Do You Really Need a Financial Advisor? Here’s How to Know

[00:00:00] Jonathan DeYoe: Depending on your interest level and the complexity of your personal finances, you can experience enormous value working with a human advisor.

[00:00:06] You hear me often talk about how when you ask people what. The risks to their investments are they talk about how volatility is the risk. Well, if you avoid volatility, then you are falling prey to inflation risk. To avoid volatility, you subject your portfolio to more inflation risks. So there’s trade-offs to be made in risk if financial advisor can help you sort of thread the needle of those trade-offs.

[00:00:31] Intro: Do you think money takes up more life space than it should? On this show, we discuss with and share stories from artists, authors, entrepreneurs, and advisors about how they mindfully minimize the time and energies Spent thinking about money. Join your host, Jonathan DeYoe, and learn how to put money in its place and get more out of [00:01:00] life.

[00:01:05] Jonathan DeYoe: Hi there. Welcome back to the Mindful Money Podcast. I am your host, Jonathan DeYoe. As we approach the end of 2024, I wanna talk about one of the big changes to the podcast for the next year, for 2025, and I want to just put a little gratitude out into the world

[00:01:20] starting in 2025. You’re gonna hear more from me personally.

[00:01:24] I’m still gonna interview some great people, but I intend to spend about half the time just talking to the mic and offer you my own thinking on a lot of different things. This starts with today and a couple weeks from now. We’re gonna repeat the process before the end of the year, and I’m gonna pepper in my own thoughts between interviews throughout 2025, and then at the end of next year, I’m gonna ask what you think. Do you like the format? Do I have the balance right? Would you like more of me? Or a return to more interviews? This isn’t an ego thing for me. It’s a, it’s a function of, of being unable to find people to talk about things who aren’t primarily trying to [00:02:00] sell a product or service of their own.

[00:02:01] I’ve got opinions on stuff. I wanna share those opinions. With you. And, , since we’ve sort of crested that a hundred episode threshold, I’m getting more and more and more people wanted to be guests and they have their own brand, but they’re really selling insurance or some kind of a private placement real estate product or something they want to claim as unique but isn’t, isn’t really at all unique.

[00:02:25] And I’ve, I’ve had to say no to hundreds of guests because they’re just people selling stuff and we’re not really about that. If you’ve been a newsletter subscriber for the last 20 plus years, you know my two big goals. First, and perhaps most importantly, I’m gonna provide access to excellent information that borders on advice without being advice, because regulators frown on calling it advice when we don’t know somebody’s personal situation.

[00:02:49] This is completely reasonable. And from time to time, sort of the linguistic contortions we have to go through to avoid giving advice gets a little silly. This is [00:03:00] why I really like our private membership program, I get to be a little bit more raw and direct when it isn’t for broad public consumption, as is the newsletter and the podcast, which are both are free.

[00:03:11] Second, I wanna be one of the forces that pushes my industry to enhance services to continue to earn your business. The reason I merged my firm into EP Wealth, well, one of the reasons is that they are one of the only firms I know that continue to do this well. They admit. Wholeheartedly that if advice is limited to portfolio management, it’s hard to justify the fees.

[00:03:35] The traditional asset management industry charges, if you are paying the usual 1% fee or more, and all they do is select securities manager money, then you are overpaying. This is supported by research at Vanguard and Morningstar and Russell. But since I’ve joined EP Wealth, we have continued to add services for appropriate clients.

[00:03:57] We do in depth financial [00:04:00] planning. We do tax planning, we do tax compliance. We actually coordinate the doing of your taxes with our partner firms. We do estate planning. We actually coordinate and pay for your four core documents and reviewing those documents every three years. And we have trust services.

[00:04:16] These are all new services since I’ve joined the firm and there’s more coming. If you’ve got a complex financial life, ep Wealth does amazing. Integrated and proactive work, and I’d be happy to introduce you to a great advisor if you’re looking or if you just want a second opinion. If you’ve listened to this podcast or just been reading the newsletter for a few years, you probably know my third goal.

