Money Coach v. Financial Advisor
“Why should I use your services rather than a financial advisor’s?”
It’s a great question and I would answer it in two ways.
One, I actually would suggest you consider a financial advisor if your financial position is complex. Some examples would be:
- You are a high net worth individual
- You are close to retirement and are in the wealth preservation (opposed to wealth building) stage
- You own your own business
- You have complex tax or insurance considerations
Two, financial advisors and money coaches are not mutually exclusive. You could use a discount option like Clear Mind Money to get started or to course-correct your current path, and then use an advisor later in life. The strength of using a service like mine is it focuses more on the following:
- Getting started today at minimal cost
- Concentrating on the behavioral side and on the budget-level, as well as the long-term planning
- Teaching you all the key concepts so you go into this with eyes wide open, and are not simply trusting someone else with your money
- Avoiding loss of money to fees, which take a surprising toll on your portfolio
Think of Clear Mind Money as 40% investing teacher, 40% daily money management mentor, and 20% life coach. Make note that I do not manage your portfolio for you; I show you how the best minds in finance do it, which is much easier than you think (see Warren Buffett quote).
"How do you get paid, and how do financial advisors get paid?"
To truly understand people's motivations, you must understand how they get paid. I get paid a flat-rate on an hourly basis - no continuing fees. Here is how the three types of financial advisors get paid.
Assets-Under-Management (AUM) Financial Advisor - Every year, regardless of performance, a percentage is deducted from your total assets - usually around 1-2%.
Fee Only Financial Advisor - As the name implies, they charge a flat fee for creating a plan for you at a point in time. The fees vary wildly, and I've seen anywhere from $3,000 to $10,000.
Commission-based Financial Advisor - They receive money from another financial entity for selling you mutual funds, annuities, insurance, etc. The cost of the mutual funds (known as 'expense ratios') they sell tend to be high and this is deducted from your portfolio annually. Additionally, it is difficult to understand if there are conflicts of interest in these situations. Are they selling you products you actually need or products that make them the most money?
Finally, you could have an advisor who gets paid by a mix of any of the three above.
"Why should I care about all these little fees and percentages?"
Imagine you had $10,000 invested in the S&P 500 (a default investment that represents the market) since 1980. If this was allowed to grow fee-free until 2020, you would have $850,606. If all else were the exact same, but you paid 2% a year in fees, you would only have $382,585! That's right: That seemingly tiny 2% you paid every year would wipe out 55% of your final account value. 2% doesn't sound so small anymore, does it?
This is why you should pay close attention to the percentage fees from financial advisors. They are a death knell to compound interest. These fees can be explicit as a percentage of your total assets every year, or they can be hidden within mutual funds that you don't see unless you investigate. Or, as is common, you can have both!
How can you get access to the stock market's return with practically a zero percent fee ongoing? At Clear Mind Money, I will show you how.