Are You Ready For A Financial Advisor?

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Back in the pre-Mr. Money Moustache days, before FIRE was its own stand alone acronym, and before personal finance blogs were sprouting up everywhere (man I really should have started my blog back then), Mike and I were in the very beginning stages of fumbling our way towards a goal Mike had aptly entitled “Freedom 35”.

He had been patiently bugging me about the concept of paying off our mortgage early, and I had been firmly resisting. Which is a nice way of saying I can be quite stubborn and thick headed.

Everything I had read about finance said that in the era of ultra low interest rates, and absurdley high housing prices, paying off your house was a silly idea. Plain and simple.

I defaulted to the position that every calculation said we would come out ahead if we just invested our money. Besides, we were already making accelerated weekly payments, so our mortgage would be paid off in roughly 19 years instead of 25, wasn’t that good enough?

Why “sacrifice” the now for something that we would ultimately just pay off right around the same time we were planning to retire???

But Mike can be determined and, thankfully, he didn’t let it go. Eventually I either saw the light or he wore me down, regardless, I agreed to make paying off the mortgage our primary financial goal.

Why? All in the name of having more choice.

More choice for what? Excellent question, at the time I didn’t know, and it didn’t matter. I just knew I wanted to know that when I got up in the morning and headed into work, it was because I was choosing to do so.

We had zero intention of leaving our jobs before our full pensionable service, (another 18+ years at minimum), nor did we even have a desire to change our lifestyle all that much.

It was strictly about changing our lives (and our mentality) from one of having to one of choosing.

I felt like if we could achieve that level of choice, we could exit the rat race and just enjoy life. Slooooow thiiiiiings dooooooown. I was tired of people asking me about my week and not being able to remember what I had actually done, it was all a blur.

Little did I know, our decision to pay off the mortgage was the beginning of a very slow but life-altering shift in mindset.

So we started down the garden path, initially making small adjustments here and there, but like so many FIRE/FF people out there, we quickly found ourselves addicted to “finding” more and more money to throw at our goal.

The more we did it the better we got at living off less, while also finding ways to increase our incomes. All without feeling like we were losing anything at all. Say what?!

We were just cutting the excess. The things in life that, once we paid closer attention, were bringing us no real value or sense of enjoyment.

We slowly became much more intentional with how we spent our money, and with it, how and where we spent our time.

When Mike and I were three years into our plan, we came to a startling realization.

What we were doing was actually working.

Like really working. We were on track to pay off our Vancouver-sized mortgage in just five years, instead of our original goal of seven.

Now, it’s not like I had started the plan thinking we were going to fail, I am absolutely a glass half-full kind of gal. And when Mike and I put our minds to something – watch out.

But it had felt like the end result was something that was very, very far away, and the thought of planning what to do with our extra post-mortgage cash seemed ultra pre-mature.

Until suddenly, it didn’t.

By that time, not only were we putting 50% of our incomes towards paying off the mortgage, we were also saving an additional 25-30% in retirement and tax advantaged accounts (our pensions, RRSP’s and TFSA’s.)

We had pared our lifestyle costs down to 20-25% of our actual income, so the prospect that we would have TRIPLE the available lifestyle income while STILL saving a considerable chunk for retirement, in just 2 years, seemed somewhat unbelievable to me.

I distinctly recall Mike and I looking at each other, and agreeing that we needed to find a Financial Advisor so we could figure out what exactly we were going to do AFTER the mortgage was paid off.

I remember feeling a brief wave of panic, and telling Mike that we needed to have plan, because we could absolutely NOT allow ourselves to have that much available income. I was sure it would lead to lifestyle inflation of the worst sort! (Clearly at that time I didn’t realize just how deeply rooted our frugal tendencies had become.)

While I say that “we” needed to figure out what to do, what I really mean is, we wanted to find someone who could tell us what to do with our money next, because at the time, we had no idea.

So we started the process of interviewing “Financial Advisors”.

*Personally – I think “Financial Advisor” is a misleading term. “Financial Product Salesperson” provides a much better idea of what to expect from most FA’s. Sorry FA’s, but you know it’s true. 

Anyhow, we ended up talking to quite a few people, but here’s a quick summary of our experience with three of them that gives a decent picture of our overall experience.

THE USED CAR SALESMAN

This guy had a lot of really great sounding stuff to say. I didn’t understand about 80% of what he was talking about, so I found myself nodding along a lot, but he seemed really pumped about his plans for us.

What I did take away from the meeting was that this guy said a lot of things about getting us in and out of various products with short term windows, he had the “connections” to introduce us to “alternative” investment opportunities that “hardly anyone else” even knew about, and he eluded to  “10-20% returns” multiple times.

Up until that point I had been a loyal high-fee mutual fund customer, making automated deposits, never so much as glancing at my portfolio. After all, the mutual fund guy had told me I’d be a multi-millionaire by the time I retired, he even showed me the little graph thingy on his computer screen. What did I need to worry about investments for?

