Do People Really Need Financial Advisors?

In today's episode, Mike lays out the case for the DIY investor, and also the benefits of working with a licensed financial professional. What kind of research can you do on your own? What does a licensed financial professional know, and have access to that you don't? Do you have a plan that's answering the questions that you may not know to ask? 

Text your questions to 913-363-1234.

Request Your Wealth Analysis by going to www.yourwealthanalysis.com.

What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.

Mike: 00:06

Welcome to how to retire on time, a show that answers your questions about retirement, income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional. Which means when it comes to financial topics, we can pretty much cover it all.

Mike: 00:34

Now that said, please remember this is just a show. Everything you hear should be considered informational only as in this is not financial advice. If you want financial advice, then request your wealth analysis by going to www.yourwealthanalysis.com. That's www.yourwealthanalysis.com. Doesn't cost you a dime to start exploring your lifestyle and legacy potential with someone from my team here at Kedric.

Mike: 01:00

Now with me today, part of my team, one of my colleagues, mister David Frandsen is joining me. David, thanks for being here today.

David: 01:05

Yeah. Glad to be here.

Mike: 01:06

Now David's gonna be representing you. He's gonna be reading your questions, and I'm gonna do my best to answer them. So you can send those questions in right now or really anytime, but right now especially. Just text them in 913-363-1234. That's 913-363-1234, or you can email them in hey mike at how to retire on time.com.

Mike: 01:29

That's hey mike at how to retire on time.com. Let's begin.

David: 01:35

Hey, Mike. I recently heard your show, and it sounded like you are willing to admit things that others won't. So I wanted to submit yeah. You like that? I wanted to submit a question to see what would happen.

David: 01:46

Alright. Let's test. Dip the toe in the water

Mike: 01:48

here. Yeah. I'm I'm at the edge of my seat now. This is gonna be fun.

David: 01:51

I don't mean to sound rude, but here it is.

Mike: 01:54

That's like saying no offense, but

David: 01:57

Yeah. Brace yourself, Mike.

Mike: 01:58

Alright. Let's let's see. What did they say?

David: 01:59

Do people really need financial advisers? I have one, and I'm considering leaving him because he doesn't seem to do anything. I've Yeah. Alright. I've held the same mutual funds for years, but for some reason, I keep paying him money.

David: 02:14

I think I can buy those mutual funds of my own. What am I missing?

Mike: 02:19

Alright. This is gonna be fun. Yeah. For all those listing, turn up the volume.

Mike: 02:24

You're gonna get the the unfiltered response. So in the seventies, you couldn't really buy a stock on your own. You had to go through a licensed professional, and in the eighties, you know, computers weren't really a thing. And if you want to invest in the market or place a trade, it was very difficult to do. You had to work through professionals.

Mike: 02:44

The commissions were insane, and all sorts of things were just happening then. Today, you could do more research about the market and have access to more trades and trade faster than ever before than the seventies professional. I mean, look at Robinhood and Acorns and all of these apps that are out there. Look at the Vanguard, Fidelity, Schwab, all these custodians that have built massive businesses to give consumers research. You've got all sorts of analytical tools out there.

Mike: 03:18

You've got Coifin, which is a wonderful one, Morningstar, which is a wonderful resource to research mutual funds. So the answer is probably not. I mean, if if your if your intention is to just buy and hold, and there's really nothing moving, then, no, I I don't know. I I wrote an article, actually, a couple of years ago, that said how a comprehensive financial plan could replace your advisor and save you money. So that that is absolutely true.

Mike: 03:51

About 20% of the people, if I had to guess, that I work with are DIY investors. They want to invest on their own. They want to manage their assets. It gives them purpose. They're in control.

Mike: 04:05

Many of them have trust issues, And frankly, I don't blame them with the the garbage that happens in the financial services industry. But the the thing that I would be very cautious actually, before I say that, the thing that to be cautious of is to understand what your strategy is. Why are you doing what you're doing? If you can't answer that, then maybe you just have the wrong professional. So let me let me just break this down real quick.

Mike: 04:37

If you're paying a financial professional, it's to do something. That's the most fundamental thing. And if they're a financial professional that believes in a very passive relative return approach, relative return theory says that you buy the indexes and hold them. And that's Vanguard's model, John Vogel, the, the founder of Vanguard believed in that. He he has all sorts of statistics that say you can't beat the market.

Mike: 05:03

So if that is your investment philosophy and it's just buy and hold, and you're good to go, then I don't see any reason why you would need to buy and hold and have a finance professional just oversee it. It seems like a participation award, especially if you're buying and holding actively managed mutual funds. You're paying them a fee, and you're paying a financial advisor a fee in some sense to say, yeah. It's a good fund. It's kinda like a participation award.

