Why you don't need a financial
advisor?
A lot of people think if they
just turn their money over to
someone else to manage that
they will do better than if
they were to try to manage
their money or their
investments on their own.
While we are going to find out
if that is true or not in
today's video.
I am Tiffany Thomas,
a Financially Free
Millionaire.
If you're looking to become
one of those,
make sure and hit that like
button and hit the subscribe
button and we are going to
dive right in.
All right,
first,
let's talk about what a
financial advisor is versus a
financial planner and a
financial coach.
A financial advisor is someone
that will manage your
investments for you.
You meet with them probably
once a year,
maybe quarterly,
and they invest in products
that they have at their
company that they are
knowledgeable about,
but they don't have access to
all of the different
investments.
If you've heard of Morgan
Stanley,
Ernston Young,
even Bank of America,
they have financial advisors
there at brokerage companies
that will manage your
investments for you.
And since they only have
access to certain investment
products,
a lot of those probably have a
commission that go along with
them.
And you are paying your
financial advisor usually a 1%
fee.
It could be even higher than
that, but you pay for the advisor
and most of the time you're
going to pay extra for
investments that they put you
in. And then a financial planner
goes into your financial goals
a little bit more and they
will cover all of the
different aspects of your
financial life like estate
planning or insurance.
And also tax.
And financial planners also
charge a fee based on the
amount of money that you have
invested with them.
And a lot of them will receive
commissions on different
products that they sell to
you. So sometimes when they are
receiving commissions,
they may try to persuade you
to use certain products that
may not be in your best
interests. And going back to financial
advisors,
they could do the same thing
because they can also receive
commissions on certain
investment products.
And then a financial coach
goes over your financial goals
with you and they help you
work on improving your
financial habits.
They help you change your
behaviors and your mindset
around money.
They are not managing your
investments for you,
but some of them,
like myself,
do teach you how to invest
your money.
The goal of a financial coach
or a wealth mentor is to help
you not become dependent on
them, but to create your own
independence so that you can
manage your money yourself.
You don't have to continue to
pay someone else to manage
your money.
And financial coaches do not
sell investment products or
life insurance,
which financial planners and
advisors can do.
And just to summarize that,
financial advisors are mainly
focused on your investments,
managing your investments for
you,
charging a fee for that
service and possibly
commissions on products they
are having you invest in.
And then financial planners
have a more holistic view on
your financial life,
but they are also charging a
fee and get a commission on a
lot of products they recommend
to you.
And then a financial coach or
wealth mentor helps you
improve your behavior around
your money,
helps you to manage it better,
and some of them will help you
learn to invest that money so
that you can do it on your
own. And to give you a few examples
on different things that I've
helped my clients with,
I've helped them set up a debt
repayment plan.
I've also helped them set up a
budget and I've helped them
learn to invest in the stock
market and automate their
investing.
And if investing on your own
is something you are
interested in and getting that
automated,
I have a free masterclass
about that that I created.
I will leave a link below this
video in the description.
All right,
going back to why you don't
need a financial advisor.
If you are thinking,
well,
if I just have someone else
manage my investments for me,
then they can do a better job
at that.
I will get higher returns than
if I were to do it myself.
And that is not necessarily
the case.
Let's take a look.
Financial advisors rarely beat
the market.
Large cap fund managers,
people who could be considered
the most elite of the elite
when it comes to financial
advisors are outpaced by the s
and p 500,
a staggering 92.2%
of the time.
Over 90% of the time financial
advisors are not outperforming
the s and p 500.
Essentially,
you could be investing in an
index that follows the s and p
500 and outperform a financial
advisor.
And then also financial
advisors charge you regardless
of whether or not they make
you money.
The fees that financial
advisors charge are not based
on the returns they deliver,
but rather are based on how
much money you invest with
them. This means that even if they
end up losing the money that
you entrust them with,
you're still going to get a
bill for their services.
Not only does this system add
extra unnecessary risk and
expenses to your investment
strategy,
it also leaves little
incentive for a financial
advisor to perform well.
While they will earn more,
if they're able to grow your
wealth,
at the end of the day,
they get paid regardless.
So honestly,
they are making money whether
or not you are making money
because they are still going
to bill you.
And there are a lot of other
articles out there about that,
about financial advisors not
outperforming the S&P 500
or even the total US stock
market.
Honestly, if you just take a little bit
of time and figure out how to
invest your money,
you are most likely going to
be able to outperform the
financial advisors.
But you know what?
Let's say you do get lucky and
you find a really good
financial advisor and they do
outperform the market.
However,
once you subtract out the fees
that you are paying them,
your returns are almost always
going to be less than if you
would've just invested on your
own. And let's actually talk about
those fees for just a moment.