[00:04:39] I always want to remember my brother and make this a small part of his legacy in the process. To really know what I’m talking about here, especially if you haven’t heard these before. Go back and listen to episode zero and episode 15 of the podcast.

[00:04:55] The reason this podcast launched was to honor something that my brother and I were going [00:05:00] to do together before he died in June of 2021.

[00:05:04] We started a company, Workers Financial in 2004, 20 years ago, to provide financial information and services to the 50% of folks on the lowest part of the socioeconomic scale. That’s why we called it Workers Financial. We wanted to teach and support people who didn’t have access. . This was the first goal we just talked about above.

[00:05:26] And then, you know, our lives got in the way. We were both working full-time for other companies. You know, shortly after launch, each of us had our first child. , his first son was born. My son was born, and we ended up mothballing the idea for a bit, but we just kept on talking. In March of 2021, he vested in his last shares of the company he was working for, , card.com and he was charting the path to separation so he could come on board to be the CEO of Mindful Money back when we were a full service financial planning and investment management firm.

[00:05:58] And we were going to finally [00:06:00] pursue this goal we’ve been talking about for 17 years. We were gonna combine his knowledge of technology to scale my knowledge of personal finance and teach support, impact hundreds of thousands of people and families. And three months later, he was caught in a riptide and drowned just south of Santa Cruz, California at Watsonville Beach.

[00:06:22] He was my first and best friend. And the newsletter and the podcast are both designed to carry out this thing we were going to do together provide low cost, in this case, free access to quality information to people who don’t have access or don’t simply don’t know who to trust. Mindful Money is a heart-focused and mission-based organization.

[00:06:42] It is well and truly the high point of my professional career in financial services. You, my listeners and readers are the very best work friends I have ever had, and I’m so grateful and appreciative of everything you’ve given me over these last three years, 20 years in the industry, [00:07:00] three years since I started the podcast.

[00:07:02] All the support, the great questions, the, the feedback, the warmth, the friendship. I could not ask for a better community of people. , and I appreciate you so very much. This is my brother’s legacy and I appreciate your part in supporting me in my brother’s legacy. The fact that you all read the newsletter and listen to the podcast means you’ve probably heard me say some of the things I want to talk about today before I’ve said this lots of times.

[00:07:28] There are really only about 15 things I say, and I say those 15 things over and over and over and over again. Sometimes I say it’s 13, sometimes it’s 10. There’s just a short list of things that I say and I end up saying these things a lot. The context within which I say these things is ever changing.

[00:07:44] Markets and economies constantly change, but the lessons of what we need to do as humans engaged in this personal financial, , process, these lessons are true and they’re simple. And if you’ve been listening. You may be able to [00:08:00] summarize two, maybe five of them, but likely not all 15. My goal in time is that each of you embraces all 15.

[00:08:07] And you know what I might say about a thing before I say it.

[00:08:11] With that today’s topic, how do you decide whether you want an advisor or not? And if you do, what kind of advisor would be best for you? When we’re all very little, all of our worldly possessions fit into a box, and as we grow up, we acquire more things and we need more boxes.

[00:08:29] As we complete our educations and launch our careers, we begin to march towards ever increasing complexity in our personal finances, and we continue to need more boxes. At some point, you may wonder whether it may be time to hire a financial advisor, and in the very next moment you probably wonder who you could hire that you can trust.

[00:08:49] I. And in the very next moment, you may wonder if it’s worth the cost. today is our quick and dirty attempt to help you answer these questions.

[00:08:59] Financial [00:09:00] advisors do lots of different things. They could help you create a vision for your life and set goals that make sense. They can help you plan your spending and manage your debt.

[00:09:11] They might be able to help you with health and long-term planning. Long-term care planning most will help you with retirement income planning. Some can help you with your estate and your philanthropic planning. A few will walk you through the complexity of your employee benefits. Some will help you build and manage, , a portfolio or portfolios.

