Frequently, you need to have a minimum amount of investable assets before a top-tier financial advisor will take you on as a client. That seems harsh, but financial advisors adhering to the fiduciary standard often set a percentage of your invested assets as their fee. If you don’t have a hefty amount of investable assets, the financial advisor won’t make enough from your account to stay in business.
That means there are many people who would benefit from the advice of a top-tier financial advisor, but aren't able to get it. If that describes you, here are some tips to help you work your way toward working with a financial advisor.
The first step is to understand not everyone is out to help you. There are many common sources of financial wisdom, from brokerage firms to social media. But there are two main problems with these sources.
First, you must learn, largely on your own, the difference between good and bad advice, usually without the depth of financial understanding to properly evaluate it! Second, there’s often little to no gatekeeping for the people giving that advice.
Some social media influencers routinely give terrible advice such as claiming that 0% loans aren’t really debt. Even advisors working at mass-market brokerage firms are prone to give less-than-stellar advice because they’re incentivized to sell products that make their firms money whether or not those products will yield results for the client.
A client making $40,000 per year has less ability to put money away than one making six figures, which means their advisors need to make more per transaction in order to pay their own bills. They may end up using expensive products with high commissions and fees, creating a cycle that’s very difficult to get out of.
I’ve got a list of things to think about when you’re managing your own financial planning:
Throw out the old rules!
For about twelve years, the United States had the best economy the world has ever seen. Markets soared, and it was almost child’s play to make money by investing. But that’s all changed. The coronavirus pandemic, Russia’s invasion of Ukraine and global supply chain issues have conspired to make success in the markets much more challenging.
Even so-called “safe” investments like government bonds are performing poorly now. We’re in much more treacherous waters than we’ve been in since the 80s, and even the safe harbors have storms.
Carefully consider your sources of information.
There’s a lot of free financial advice out there. Some of it is good, but a lot of it isn’t. Research the places you’re getting information from. Make sure they don’t have a reputation for giving bad advice.
A little knowledge can be dangerous.
One aspect of human behavior that’s common enough to have a name is the Dunning-Kruger effect, which says we often know just enough about a subject to not understand how little we know about it. A lot of people want to be financially savvy but don’t learn enough about finance before they start acting on what they think they know.
A great example is cryptocurrencies. People invested a lot of money in them and saw tremendous growth until they suddenly didn’t. When the crypto market crashed, it caught a lot of people by surprise because they didn’t understand market risk as well as they thought they did.
If you don’t have a financial advisor, that doesn’t mean you should never invest in anything. But it does mean you need to be particularly dedicated to learning all you can about financial planning and especially vigilant against falling into the trap of thinking you know more than you know.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.