“Not everything that counts can be counted; and not everything that can be counted counts.”
“Spending can be investing – if you spend on the right things and really use them.”
How are financial planners like vacation timeshare salespeople? Read on and you’ll find out plus you’ll learn how to actually calculate how much your planner is truly costing you.
For some reason, financial planners like to be very circumspect about how much their services cost. Part of the obfuscation is understandable – nobody likes to commit to a price until they find out how complicated the project is going to be. I used to face that all the time in the software development company I co-founded. We’d have potential customers want us to do three weeks of investigative work to come up with a price tag for how much a project would be. That would never fly, so we gave them very broad price ranges with lots of wiggle room, and we promised that after three weeks of paid work, we could give them a much better estimate of how much it would cost as well as documentation they could use to go vendor shop if they so desired.
Financial planning has some of that mystery too. People’s situations could be very simple, and they could be very complex, and sometimes, we can’t really say how much a properly executed financial plan should cost until we’ve had some time to get to know you, your family, your situation, and your goals.
Part of the reasoning, too, is competition. One financial planner doesn’t want another financial planner to find out how much he’s charging lest he be undercut and lose out on price.
If you’re looking for the cheapest financial planner you can find, then you’re going to get what you pay for.
There’s a reason, after all, that Yugos were unreliable cars that nobody liked.
In a sense, being led to the cost discussion with a financial planner is very much like being led through a vacation timeshare presentation. If you’ve ever been through one of those, you know how it goes – you’ll go to some really nice location. The salesperson will meet you, offer you drinks, cookies, take you snorkeling, whatever. They walk you through the wonderful sales model and tell you all of the benefits of what you’ll get by buying a timeshare. They’ll address every objection under the sun that anyone in the long history of timeshare presentations has ever come up with.
Once they have you fully and wholly hooked on how owning a timeshare will be better than curing cancer or winning an Emmy, then, and only then, do they pull back the curtain and reveal the price.
I’m pulling back my own curtain before we even have a conversation.
Note: This was written before I joined myFinancialAnswers. Read through to the end for an addendum.
What I’m going to provide you is an 80% solution for how much a financial planner should cost (e.g. how much I’m going to charge you), which means that 80% of the time (give or take a quarter of a percent), your planning engagement will cost…
$1,800 to $2,400
Since I charge $150 an hour (you can request my Form ADV if you’d like and check my numbers), that means the financial planning engagement is going to take between 12 and 16 hours to complete. This includes our initial discussion, gathering up all of the applicable information from you, doing an interim report, getting your buy-in for where I’m going, and presenting you with a final report. It also includes any models I’m going to build to support my recommendations to you.
With that, you shouldn’t need to come back to me unless your circumstances drastically change, because, ideally, I’ll have taught you everything you need to know to maintain course. Doing a checkup with me on some periodic basis will be your decision because you want (hopefully) confirmation and validation.
What is the simplest way to find out how your financial planner gets paid?
Ask him or her for written, itemized documentation.
Then ask that person to sign a fiduciary oath before moving forward.
If a financial planner tells you that it’s twice as complicated to manage a million dollar portfolio as it is to manage a half a million portfolio, and, therefore, they need to charge you twice as much, they’re filling you full of crap so that you’ll line their pockets more. I’m not against profit – after all, I charge money and don’t give planning for free, and you don’t expect to go to work all day and never earn a dime. However, I am against nonsense and taking advantage of people’s fears to make more money off of them.
Furthermore, research from Harvard shows that asset managers (in other words, your commissioned brokers and the people who charge you some percentage of your assets to invest your money for you) actually do more harm than good, and that’s before you account for their fees. They can spew and foam and rant as much as they want about how they’re good for you, but this Harvard study has 22 years of incontrovertible evidence that you’re paying them for the privilege of delivering underperformance.
So, if you’re paying some planner 1% of your assets every year or paying some front loaded mutual fund to support your commissioned broker’s kid’s Harvard fund, check yourself. If you have a planner telling you that it’s going to cost $5,000 or $10,000 to do your plan, then you’d better have some extra special circumstances which justify it.
About 80% of the time, your plan should cost between $1,800 and $2,400.
Do you think that’s too expensive? I have another option for you. For those of you who are the DIY type and will follow through on what you’ve learned, I co-founded myFinancialAnswers. Read more about it below. We built the system to provide a comprehensive set of integrated tools so that people who wanted to get the answers for themselves to the pressing financial questions they had could do so and get personalized, specific recommendations. This online, comprehensive financial planning service is available for $99 per year.