[00:09:32] Some like me even offer mindfulness classes because they help you stay the course , when it gets hard, which is inevitable. There are lots of different kinds of financial advice out there, and the key is knowing what you want and need. So you have to ask yourself a short series of questions.

[00:09:51] Can I manage my personal finances on my own? Do I have the ability and the knowledge? Second, do I want [00:10:00] to manage them on my own? Do I have the time and desire? Third, do I wanna do it all, or it’s just a part of it that interests me. Fourth, if I need help, what specific help do I want to need? Is it planning?

[00:10:16] Is it taxes? Is it portfolio design? Is it security selection? Is it, you know, , building portfolios? , fifth will I want someone to talk with When investments are more volatile than I expected, when I get scared or when I get excited, I. Sixth, do I want a person or am I comfortable working with technology?

[00:10:36] Once you’ve answered these questions, we hope this guide will help you decide exactly what kind of financial advice would work best for you. So there are lots of advice options out there. There’s nothing wrong with wanting to be your own financial advisor. This isn’t rocket science or brain surgery.

[00:10:51] There are three simple decisions. These three things, if you do them right, will get you 90% of the way there. The three things that [00:11:00] we write about these on the blog, and I think we’ve done podcast episodes about these as well. The three things are your savings rate, your equity allocation, and your withdrawal rate.

[00:11:11] So your savings rate is the percentage of your income you commit to saving. And then once your emergency fund is all filled, you commit that same percentage to investing. Your equity allocation is the percentage of your portfolio you commit to owning the great companies of the US and the world. What I talk about a lot here on this podcast and in my blog, and third, is your withdrawal rate.

[00:11:36] You know when you retire and start drawing from your portfolio. How much as a percentage is the cap on how much you’re gonna withdraw from your portfolio? Now, if you get these, . Three things, right? The rest of your more detailed and complex decisions will barely move the needle.

[00:11:53] These three things will determine your long-term outcomes. So these are the three places to sort of focus and [00:12:00] get right. First. I. Still it’s best to go into this with eyes open. Managing a lifetime of finances will generally require time and effort. It might require your attention at very inconvenient times, and as things get more complex, there will be optimizations that require specialized knowledge.

[00:12:19] For Do-it-Yourselfers. I wrote two books and I’d highly recommend them. The first one was about financial planning. It’s entitled Mindful Money Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend. , again, this is a simple path to creating your own financial plan.

[00:12:35] The second book is Mindful Investing, right? Focus, better Outcome, greater Wellbeing, which is a simplified path to investing your own money. How do I keep it really, really simple so I can manage it myself? You can also opt for kind of a hybrid approach, combining some technology like a digital advisor, which we’ll talk about in a second, and or a digital planning tool, and then supplement it with an hourly paid planner or the Mindful Money membership.

[00:13:00] [00:13:00]

[00:13:00] Jonathan DeYoe: So what is a digital advisor? A digital advisor is just what the name suggests. It’s investment management that matches a pre-designed portfolio based on your scored answers to a risk tolerance and time horizon questionnaire with an algorithm, given that there’s little customization or human interaction, most digital advisors charge a lower annual management fee than a human advisor might charge.

[00:13:27] digital advisor algorithms are based on modern portfolio theory. a strategy that, , allocates between asset classes in your portfolio rather than considering individual securities. And most digital advisors use low cost, stock and bond exchange traded funds to build your portfolio. Some also provide services like rebalancing and tax loss harvesting.

[00:13:49] Now we designed the mindful money membership. To be a decision support system for those who are either doing it themselves or using any of the well-known digital advisor platforms, [00:14:00] Schwab, Vanguard, betterment, Wealthfront. We have a variety of financial education courses, and when it’s time to start implementing, we offer group coaching through our monthly maintenance and ignore the noise sessions.

[00:14:12] I hope you’ll join us or. You could actually choose to work with a human advisor. Now, it’s true that many human advisors also use, , modern portfolio theory, MPT as a starting point when giving advice. But advice can be tailored to your situation if there’s a human involved, and it isn’t limited to portfolio design.

