Until a few weeks ago, few people outside the advisory world could tell you what a fiduciary standard is, much less why it mattered. But since April, when the Department of Labor proposed a new fiduciary standard for anyone giving retirement investment advice, the term and its impact on consumers have been the talk of the town.
As a fee-only planner and a proud member of NAPFA (the National Association of Personal Financial Advisors) and FPA (the Financial Planning Association), both leaders in promoting fiduciary standards to serve the needs of consumers, I've been dedicated to the fiduciary standard of serving in my clients' best interests my entire career. But the whole discussion has me thinking about the other attributes that define a great advisor, and why working with a professional often makes such a significant difference in the retirement outcomes for individual investors. It's true that fee-only planners receive no commissions for the products we recommend. But that's only part of the picture, and there's so much more to the story...
Many of the clients who walk in my door for the first time are couples who have hit a turning point in their finances. More often than not, one spouse has taken the lead in managing their money, and there's been a "last straw" that broke the do-it-yourself back of the couple's money management. A poor investment. A tax disaster. A layoff. The reasons are many, but the outcome is the same: they need an expert to turn things around. To begin the conversation, I ask two key questions: "When was the last time you lost sleep over money?" and "When was the last time you had a fight about money?" Inevitably, the answers I receive cut to the crux of their unique issues. The last straw if you will. And it helps me better understand their sensitivities, their goals, and, perhaps most importantly, their differences. When it comes to money, no two couples are alike, and no two couples define success in the same way. This is precisely why customized investment management is so vital to helping every investor reach his or her own financial "success."
Whether you've experienced your own “last straw” or simply want be sure your portfolio is optimized for success (however you define it), you can count on an experienced fee-only advisor to explore the following questions—questions that are often overlooked by non-fiduciaries and do-it-yourselfers alike:
1. What's the annual cost of your portfolio?
The exciting part of investing is watching your assets grow. But it's easy to forget about the small details that can eat away at that growth. Even small expenses can have a big impact on your outcome—tens of thousands of dollars worth—over the long term due to the power of compounding. A professional advisor dives into the details to be sure your nest egg is as cost efficient as possible by working to keep fund management fees, taxes, transaction fees, tax preparation costs, and other expenses to a minimum.
2. Is your portfolio tax efficient - today and post-retirement?
Taxes are typically the largest expense to anyone's savings. So even when your assets are growing nicely, if your portfolio isn’t designed to be as tax efficient as possible, it may not be climbing as high or as quickly as it could be. A professional advisor knows how to mitigate taxes within your portfolio by balancing gains and losses and carefully allocating assets (read more on this in my April 15 blog), as well as how to be sure your accounts are tax diversified so you’re paying the taxes you do pay at the optimal time, both before and after retirement.
3. Are your investments as diversified as they need to be?
Everyone talks about diversification - especially after a market crash - but few understand how to truly analyze a portfolio to ensure it's taking on the least amount of risk to accomplish the goals of the individual investor. A professional advisor not only has the knowledge and tools required to complete an in-depth analysis of all assets and holdings, but also how to synchronize that information with specific long- and short-term financial goals.
Ultimately, investment management is a field where practice may not make "perfect," but it almost always beats out applying casual knowledge and hoping for the best. It's a lot like visiting a family physician - a general practitioner with years of practice and experience treating hundreds of patients - when something goes wrong with your health. You present your symptoms and, using his or her insight and medical wisdom, your MD can usually identify the problem and prescribe a solution. And when the problem lies outside the area of general medicine, the MD has a network of trusted specialists with extensive knowledge of your ailment. You put your trust in your physician because they have in-depth knowledge, extensive training, experience-based insight, and a trusted professional network.
When it comes to your financial health, would you ask for anything less?
Need some help to address your own "last straw" and improve your financial health? Call to schedule your financial check up.