So You Are A DIY Investor (Why a financial advisor may still be in your best interest)
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Many individuals who are on the Financial Independence/Retire Early path have had the mantra of keeping expenses as low as possible ingrained into their very fabric.
The basis point has indeed been the basis for many investors to turn to index funds and DIY investing.
Every basis point you can eliminate from your expense ratio correlates to more padding you can add to your nest egg.
Given the miraculous effect of compounding this cost cutting maneuver can indeed lead to quite a substantial infusion of extra money over the course of decades.
However there are always two sides to every coin and before you drink the Kool-Aid supporting either side, it behooves you to be as informed as possible.
I therefore welcomed the following post of why a Financial Advisor may actually be of benefit when it was offered by Trent DeBruin of MD Wealth Management:
[Disclosure: I currently have no financial relationship with MD Wealth Management]
“Why would I ever hire a financial advisor?!”
This is a common refrain for many do-it-yourselfers who tend to frequent physician finance blogs.
As financial advisors ourselves, for some of these people, our response is “you shouldn’t.”
While the decision of whether to hire an advisor is a highly individualized one, and there is no “right” answer, we thought it would provide interesting food for thought to discuss some of the reasons why a DIY investor (or any investor) would want to consider a financial advisor.
While it’s possible to learn a great deal about personal finance through books, blogs, podcasts, and other educational resources, financial advisors (at least the good ones) have formal training and education to complement their real-world experience working with clients.
While credentials abound in the financial advisor world, the CFP® designation is widely viewed as the most meaningful, and, frankly, should be table stakes when considering an advisor.
While many personal finance scenarios can be understood through self-directed education, others cannot, and it’s often difficult to know what you don’t know.
A Second Set of Eyes
The stakes are high when managing personal finances and the details matter.
Little things, such as failing to check all the required boxes when going for Public Service Loan Forgiveness, can have significant financial ramifications.
As with anything in life that requires attention to detail, it can be easy for things to fall through the cracks.
An advisor can provide you with peace of mind, knowing you have another set of eyes (professional ones, at that) watching your situation.
One of the most common reasons people hire a financial advisor is to free up time for more enjoyable life pursuits, such as work, family, volunteering, or hobbies.
As a physician, the hourly value of your time is extremely high.
Time is one of the few finite resources we have, and while there are a limited number of hours in the day, you can effectively “buy” more time by outsourcing things you don’t want to do.
While some do-it-yourselfers genuinely enjoy the process of managing their finances, others do it because they don’t like the idea of paying someone for something they can do themselves.
For such people, it’s worth considering the number of hours you spend annually learning about and managing your finances, and what the dollar value of that time is.
Accountability and Implementation
For some people, reading a blog or hearing about a new financial planning idea that could help their situation is exciting, but will they ever actually implement it?
It’s like getting motivated by the P90X infomercial; but will you ever actually buy the program and have the self-discipline to do the workouts and see it through?
When you engage in a partnership with a financial advisor, you know your financial plan will be executed and adjusted over time as necessary.
Consistency Through Life Transitions
Life is fluid and personal finance questions, challenges, and needs evolve over time.
Your financial complexity, and the demands on your time, differ depending on whether you are young and single, married with children, or retired.
While you may feel up to the task of managing a particular phase by yourself, major life transitions often bring a new wave of questions, some of which you may not feel comfortable answering on your own.
Similarly, a life transition that increases demands on your time can diminish the hours and headspace available to do everything by yourself.
A good financial advisor serves as a trusted resource to guide you through every step of the way and help you manage your changing situation as life evolves.
One of the greatest, and often underappreciated, benefits a good advisor provides is behavior management.
Humans are not wired to be good investors.
We are emotional beings who tend to swing between states of fear and greed, often making the wrong decisions at the wrong time and buying high and selling low.
A good financial advisor acts as a behavioral coach and a source of support to guide clients through the inevitable ups and downs of the market.
An advisor who prevents you from selling out at the bottom of a nasty bear market can provide enough value (both in terms of money saved and financial goals/timeline preserved) to justify his or her fee for a lifetime.
Reasons to Continue Doing It Yourself
(you really are meant to be a DIY investor)
The points outlined above don’t apply to everyone, and there are valid reasons for a do-it-yourselfer to remain a do-it-yourselfer.
Three “C’s” come to mind:
Physicians tend to be highly intelligent and capable.
With enough time and interest, they can learn and apply many of the key principles for managing personal finances, and that might be enough for them.
Some people genuinely enjoy personal finance.
If you have the competence outlined in the first C and managing your finances isn’t a chore (and in fact, you receive enjoyment from doing it), we would dissuade you from hiring an advisor.
Lastly, one of the biggest reasons is cost.
If you have the time and ability to manage your finances, and you enjoy doing it, there is little reason to spend money to hire an advisor.
When thinking about the cost side of the equation, however, it’s easy to look at the direct costs of hiring an advisor (fees paid) without considering the big picture.
It’s important to consider the full breadth of the benefits you receive (both monetary and non-monetary), as well as the opportunity cost of not hiring an advisor (adverse decisions that could have been avoided).
The decision of whether to hire a financial advisor is a very personal one and there is no “right” way.
For certain people, there is absolutely no need to hire an advisor.
For others, not enlisting outside help would be unwise.
The key is to take an inventory of yourself and what’s right for you before either deciding to continue DIY-ing it or thoughtfully select an advisor that fits your needs.
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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