[00:14:31] All those things we talked about at the top can be included in advice when you have a human. Morningstar research suggests that a human advisor can add gamma factors to retirement planning and. By focusing on financial planning, withdrawal rate adjustments, tax efficiency, and some annuity purchase decisions, a good financial advisor can help you generate, you know, up to 20% higher income in retirement.

[00:14:58] Now, if you’re curious about [00:15:00] this, don’t have to take my word for it, just Google Morningstar Gamma, and you’ll get some more information on it. Vanguard is another source of great information or great research on, , the benefits of a human advisor. And, and Vanguard’s, you know, probably the best place for do it yourselfers, but it’s also a place where they actually suggest there’s a benefit to advisors and their research suggests similar dramatic benefits from hiring an advisor.

[00:15:24] Vanguard focuses on planning and behavioral psychology rather than trying to beat the market. Advisors in Vanguard study add 3%. To average annual net returns for clients, though they caution, , that these benefits come concentrated in periods of sort of heightened excitement and anxiety in markets.

[00:15:44] Now, if you wanna get more depth on this research, Google Vanguard and value of advice, and you’ll find everything that Vanguard has on this topic. So that’s the upside is there could be a benefit. The downside involving a human advisor is more expensive. It can still be worth it. Depending on your interest level and the [00:16:00] complexity of your personal finances, you can experience enormous value working with a human advisor.

[00:16:05] I’ve done this for, , almost 30 years now. I love this work. I love working with people, and most people stay with me year after year after year. We have like a 99% client retention rate and 99% of our new clients come from referrals from old clients. So it’s something that people value, human financial advisors can help with.

[00:16:24] All the issues related to personal finances and money management, such as financial planning, like a financial advisor should help you think through and prioritize different goals. , determine a spending and a savings plan, build an appropriate asset allocation, and help you consider and manage all the different kinds of risks out there.

[00:16:44] You hear me often talk about how when you ask people what. The risks to their investments are they talk about how volatility is the risk. Well, if you avoid volatility, then you are falling prey to inflation risk. To avoid volatility, you [00:17:00] subject your portfolio to more inflation risks. So there’s trade-offs to be made in risk if financial advisor can help you sort of thread the needle of those trade-offs.

[00:17:09] They also offer behavioral coaching, so. I’ve been doing this again 30 years., what I’ve learned is investing is emotional. A good financial advisor coaches you through, investing through heightened emotions. Oftentimes, it’s a well-placed. Don’t do that from someone you trust that has the best chance of saving us from ourselves.

[00:17:31] Your advisor can maintain emotional detachment when you can’t. That’s why lots of advisors actually have advisors themselves. they can do portfolio management. So in addition to planning and providing a roadmap, some advisors engage in portfolio management. They create appropriate asset allocations.

[00:17:47] They will select securities. They will manage all the contributions and withdrawals and control rebalance frequencies. And then some do wealth management. Some advisors will help you manage all aspects of your wealth, not [00:18:00] just your planning and portfolio. Wealth managers provide you with continuous guidance, help you consider.

[00:18:05] Legacy, , make all the aspects of your financial world work together as necessary. They may integrate other topics like your tax professionals, , your estate planning professionals and business advisors. My team at EP Wealth spends all day every day working on client concerns and finding ways to help our clients reach their goals.

[00:18:24] Improve their returns, educate their kids, create retirement incomes. They can’t outlive, save money on taxes and ultimately take care of their families now and across generations. If you’re curious about what it would be like to work with us, , just I’d have you click on the reach out button on the top of the Mindful Money website so you can DIY.

[00:18:47] You can use digital advisors or especially have a more complex situation. You can hire a human advisor often. , you can find ways to blend these three in ways that suit you the best. Now if you do decide it’s time [00:19:00] for human advisor, I wanted to end this podcast with the 10 questions you want to ask a potential advisor.