I want you to see how much you
are really going to be paying
a financial advisor over the
period of your investing
years.
This is from the White Coat
Investor. If you haven't checked out his
blog, make sure and do that.
He has a lot of really great
information about the fire
movement. Financial independence retire
early.
I really liked his article,
the cost of using a Financial
Advisor.
If you are thinking 1% doesn't
sound like that much since
most financial advisors charge
1% of the money that you have
invested with them.
It may not sound like that
much money,
but we are going to take a
look and see exactly how much
it really turns out to be.
In this example he gives,
he says,
let's consider a quality
advisor who charges 1% of the
portfolio a year of your
portfolio.
Let's compare him to a
do-it-yourself investor.
Those who are doing it on
their own,
who holds the same portfolio
and achieves the same after
tax return of say 5%.
Let's say they both invest
$50,000
a year for 30 years.
How much more will the
do-it-yourselfer have after 30
years?
You can see in this graph
here,
the blue is the financial
advisor and then the orange is
the do-it-yourself.
So in the beginning it's not
that much difference,
but as you go further over the
years, you can see the orange,
the do-it-yourselfer is
definitely outperforming the
financial advisor.
And here are the exact
numbers.
So at the time of retirement,
the do-it-yourselfer has
$3.48 million.
The doctor using the advisor
has only $2.9 million.
Using an advisor has cost the
doctor almost $572,000
or about 16% of his or her
retirement stash.
Divide that out by 30 years.
And we are talking about
$19,000
every single year.
There are a lot of things I
could do with $19,000
a year.
And then let's move to the
next chart that he has.
And let's say our advisor is
charging that fee,
that 1% fee still,
but now we are adding on
commissions,
the commissions they are
charging when they choose
certain products for us to
invest in.
So the advisor is fee-based,
meaning he takes that 1% and
he is selling you loaded
mutual funds.
So 5.75%
of every dollar the doctor or
the person invests,
goes to the advisor right off
the bat. Loaded funds tend to also be
high expense funds.
They have a high expense
ratio,
so let's assume they perform
about 1% worse a year than the
funds the do-it yourselfer
chooses.
Now what's the difference
after 30 years between a
fee-based advisor with
commissions versus the do-it
yourselfer?
So again,
you can see the blue is the
advisor and then the orange is
the do-it yourselfer.
You can see that in this case
there is a drastic difference
toward the end of those 30
years.
The financial advisor has cost
the doctor $1.2 million.
That's $40,000
a year.
That could be someone's salary
or about 34% of her retirement
nest egg,
34%.
And this makes the rather
weighty assumption that the
advisor never churn the
account.
If he swaps out loaded mutual
funds every couple of years,
as a lot of advisors do,
this doctor is never going to
get anywhere.
That's basically the
equivalent of paying the
advisor another 3% of your
portfolio a year.
Those are some hefty fees.
You can see how much lower the
amount ends up being when you
are using a financial advisor
that has those commission
fees.
And then there is one last
chart I want to show you.
He gives the example of paying
the advisor throughout
retirement because you may not
actually stop investing when
you do retire.
Let's take a look and see if
you keep investing with this
advisor throughout your
retirement,
say another 30 years,
let's say you need a hundred
thousand dollars a year from
your portfolio to live on
during retirement.
The doctor using the advisor
got to spend $3 million in
retirement and left his heirs
$645,000.
That doesn't sound too bad,
but in the end,
the advisor ended up with more
of the portfolio than the
person investing the money.
The advisor made
$4.35 million.
Meanwhile,
the do-it yourselfer was able
to spend that exact same
3 million and leave his heirs
a whopping $8.1 million
versus the $645,000.
Alternatively,
he could have spent twice as
much in retirement each year
and still left his heirs
$1.1 million,
almost twice the inheritance.
And again,
that orange color in the chart
is the do-it-yourselfer.
You can see how much higher,
how much more money he
actually has versus if he or
she used a financial advisor.
Honestly, now you can see that you could
end up spending millions of
dollars on a financial advisor
and realizing the financial
advisor is most likely not
going to outperform what you
could do on your own with a
little bit of education.
And if you do want help with
that education part,
make sure and watch my free
masterclass that is linked
below this video.
Comment below and tell me if
you are going to use a
financial advisor or not.
And if you found this video
helpful,
please hit that like button
and share it with someone else
who would like to hear this
information.
And to the subscribe button to
subscribe to my YouTube
channel and to the little bell
to get notified on when I post
new videos.
And if you wanna see even more
content from me,
make sure and check out the
videos on the side of the
screen. Thanks so much for watching.
I'll see you in the next
video.