Mike: 05:32

It does make sense to me. So that's pretty harsh. I recognize that. But why would you pay a financial professional? I'm in a compromised position right now.

Mike: 05:45

I'm a financial professional. K? Yeah. I want to speak as plainly and clearly as possible, and I want you to challenge me and say that makes sense or nope. That's biased.

Mike: 05:56

Okay? If you are to pay a financial professional, in my mind, one option is they're actively trading in your account. So for example, we have our models. Our models trade stocks. They're based on price action, momentum, the Petrovsky score, all sorts of data points that come in that run a model that looks for ways to get rid of positions that have a low probability of growth and focus on where the growth potential actually is.

Mike: 06:24

This is called absolute return theory. Look it up. Look at the Yale endowment. They do it that way. But that makes sense.

Mike: 06:31

If you're paying someone to actively manage, then you're not paying a mutual fund fee and a manager. You're paying just one fee for an actively managed custom portfolio to you. That makes sense if you want actively managed assets. If you don't want actively managed assets, that's fine. So that's the first one.

Mike: 06:49

The second one is do you pay a financial professional for planning advice? It is a minefield of nuance and regulation and twists and turns when it comes to retirement. When you're working, it's easy. You work, you pay your taxes, and you save money. But when you retire, it becomes incredibly complicated.

Mike: 07:13

And there's something that you need to be aware of. And that's not just this person, but all people. It's called the Dunning Kruger effect. It's a psychological phenomenon that basically suggests those who lack experience overcompensate on their abilities. They have an artificial confidence or an inflated confidence on their abilities because they don't know the right questions to ask.

Mike: 07:37

Think of it this way. You can't solve problems you don't know exist. Let me just give you an example. Many people believe the markets just trend upward and if you hold long enough that you'll be fine. Okay.

Mike: 07:52

There's some truth to that. But did you also know that the markets can go flat for 10 plus years? It happened in 2000. It happened in 1965. Happened in 19/06.

Mike: 08:04

If a flat market cycle were to happen and you were to retire, it could destroy your entire retirement, especially if you're buying and holding. Relative returns don't do well in flat market cycles. Look up those years. Look up the market in the mid eighties and on and 2 1,000 and on. If you're not growing, then what are you doing?

Mike: 08:24

That's why we use absolute return models. That's why we use principal guaranteed accounts to hedge against this. But if you didn't know this was a reality, you never would have solved for it. So that's why I wrote that article, how a comprehensive financial plan could replace your advisor and save you money. It's possible to learn how to fish.

Mike: 08:44

It's possible to learn these things, but you need a specialist, someone with experience, to dive deep in the details, to find problems within your plan and or portfolio, and then help you solve them. It's just most are unwilling to teach people how to fish because many financial advisors want a codependent relationship with you. I'm okay either way, frankly. You you can say, hey, let's do an analysis. And then from there, you could say, yeah, I want a relationship where you manage some of all of my assets.

Mike: 09:14

Fine. Or no. I just wanna pay for the plan. You pay a flat rate for the plan. And then maybe every now and then you come in for a checkup.

Mike: 09:23

That's okay too. But the the reality is, do you need a financial adviser or not? Maybe, maybe not. If you want actively traded models, a fee makes sense. If you're buying and holding and it just kinda sits there, it may not make sense.

Mike: 09:38

Do you have a plan that's answering the questions that you may not even know to ask? That's another reason why you might hire a financial advisor, or a tax professional. An insurance agent alone, this is my interpretation of compliance and regulations, they're not really supposed to go into complex or comprehensive tax planning. They're not really supposed to do a financial plan. They're not really supposed to do all these other they're really only supposed to say, does this product make sense or not, and only sell insurance products.

Mike: 10:13

So make sure that you're working with someone that's licensed in insurance tax and investments so they can have that holistic and comprehensive conversation. The third thing, this is the third reason why you might work with a financial advisor. Just my opinion, any financial professional listening is probably getting really upset, but this is the truth, is that a retail investor, that's the average person, cannot get access to everything on their own. Just like a medical professional has to approve certain medications, you can't buy Adderall on the on the shelf. You can't buy, OxyContin or, you know, all these intense drugs.

Mike: 10:59

The doctors are there to kind of safeguard from people from buying them. Financial professionals are licensed and supposed to do extensive suitability to make sure that if you're buying something that requires a license, that it's suitable for you. And there's 2 kind of areas with that. The first one is on the insurance side. Insurance agents are supposed to make sure that an annuity or life insurance or, any insurance product, long term care, all of that, is suitable for you or not.

Mike: 11:32

My problem, though, is if you work with an insurance agent only person, it's really hard to prove suitability. That's my opinion. Because you can rationalize anything. You said you wanted this, so I just gave it to you. Well, did you challenge it?