[00:19:06] So once you’ve asked people, you know, , for referrals, , you wanna have somebody that knows somebody you know, right? So you’re gonna ask people you know, that you trust, that are sort of in a similar financial circumstance that, that you’re in. You’re gonna ask them for who they work with. And once you have, hopefully at least.

[00:19:21] Two potential advisors to interview. You’re gonna wanna ask them these 10 questions to determine which is the best fit for your needs. As you do these interviews, you’re gonna become more familiar with the arena and more comfortable about making the decision. So don’t short the process. Here’s the 10 questions you’re gonna ask.

[00:19:38] First, this is the most important question. Are you a fiduciary? One way to reduce the chance, and this is the thing that most people are concerned about when they hire an advisor. One way to reduce the chance you’re going to end up with a financial advisor who has too many conflicts of interest is to look for a fiduciary.[00:20:00]

[00:20:00] A fiduciary, while they may have conflicts of interests, is legally required to put your interests above their own. it’s really important that you’re hiring a fiduciary when you’re looking for a financial, , advisor. Two, what are your credentials? You gotta find out if your financial advisor holds any specific credentials.

[00:20:18] Is the firm they work with, for example, a registered investment advisor or a bank or a broker. You can also get you find out about their personal designations, like are they a certified financial planner or a CFP? Are they chartered financial analysts? , CFA. Are they a chartered financial consultant?

[00:20:36] CHFC. Are they a chartered private wealth advisor? CPWA. Are they a certified investment management analyst or CIMA? Are they an accredited investment fiduciary, a IF? These are all designations that come with different education and experience requirements. Additionally, these designations are awarded by third party organizations that also require ethical [00:21:00] behavior.

[00:21:00] Find out what credentials your potential advisor has and then double check to ensure their designation is up to date outside of the, designations, I listed again C-F-P-C-F-A. C-H-F-C-C-P-W-A-C-I-M-A-N-A-I-F. There’s not many that are worth much, you know, maybe A-C-P-A-I should have put that one on the list as well.

[00:21:28] So, third, what type of experience do you have? So in addition to knowing how long an advisor has been working with individual and family group clients, you also wanna know what type of expertise they have. Do they have specialized knowledge, for example, about small business planning or estate planning or insurance?

[00:21:47] The essential question, do they have experience working with people like me? Fourth, do you have disciplinary actions on your record if if you can find out about disciplinary actions, if any, [00:22:00] many firms might have items to disclose, particularly regarding client suits for damages.

[00:22:04] Some can be serious enough to require another choice, but some may not be. Here’s a paragraph from the SEC’s website that might, , highlight one of the things you wanna think about. An easy way to check out an investment professional is to use the free search tool , available on investor.gov, which will direct you to the SEC’s Investment Advisor Public disclosure website.

[00:22:29] That’s the IAPD website. You can also visit the IAPD website directly, , through FINRA’s Broker Check program and or your state securities regulator.

[00:22:43] Fifth, how are you paid? You want to find out what fees are charged as well as if there are commissions involved. While a fee-based financial advisor can be a good choice. If you’re just starting out, you might feel more comfortable with an advisor who’s only compensation comes from you, the client. [00:23:00] This is a fee-only advisor. You want to know how fees are charged , , when they’re considered, if it’s quarterly, if it’s annually, , if it’s in advance or in arrears. You want to know how high the percentage is. you want to know if there’s any additional fees , you know, built into the, , tools that you’re using.

[00:23:18] you want to know if there’s any additional fees paid that the advisor receives for specific products. These are the kind of questions you want to ask if you’re talking about the fees. Sixth,

[00:23:29] how do you report investment performance? Now, a lot of financial advisors will tout a track record, determine if the numbers they’re reporting are the result of an audit.

[00:23:40] , performance claims should be met with a great deal of skepticism. You gotta ask to find out if their performance reports are gross or net of fees. Net of fees is more pertinent. , to your likely outcomes. Also, find out if their planning assumptions are net of fees. This should be obvious, but many plans assume no feeds because makes the [00:24:00] plan look better.

