies somewhere between obsession and addiction. An advisor can objectively advise us about where we’re spending needlessly and what it is costing us.

Helping People with Small or No Investment Portfolios

If we have no stocks, bonds, or mutual funds, or if we have a tiny retirement fund, we’re likely to think a financial advisor’s services are unaffordable. But just the opposite is true. We need an advisor more than someone with a one-million-dollar portfolio. The reason is that every decision we make about spending, savings, education, careers, insurance, food, and so on, means more to us than to someone with an established nest egg. Financial planning is the service we need. A financial plan to achieve our goals looks at all these issues. Financial planners ask us questions we never thought of. Their candid advice helps us achieve those goals.

Those with Significant Portfolios

Many people with large portfolios know that plenty of financial advisors would love to manage their accounts. But they question whether they need them, which is a mistake. Advisors can provide services they’re not aware of. For example, complex tax issues need to be understood if one is to maximize one’s portfolios. Advisors provide advice on all aspects of investing, such as active versus passive investing, and the right mix of stocks and bonds, taking into consideration interest rates and retirement goals.

Those with Low Incomes

Either a flat-fee financial planner or free financial help from one of the nonprofits mentioned in this book makes the most sense. Low income earners could benefit from financial guidance about all things impacted by money, such as budgeting, insurance, and retirement planning.

Those with High Incomes

Because they have much to protect, quality insurance advice is essential. If you are single and a high earner, disability insurance should be a top priority in case you become ill. If married, both disability and life insurance are needed because you have dependents to protect. With high incomes come tax and budgeting complications to consider. High earners are constantly being pitched by brokers selling every conceivable investment opportunity under the sun. Advisors gate-keep these opportunities and vet them for their clients. Being highly successful in our careers does not automatically equate to being adept at investing. Very often, it’s just the opposite, as many of Bernie Madoff’s victims discovered.

Business Owners Whose Primary Asset Is Their Businesses

Many business owners have all their wealth tied up in their businesses. Most of American wealth is created by small businesses. Business owners have unique needs and challenges. Because they work sixty to eighty or more hours per week, they don’t have the time to deal with personal finance issues. Decisions made at the business level concerning taxes, health benefits, family issues, and investing in the business for expansion, affect business owners and their families. Savvy business owners realize their limitations, especially when it comes to making critical decisions that affect both their businesses and their families. They hire advisors who specialize in working with small-business owners. Advisors help them with complicated issues concerning retirement, succession planning, and selling the business, for example—as well as divisive internal problems, such as hiring and firing relatives.

Inheritances, Giving and Receiving

Who wouldn’t want to be left a hefty portfolio of blue chip stocks by a rich uncle? Or be in a position to leave the family farm after it was passed from one generation to the next for close to a century? However, rarely do these events take place without enormous work and stress. If you are fortunate enough to be in this position, there is much to consider. Of course, minimizing taxes is a top priority. But practically managing money is an emotionally charged issue that often drives families apart and hurdles business owners into bankruptcy. Few people can handle sudden wealth. Fewer still can deal with the stresses and tensions of their families lining up for their wealth, or of creating fair mechanisms to divide an estate after death. For example, one story I refer to centers around a woman who was one of many family members that inherited the family’s blueberry farm in New England. The original owner happened to be an attorney who created a trust so that duties and responsibilities for managing the farm were clearly outlined for future generations. But the trust was set up with insufficient detail, failing to account for family members saddled with responsibilities that they did not want or were incapable of handling. A gift bestowed with good intentions turned out to be a mixed blessing.

So you see, everyone, regardless of income and assets, can benefit from an advisor. Just as we all would do well to have an annual medical checkup, we could benefit from an advisor to guide us on all things financial. It’s a smart decision that can improve our lives and give us peace of mind in the bargain. It’s a no-brainer decision because we have nothing to lose and everything to gain.