But as much as I was a newb to having any degree of involvement in my investing, we left that meeting with full confidence that this guy was the surest way to lose our money.

The upside? That meeting highlighted some major shortfalls in my understanding of investment options, and investing as a whole.

So after that meeting, I went home and brushed up on some basic investing concepts. All that did was make me realize how very little I knew about the subject. A sobering fact for someone who at the time considered themselves “above average” when it came to finance.

THE ESSENCE OF MEDIOCRITY

The second guy we talked to barely seemed to know a thing. The investing 101 crash course I had just done left me feeling like I knew more about product options and what to do with our money than he did. That was a scary thought.

We walked out of that meeting with near certainty that he would absolutely charge us exorbitant fee’s for “managing” our money by essentially putting it into an index fund.

THE OUTLIER

The third guy was a breath of fresh air. No need for pushy, overconfident sales tactics, this guy was very clearly a top 10 percent-er.

Unlike ALL the others who’s first order of business was to convince us to immediately stop paying off our mortgage and invest our money instead, he listened to our reasons, quickly grasped the benefits (for us) of eliminating our debt, and encouraged us to continue with the plan we had in place.

I distinctly recall him saying “Hey, this is working for you guys. Do what works for you”.

*To this day, that simple comment hits my top 10 list when it comes to financial advice. In finance, you HAVE to do what works for you. Just because one approach worked well for someone else, does not mean you will experience the same results (financially, or emotionally.) And from my experience, the ROI on both of those factors should always be a consideration.

That advisor provided us with a very clear overview of what his company could do for us. He was transparent about the fee’s (and they were considerable) and the manner in which the company structured their business, and he invited us to attend their portfolio presentations so we would know if their investment philosophy aligned with our values.

We left super impressed.

THE OUTCOME

It’s been years since those meetings, and as impressed as we were with the outlier, we still haven’t invested with him, or any other advisor.

*What we HAVE done is keep in contact with the outlier, and we still go to his quarterly presentations, because if we ever do decide to hand over management of our portfolio, he will undoubtedly be in the number one spot for contention of our business.

But for all the meetings and conversations we had with FA’s, two things became readily apparent.

1) We were absolutely not ready for one. 

Why? Because we had started in the wrong place.

Imagine going to a lawyer to draft your will with not only ZERO idea of what you want to do with your asset’s, but also a limited understanding of the options available to you. Or going to a realtor with no idea where you want to move to, what type of property you want, or your budget? Just expecting them to tell you what to do?

That was us with the FA’s. Where we really needed to start was by defining what exactly we wanted our post-mortgage life to look like. What our specific future financial goals were? What investments aligned with our own values? What our risk comfort was?

These were questions we had failed to answer with any degree of specificity. We had been fully consumed by our short terms goals, and assumed that we would just figure out the rest when we got there.

Bad idea.

There’s a reason Step 1 in my 5 Steps to Financial Freedom starts with defining what wealth means to you, and how to measure your progress in achieving that “wealth”! You need to know where you are going if you have any hope of building a successful plan to get there.

But, just like with our mortgage, Financial Freedom is not THE goal, it’s a milestone in the journey. A big one, but it’s not the goal.

The goal is what lies beyond, leading your ideal life. If you want a solid plan, you need to know what that ideal life is, and just how much it will cost to fund it.

So after the meetings, we took a two-pronged approach. We started the process of defining our ideal lifestyle while simultaneously increasing our knowledge of investing.

The more we started to think about what we wanted our future life to look like, the more we began to look to the people in our own lives. Dissecting and paring out the qualities, lifestyles and attributes that we admired and that aligned with what we felt a fulfilling life would look like for us.

We started asking ourselves questions like, what had those people done in the past or what were they doing now that was working for them? What hurdles or failures did they experience that we could try to avoid? What successes did they achieve that we could emulate in our own way?

As we started talking more openly with people in our lives about their finances, understanding their thoughts and rationale behind their approach to money, our own goals and plans began to evolve.

Note* I wish we had taken this line of thinking even further, we were pretty broad in our ideas of what we wanted our post-mortgage life to look like. As I’ll talk about in next week’s post, failing to invest as much time into planning your retired life as you do in how to get there, is a mistake.

We began to see our desired financial trajectory much more clearly, and with it, our approach to investing became readily apparent.

That’s where the second point became ultra clear.

2) We don’t need a Financial Advisor.

Thankfully, Mike took the lead in this area of our finances, and once we had defined where we wanted to go, he very quickly developed an investment plan that aligned with not only our financial goals, but our risk comfort and personal values.

We’re pretty conservative people in general, so we naturally gravitated towards a dollar cost averaging model, placing the bulk of our portfolio’s into low fee index funds/ETF’s. That approach made the most sense for who we are, and our future goals.

For interests sake, we also left a small portion our portfolio’s available for some more active trading, but only so much as we are willing to lose in its entirety.