[00:24:01] But you gotta be a little bit wary of this. , if you have a 1% fee that’s not included in your costs, well that should be withdrawn, right? And you gotta be able to see that. Seven, what services does my fee include? So find out how your fees are charged, when and what you can expect. See discussions about the fees we just talked about above.

[00:24:19] , , and then how they arrived at and how they’re charged. But in addition to this. What other services are provided within the fee? Like do you get to update your plan for the same fee or is there a new fee to update the plan? Is there family financial education services that are part of the fee or is that something additional?

[00:24:34] Or is it offered at all? Does the fee include all your one-on-one meetings with your advisor? , if there are education events or other events, is that included in the fee or is there gonna be an extra charge for that? You really wanna understand the fees and you wanna understand what services you’re getting for those fees.

[00:24:52] Eighth, what is your investing philosophy? Ask how they make investment decisions. [00:25:00] Do they take a growth or a value approach or a core approach? Do they rebalance? I. When do they rebalance? What’s that decision process like? What type of investments do they use? Are they all us or do they invest internationally?

[00:25:13] If so, where do they market time or do they hold cash or are their portfolios a hundred percent invested all the time? I. say this here. There’s gonna be people that disagree with me. You wanna stay away from market timers or anyone that tells you they can predict a future relative performance of different investments.

[00:25:30] At best, these folks are delusional. At worst, they know it can’t be done and they’re lying to you. Nine. You wanna know where they keep your assets. So you gotta ask ’em, where do you keep my assets? Find out where your assets are housed. , you might use the word custodied as they say in the trade. Most financial advisors are gonna use third party custodians such as Schwab or Fidelity, or Pershing.

[00:25:52] The custodians issue your statements. Are responsible for your assets. You’re giving the advisor , the ability to transact business [00:26:00] on your behalf at the custodian. Also, you should be able to log in to view your accounts and monitor, , both the activity and the performance. You really want your assets to be held by an entity separate from your advisor.

[00:26:14] It’s an important check and balance. 10. This is important. How often will we meet? Find out how often you’re gonna meet, whether there’s an annual review, when they suggest that you make portfolio changes, , or plan changes, ask whether you’re gonna have access to them in between meetings and whether or what sorts of educational opportunities your advisor might provide.

[00:26:39] The bottom line, there’s a lot that goes into creating and managing a long-term financial and investment plan. You can do it yourself or you can get the help of others, digital or human advisors. It doesn’t matter what direction you choose to go. It’s the consistency of process and continuous mindfulness of your plan that will ultimately get you there.[00:27:00]

[00:27:00] There will come a time I. Probably a lot of times when your plan will be tested, where it will appear to not be working anymore, and where the world will be screaming at you that your process isn’t working and you must change immediately, or you will surely fall behind and never reach your stated goals.

[00:27:16] In the vast majority of cases, you will need to stand fast on your plan and keep your faith in the process. If you can do this yourself, , you’re in a good place. If you need help, admit it, and you’ll end up in a better place. So figure out what you’re going to need and what works best for you and use that to guide your decisions.

[00:27:33] If you want to hear any more about the above, let me know. , I’d be happy to help you figure out which path is right for you. I wanna say thank you very much for listening. I look forward to next week’s podcast interview with Ed Vargo and the following week I wanna talk more to you about how to tell whether the advisor you have is a good one.

[00:27:50] Or not. There’s 10 or 12 signs. If you haven’t, please, subscribe and share the Mindful Money Podcast and review us at [00:28:00] ratethispodcast.com/mindfulmoney. And tune in next week to the Mindful Money Podcast.

[00:28:03] Outro: Thanks for listening. Full show notes for each episode, which includes a summary, key takeaways, quotes, and any resources mentioned are available at Mindful Money. Be sure to follow and subscribe wherever you listen to your favorite podcast. And if you’re enjoying the content and getting value from these episodes, please leave us a rating and review ratethispodcast.com/mindfulmoney. We’ll be sure to read those out on future episodes.