The Value of Financial Advice, Part I: What Am I Paying For, Exactly?
One of the most common questions from prospective clients, said or unsaid, is why does it cost so much to have a financial advisor? What does a financial advisor do for their fee? In other words, what is the value of a financial advisor and is the value so significant that it is worth paying said fee for the service?
It’s a fair question and frankly, it’s a difficult question to answer, which is why it still exists and articles just like this one continue to be written. Why is it so hard to answer? Well, because it’s difficult for financial advisors to quantify the value. If it were as easy as say, “You pay “x” fee, but I can save/earn you “y” dollars,” problem solved. Unfortunately, financial advisors can’t say that. If you find someone who is saying that, run. Run fast.
I have decided to throw my hat in the ring of the many advisors who have written on the value of having a financial advisor in your life, in the hopes that it may strike readers in the same way that I often attempt to reach them when they are clients; that is, what are the things you value in your life and let’s focus our efforts there. This is part one of a two-part series on how I consider the value of financial advice. In part one, I focus on the initial outreach and onboarding process. In part two, I focus on everything after that.
Consultation
“So, there I was…”. I had this pain just below my kneecap that I could not ice enough during the last few weeks of Officer Candidate School (OCS). For anyone who’s ever been through that kind of training environment, the last place you ever want to go is to the doc, only to be medically dropped from training and have to start all over again. So, I stuck it out and graduated, with a limp. Turns out, I had a hairline fracture in my tibia. I’m not particularly proud of that moment in my life, but the pain wasn’t worth an all-expenses paid repeat trip to the Quantico Highlands at the time. I’m sure I’m paying for it now.
Comparable to my hesitancy to see a doctor at an appropriate time, I find that a majority of people seeking financial help, come seeking a solution to a problem that has tipped the pain scale into the “worth it” stage. People’s financial pain thresholds are quite different, and how that pain is expressed I have found vary wildly. Some people are stoic, some cry, some laugh, and some get angry. Regardless, when a prospective client reaches out, my first step is to triage their problem or problems during the first consultation appointment. This probably sounds bad and sometimes it is. “The debt is too large.” “The house decision is too complex.” “The job isn’t what I thought; the income is great, but my stress isn’t.” Sometimes, people just don’t know what to do; they just “know they should be doing something with their money.” In any case, prospective clients want to be heard, know that their problems matter, and know that their problems can be solved.
During the consultation appointment, I ask questions. A LOT of questions. My goal is to understand not only the symptoms of your pain, but the underlying causes. Granted, it would be virtually impossible for me to understand that in one meeting, but at minimum, I aim to do several things
Actively listen and understand your answers.
Help you know that there is help and there are solutions.
Help you to walk away with something more than the proverbial “Here’s Motrin and change your socks” (I am not a medical professional and that is NOT a prescription or recommendation – except, please change your socks.) If I can give you some educated answers or ways to think about solving your problem, I will.
I spend the first 60-70 percent of the meeting getting to know you and your situation. I then spend a little time explaining how my services work, i.e. the rest of this article. Nowhere in the first meeting do I bring out the tool belt or the tools. It’s usually far too early to begin applying solutions. That said, when we exit the Zoom call, there are a few critical decision points here for both you as the prospective client and me as a financial professional.
Clearly, you must make a decision; is this service worth the fee? This is where the fee tension lies and why it is so difficult to answer “what do you do for your fee.” How do you attach a numerical fee to the way having a professional in your life makes you feel? What may be worth it to you could be too high a fee to someone else or vice versa. Being a financial professional, you trust that I can legally charge a fee for the practice for giving advice. That I can do math, and that I’ve got a range of tools at my disposal to help you take advantage of the benefits you’ve earned, combined with the latest tax law. But what you might not realize until you walk away from the consultation meeting is the way you feel knowing that the potential exists for someone to not only treat your immediate pain, but help you improve your financial healthspan. For the moment, you feel safe and the value you place on that is up to you.
For me as a professional and a self-identified fiduciary zealot, I also have a critical decision to make and that is to decide if I am the right person for you. Some problems require a specialist and while I’m sure I could learn how to replace an engine, my guess is that you would want someone who is experienced in that area to make the repair.
Onboarding
We’ve agreed that you think my fee is worth the value and I’ve determined that I have the experience needed to help you – awesome! Welcome to Formynder Wealth Management!
