It’s been some time since I posted my last piece, and I’ve made a promise to myself and anyone reading this to do a much better job.  A project came up giving me the opportunity to really dig into Financial Technology (FinTech) and marketing, and I jumped at the opportunity to explore first hand this area that has been a passion for me most of  my life.  Now that this is mostly finished, I’ve decided to refocus my time mapping out what I’ve learned in my 40 years as a part of the infrastructure of an industry that can be critically important to an individual’s financial well being and successful retirement.

The ending of my last post gave direction to where I wanted to take this blog:

My singular goal is to give anyone that has an interest in thinking through the decision process of how to manage their financial future, my experiences and expertise as an insider for over 30 years in the industry.   If, after thoughtful review, you decide you would benefit from professional help, I hope and believe that some of the insights I’m going to share will help you find the right professional for you, that has an organization whose purpose in life is on maintaining and perfecting the talents necessary to assist you in your journey toward financial independence.

Without a doubt this is still my goal, but with a degree of change.  Initially I wanted to chronicle the traits I’d come to value in the many advisors I’ve worked with, and that separated the great from the good and the not-so-good. However, in the last three years, there have been many new processes and technologies introduced into the planning space, and the discussion of finding a trusted advisor has expanded significantly.

As an example – One of the most critical to call into question is the compensation model.

Across today’s financial services industry it’s been a long held standard that an advisor will charge north of 1% (often approaching 2% or more), for managing our money, hopefully advising us on financial planning and retirement issues, and holding our hands through the valley of despair that strikes with regularity as the market swings up and down.  (There’s tons of stats produced by the industry that displays that the unaided investor will almost inevitably buy high and sell low, making a fraction of what the same investment would do if left alone, so this is a good thing.)

Most of us, however, don’t think about what that 1 or 1.5% really amounts to. When you consider that a family investing $500,000 using the classic model, could pay that advisor almost $100,000 over 10 years for his or her guidance, it’s very important to understand what you’re getting for this guidance!

A few years ago, other than doing it yourself, there was really few options for the average family to receive professional financial planning and asset management guidance.

But things have changed!  You aren’t likely to hear it from your financial advisor, however, since it impacts their compensation and business models.  But time and technology are bringing change.  

One example – new technologies have brought down the cost of managing money and the argument can be made that it costs almost nothing more incrementally to manage your $1,000,000 than it does your neighbor’s $500,000.  Despite this fact, in most cases you’ll pay considerably more – often twice as much!  To be fair, most fee schedules have what are known as break-points that reduce the fees somewhat as you put more money with an advisor or firm).  The question at hand, however, is why does any real increase make sense?  After all, more and more advisors either outsource the money management to a third party who charges them a small fee for managing all of the money sent their way, or they do it themselves using computer models that aggregate your $1,000,000 with your friend’s $500,000 and simply manage it as one large account.

All of the above, and much more comes down to the value equation – what do you get for the money you spend on a professional advisor?  In all honesty it may be the best $100,000 you spend over 10 years if  your advisor helps you organize your finances, works with you to do much needed planning and budgeting, and keeps on top of your money (look back at my post on what it takes to be a good money manager), with the result that your $500k grows to $800k over those 10 years, even with the fees!

There are other options now, and like most change, they are slow to come because they disrupt to fabric of the “way things have always been done.”  My goal, however, is to talk about many of the changes and their impact, both pro and con, and let the reader make an informed decision about what’s good for them.

So now we not only need to address how to find an advisor you can trust with your life savings, but what pathway you’re going to take to get to where you reach your financial goals.  Stay tuned…