Without the need for a Financial Advisor, or their associated growth decimating fee’s, Mike completely restructured our retirement investments in a way that gave us confidence in our long-term financial stability and growth.

So – Are You Ready To Meet with an FA?

For those considering adding a Financial Advisor to their team, I would offer three broader lessons that we took away from the process and resulting experience:

Lesson 1 – Don’t be afraid to interview Financial Advisor’s early, but don’t be in a rush to hire one.

I don’t want to recommend you waste other peoples time, BUT, a one hour meeting can do wonders in highlighting your area’s of shortfall, giving you different perspectives, AND identifying questions that you haven’t yet found answers for (but should).

It’s also a helpful way to find an FA you are compatible with, and because you won’t be in in a rush to secure their services, you can foster a lengthy relationship that allows you to build trust and monitor their business performance, BEFORE you ever give them control of your money.  (So……maybe not entirely a waste of their time, from a long term investment view point!)

Having these conversations is also helpful in giving you a more concrete understanding of the role of an FA, and how they may or may not be a valuable asset in your future financial plans.

Lesson 2 – No one cares about your money like you do. No one.

The person who will take the biggest interest, pay the closest attention, and do the most due diligence when it comes to your investments will always be you.

While on the surface managing your own investments may seem intimidating, even risky, with a willingness to put in a reasonable amount of time and effort, you can absolutely learn how to do it yourself. In both a capable, and low risk manner.

Even if you are sure that you have no desire to be your own money manager, and are willing to fork out the fee’s for a professional, I highly recommend learning at least the basics.

You might not feel the need to learn about plumbing when you have a contractor redo your bathroom, but handing over your retirement savings to someone who’s job you know little about has disaster written all over it.

Without a base level of knowledge, your ability to assess your product options, fee structures, and the ongoing performance and competency of your selected advisor is greatly limited.

Lesson 3 – Don’t ignore the people in your life who can be strong Financial Mentors, something arguably more valuable than even the most talented advisors.

Whether they have struggled mightily, failed completely, brilliantly succeeded, or simply put money on auto-pilot, the people in your life have a wealth of experiences for you to draw on, both good, bad and ugly (AND they aren’t trying to sell you anything or generally make money off of you. Hopefully!).

By tapping into these resources, you can learn a lot about how to navigate your own goals from simply examining the life experiences of those around you.

BOTTOM LINE

Before you actually select an FA and start paying them, know your financial goals, values and comfort level. And not just your goals to GET to FF. Know your retirement objectives and what you want your life to look like post-FF, so you can structure your investment planning around those objectives.

Even once you’ve identified your goals, like most things finance, the value of an FA is situationally dependent.

If the right investment approach for you is, like us, a dollar cost averaging model using low-fee index funds/ETF’s for the next 20-30+ years, you definitely don’t need to pay an FA to do that.

But if your ideal approach/investing interests are dramatically more active or complex, it might be helpful to get an FA in your corner early. Just invest sufficient time to make sure they’re the right one for you.

Have you met with an FA to build your plan for Financial Freedom? If so, tell us about your experience and if you thought it was worthwhile, by leaving us a comment below.

Next week we’ll be diving into a 5 part series that I am SUPER psyched about, taking a deep dive into the world of early retirement, (and all the lessons we’ve learned in making that transition).

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5 thoughts on “Are You Ready For A Financial Advisor?

  1. In this modern age, finances have a lot of importance and require attention from the beginning of your career to lead a secured life. These investment and securities will define the lifestyle you are going to enjoy while you are earning and later in the retirement years.

    Liked by 1 person

  2. This is a great article. It’s interesting, as I do think there are some legitimate reasons to go with a FA that you trust. But the amount of money you pay on fees even when looking at a fraction of a percent becomes a lot of money over time. I’m definitely not anti-FA, but we are probably going to do what you did and go with a simple investment strategy. I recently found out about M1 Finance that allows you to auto-deposit and it will distribute your funds to whatever ets/stocks you want. This makes the DIY aspect even easier.

    Still trying to decide what we are going to do about the mortgage (working on that follow-up article now), but I think your story proves there are no bad options. Just figure out what makes you the most passionate and pursue that.

    Liked by 1 person

    1. Thanks so much Chris! I will have to check out M1! Right now we use TD bank, as they have an excellent suite of E-Series funds that are very low-fee and allow for automated deposits and then automated purchases of various funds. They’re only downside is they don’t have a ton of options in the E-series, so we use Vanguard to cover off a few additional areas (with their downside being their fee’s per transaction in terms of dollar cost averaging. But still not horrible once you reach a certain $ threshold with them).

      I get that the mortgage decisions is a biggie. Love how you are approaching it though – definitely a decision worth a lot of contemplation and weighing of what’s important to you. And at the end of the day though, no matter which route you choose, there is no wrong decision 🙂

      Like

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