Mike: 11:48

Did you say, okay, you're asking me for long term care insurance. Here is a an asset based long term care insurance policy. Based on this illustration, if you were to need, and I'm just using the example, if you were to need long term care insurance within the next 10 years, this policy financially probably makes sense. If you don't need this policy and your assets grow at, let's say, you know, I'll just give an assumed rate, whatever that is, then it would have been better to self insure. So which risk are you willing to take?

Mike: 12:19

Do you wanna protect the next 10 years for peace of mind, or do you wanna risk it? Do you wanna self insure? Could you self insure? What does that look like? I do not see those conversations happening.

Mike: 12:32

I do not see people breaking down the break even between these insurance policies. Insurance companies don't make risk because you're getting money from them. They make money because you don't qualify. The numbers are in their favor. You have to be the exception to the rule for insurance policies to make sense.

Mike: 12:51

That's what insurance is. It's transferring risk to an insurance company. So doing suitability in some sense on your overall comprehensive and holistic plan, because everything is affected by every decision, it's all connected, I believe is somewhat problematic. Because the conversation we just had, I have found is not happening. The other thing is on the security side.

Mike: 13:15

If you want private equity, private debt, more sophisticated investments, you have to go through a licensed investment advisor. If you want a Delaware statutory trust or a qualified opportunity zone because you sold your real estate and you wanna defer taxes into a DST or you wanna minimize taxes through a QOZ, you have to go through a financial professional. If you want privately held REITs, real estate investment trusts, you have to go through a financial professional. And you need to go through one that also is doing their due diligence, so one that also understands taxes because that's a tax planning issue, to get the good stuff. And when I said the good stuff, the more sophisticated investments that may create more efficiencies for you.

Mike: 13:57

So to answer your question, based on what you're experiencing right now, you probably don't need that financial professional. You probably could just buy those mutual funds, whatever they are, on your own through Robinhood or a Schwab account or a Vanguard account or whatever you wanna clear, so whatever custodian you want. But my goodness, there are many benefits of working with a financial professional when they're licensed across the board and they do their due diligence. I'm just sorry to say that you probably haven't had that experience yet. Find someone.

Mike: 14:32

And when you look for financial professionals, it's not about who's gonna promise you the highest returns. It's which professional is going to give you the benefits and detriments and the breakeven. Which professional is going to explain things to you? Which professional is gonna spend the time exploring the options with you? Because when you can find a professional that's able to have that relationship based on mutual trust and respect and operate as a consultant and not a salesperson selling a specific product.

Mike: 15:02

The experience can be so much better.

David: 15:06

Sounds like you're describing a fiduciary?

Mike: 15:09

No. The DOL keeps changing the term of a fiduciary. And, technically, even insurance agents only can temporarily be a fiduciary. Don't let that be your basis.

Mike: 15:20

You've got to dig a little bit deeper to really understand that. My belief is if you've asked someone, are you insurance license? They say yes. Are you securities license? And they say yes.

Mike: 15:30

And then say, can you file my taxes? If they say yes to all 3, that's the start of a good conversation. And then you got to see, do they know what they're talking about? Ask really hard questions. Even if you don't understand the question you're asking, ask it anyway.

Mike: 15:45

Just see if they squirm or if they give you a straight, clear, and concise answer.

David: 15:50

That's interesting.

Mike: 15:50

That's the way to go. And if you wanna put us in the pool for dating, give us a call. You can text analysis to 913-363-1234. That's analysis to 913-363-1234. We'll give you 2 60 minute meetings to run through your analysis, answer your questions, and we'll determine if it's right or not.

Mike: 16:10

We're interviewing you just as much as you're interviewing us. And if it's a fit, great. If it's not, no problem. But give us a shot. Try other people.

Mike: 16:18

Shop around. This is your money. It's not theirs, so protect it. Remember, plan efficient portfolios. You've gotta have a comprehensive plan, lifestyle and legacy plan, with comprehensive strategies for efficiencies for this all to work.

Mike: 16:33

It's so important. You can also go to www.yourwealthanalysis.com. That's www.yourwealthanalysis.com For a complimentary analysis, request that today. Now that's all the time we have for today. If you want more tips about retirement, income, taxes, social security, healthcare, and more, make sure you subscribe to this show.

Mike: 16:53

Wherever you get your podcasts, just search for how to retire on time. Also, you can catch this show via our 24/7 digital broadcast by going to www.retireontimeradio.com. You can stream various episodes on your phone while you're on the go, in the car, or wherever you are on a run. Just go to www.retireontimeradio.com. From everyone here at Kedrick Studios, thank you for spending your time, your most precious asset, with us today.