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I Have a Financial Advisor, But …

I see them hesitantly approach me at the end of a presentation. I can feel the pause before they say it in my office. Often they seem a little embarrassed to bring up the subject. Perhaps that is because so many people have a financial advisor who is a friend or family member.  The attendee says something like: ”I have a financial advisor and I have investments, but I don't think I am getting what I should.” This turns out to be because of one or all of the following four reasons. 

(1) Fees—Fees for  401(k) plans can be as high as 4%. Some investment firms put people in products that charge relatively high fees and then charge management fees on top of that. If the investments are loaded funds (where you pay a commission percentage) you are behind on return from the outset, as you have to make up for that addition cost. A common load is 5% front-end load, so you are at –5% right away.

I have always been able to find a comparable no-load fund that performs as well as a loaded fund. But part of the load versus no-load decision is how you want to pay the advisor, which I will discuss later. Unless you are looking at a highly specialized fund that is actively trading, you should be able to find ones that are 1% and below in total annual fees. Fees have the opposite effect as compared to the exponential gain of compounding interest. Just a half percent difference can mean tens of thousands of dollars difference over 20 years. It is fair that people who deal with your money make some money, but it has to give you appropriate value.

(2) They told their advisor that they wanted safe or moderate risk investments and that is what they got. Safer usually means lower gains. There is more than one kind of risk. People tend to focus on volatility, or the value going up and down. However, that shouldn't be the primary concern for retirement funds when you are relatively far from retirement. The primary risk for retirement funds, when you are younger (arguably) is not having enough money saved at retirement. So the general advice is that when you are younger, you should be more aggressive (which usually means owning more stocks) and as you get older you shift more to less volatile investments (which often means, at least in part, more bonds).

(3) Their advisor didn't talk about goals (and they should be written down). How can they determine how to get you there without knowing where you want to be. If your goal is to retire at 55 instead of 67, then that difference will likely change your planning significantly. If the advisor doesn't talk about goals then they are selling products. They certainly  aren't providing good service.

(4) They don't talk to their financial advisors periodically. This person is making money off of your money. Have them work for it! Life events cause change, which sometimes calls for adjustments to made.  Maybe you were planning to live in your current home when you retired, but now your retirement dream is to be a nomad, moving from one country to another every few months. The advisor should educate you at every meeting unless the client has no interest in learning anything. If the advisor is managing funds, you should meet at a minimum once a year. If you are meeting a fee-only advisor once in awhile to make sure you are on track, then meeting  once a year is probably enough, unless a big change comes up (inherit money, etc.). 

When I have the conversation about client expectations regarding financial advisors, I emphasize that if you have a financial advisor, make them work for their money. And since three of the four areas I mentioned are all about communication, talk to your advisor! Make sure they are providing value to you and that they are truly helping you reach your goals. They can provide value by offering their financial expertise, sharing their knowledge, helping with decision making, and finding gaps in your planning. The value of their service in these areas can be rather subjective. If you don’t understand the value they provide, ask the advisor to explain it.

What is less subjective is when comparing fees for specific investments, comparing apples to apples. If the advisor is putting the client in investments that have higher fees for the same return as similar investments which have lower fees, then this is certainly a conversation worth having. Go talk to your financial advisor, that is why they are there.


Jerry Zeigler is a Veteran Financial Coach in San Diego, California. He is an Accredited Financial Counselor®, a 2010 FINRA Military Spouse Fellow, holds an MBA, and has extensive experience in tax and accounting. Jerry also is a 20 year Navy veteran and now is a Navy spouse currently residing in San Diego, CA. He can be reached at jzeigler@afsc.com.

The Standard

1st Quarter 2018


Thank you to this issue's contributors:

Vanessa Alanis

Rachel DeLeon

Meghan Gardner, AFC®, FFC™

Dennis Gravitt, AFC®, CFP®

Carrie Johnson, Ph.D.

Cherie Stueve, MBA CPA-Inactive AFC®

Beth Watts, AFC®

Rebecca Wiggins

Gerald Zeigler

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