Meeting 1: The Initial Recon Meeting
The purpose of this first meeting is to understand your current financial picture. In this meeting, I take time to walk you through your client portal, answer any questions you have up to this point, and then spend as much time as we need collecting the documents I use to create a picture of your financial life as it exists today. For some clients, this is not a big deal. They know where every insurance policy, investment statement, and mortgage statement are located and can quickly get them uploaded. For other clients, this is a significant part of the stress and anxiety. Not only do they not know what documents to give, even if they did, (and you do get a checklist), they wouldn’t know where to look. On top of that, this is their financial life, a very personal and private area they don’t share with just anyone. So, I work through these anxieties with patience, care, and understanding. I use this time to screenshare and walk you through the various places to look for documents and then help you get them uploaded to your client vault for me to process. This has the potential to be a long meeting, but I have found that it can be an overwhelming process where clients have appreciated the assistance. There’s plenty of time for coffee refills and bathroom breaks! If there is anything I see where I can provide an immediate step for you to take, and perhaps address any of your concerns, I will.
Before the next meeting, I process all your given information and determine if I need anything else.
Meeting 2: The Strategic Alignment Meeting
Did I mention that I am a values-based advisor? What is that, you ask? I’m glad you asked. I find that many clients struggle with feelings of living paycheck-to-paycheck because they are not intentionally focused on the things they find most valuable in their lives. For instance, if you love to travel, do you save intentionally for it? Perhaps you’d like to, but you feel like you don’t have the money to save. When is the last time you looked at your monthly spending? Are there items on your bank or credit card statement that at the time seemed like a good idea, but now you don’t even recognize the charge? I help you identify the things that are valuable to you; your why. Some examples are time, travel, family experiences, painting, activities to stay in shape, owning a business, philanthropy, and many more. I have also found that service members often have a difficult time identifying these values because for so many years, their Service told them what they like to do. So, a part of this conversation is exploration. Finding something you don’t value is equally, if not more important, than finding something you do value. We’re not solving this in one meeting, and I certainly do not subscribe to the “one and done” theory of value identification. Evolving values are inevitable and a conversational theme throughout our relationship.
After we’ve begun to identify your values and maybe draw out some tangible goals, I get to work, taking you from the financial place you are now and creating actionable steps for you to move toward your identified values. I start with cash flow; what is your total income, where does it go, and is it aligned with your values. For this, I use a rule of thumb called the 50-30-20; no more than 50% of your income to mandatory expenses, 30% towards discretionary, and 20% towards financial priorities. I emphasize to my clients that this is a rule of thumb and not a rule of law. From my experience, however, the further out of alignment you are in these percentages, the worse you feel about your money. If any of the three categories are high, in general, clients feel paycheck-to-paycheck or that they are not saving enough. Alignment with these percentage guidelines can go a long way to reduce stress and give permission to both savers and spenders alike, to do what they naturally want to do within the bounds of their income.
I won’t go through every process in that amount of detail, but cash flow analysis is critical in that it informs everything that comes next; education and retirement planning, emergency fund and other insurance needs analysis, investment risk and needs analysis, and tax planning impacts, all aimed at achieving the thing or things you find most valuable.
Meeting 3: The Strategy to Tactics Meeting
The ceux de gras. The holy grail. The end. Ok, that might be a little dramatic and really, nothing could be further from the truth. We’re only getting started, but we must start somewhere and this is it. Long gone are the days where I plant a 400+ page “financial plan” on your desk. Sure, there might be 400 pages of data to back up your plan and perhaps you would like to dig into that at some point, which I would be happy to. In this meeting, however, I use big blue arrows taking you from where you are today to where you think you would like to be in the future. I emphasize “think” because as our lives change, so do our values and the goals we want to obtain. Hence why there is no hardcopy of this plan – it changes the moment the meeting ends. In the meantime, I present recommended courses of action to first address your pain point – the reason you reached out in the first place. Then we look at how addressing that pain point fits into your entire plan to achieve your goals and values. This is the first time you will see me use recommended solutions.
This meeting is not meant to be complex or overwhelming. It’s not there for me to show off any skills. In fact, I’d rather disappear into the fabric of the Zoom curtain as your attention is simply drawn to an assessment of where you are and a few simple and actionable steps you can take as you settle comfortably in your chair, believing that you can obtain financial freedom and contentment.
Onboarding Complete
I hope you’ve found part one of this two part series enjoyable and informative. Ultimately my goal is for service members and their families specifically, but anyone interested in finding a financial advisor, to understand a values-based approach to financial planning and whether that approach is right for them. If you have any questions or comments, I’d love to hear from you at omen@4myndr.com.
Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Read the full disclosure.