Should I Use A Financial Advisor?

NO!

Unless you have at least $100,000 in assets, it is my personal opinion that you should not even waste your time with a financial advisor! If you’re in the same or similar position as me, managing your finances comes down to these simple lessons:


Don’t waste your time and money on a financial advisor.


  1. Refinance your student loan debt to as low of a rate as possible.
  2. Maximize your contributions to your retirement plans.
  3. Save enough money to cover 3-6 months of living expenses.
  4. Save for a house (if buying a home is your thing) or just save in general.

If you can manage your salary to cover these aforementioned expenses and you STILL have money left over, alright, maybe then you ought to consider a financial advisor. However, I’m fairly positive that most of us, at this stage in our careers, are just beginning our journey towards what we hope to be financial independence.


What exactly is a financial advisor?

Great question because the answer is that there really isn’t a way to define one. A financial advisor is a broad, non-specific term to describe an individual who may provide guidance on how to manage one’s money. However, that term can encompass a wide range of professions that include stockbrokers, tax preparers, investment managers, your next door neighbor, your dog, your mom. You get the idea. Anyone can claim to be a financial advisor. It’s not like being a CRNA where you have to go through a formal education, pass a national board certification exam and go through an extensive process to become licensed to practice anesthesia. It’s a general term that ANYONE can lay claim to, so bear that in mind when you come across an individual who tries to woo you with their credentials.

The single biggest issue with working with a financial advisor is that they are not obligated to perform under your best interests. Let me repeat that one more time so you understand. Financial advisors are have no legal obligation to manage your finances under your best interests. If you happen to be a fan of The John Oliver Show, you’re in a for a real treat. The analogy would be akin to patients being told that CRNAs are under no obligation to provide an anesthetic that would best serve their outcomes. Sounds ridiculous, but apparently that seems to be the case with financial advisors.


Financial advisors are have no legal obligation to
manage your finances under your best interests.


That is, unless this financial advisor is a registered investment advisor (RIA). RIAs are legally obligated to practice a fiduciary standard with their clients. Again, it’s akin to the Hippocratic Oath but for financial advisors. Basically, the crux of being a fiduciary is that the RIA acts in accordance of your best interest, not their own. So, moral of the story, if you decide to work with a financial advisor (which I advise against unless you’ve been able to easily meet the 4 previously mentioned targets), make sure your first question is if they’re a fiduciary.


Always ask a financial advisor is they’re a fiduciary


Why are you opposed to financial advisors?

I’m not necessarily opposed to financial advisors. It’s just that if you’re unable to maximize your retirement plans, pay off your student loans, and save up money, why are you paying someone to tell you what I just did or what every personal finance blog (and there are many) will tell?

You can save yourself a lot of time and money if you just exercise common sense with your finances.

Here’s the economic breakdown on why you shouldn’t use a financial advisor. Some financial advisors charge an hourly rate that ranges anywhere between $50-$500. Let’s assume you talk to your financial advisor for 2 hours on a quarterly basis. That comes out to $400-$4000 in annual costs. For what? For the advice I just gave you for free?

Others charge a percentage of your total assets. This runs from 0.75% to 1.5%. Let’s say you have $50,000 in assets. By years end, you’ll be assessed $375-$750 in annual fees. I just think that’s crazy! Some financial advisors will try to make an argument that they can make money through a series of investments. Well, I hate to be the bearer of bad news, but in this economic climate? I’d like to see someone beat the market. I’d be happy if my own investments were returning 10%, but they’re not. There are scores of literature that suggest active money management does not favor the average investor. So, again, unless you’re some hotshot investor, which if you are, why the hell are you in CRNA school, then I would avoid financial advisors altogether until you have a substantial amount of money that needs to be managed.


Conclusion

  1. Don’t hire a financial advisor (unless you have $100,000 in assets)
  2. Financial advisor is a generic term that means nothing.
  3. If you opt to work with a financial advisor, ask if they’re a fiduciary.
  4. Pay off your student loans and save for retirement, housing and an emergency fund first before considering a financial advisor.
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