? Financial Advice
Thinking about stocks, tariffs, the coming days, and the value of financial advisors.
As a subscriber, it is time to look at “Upside Investing.” It’s in our book. You have a measurable living standard floor, and I can help you measure it.
I had a conversation this weekend during which I was told, “My financial advisor had a bad week.”
Bet the client had a worse one.
Financial advisors don’t have bad weeks. Just headaches, but always Happy Hour to ease the pain.
To all of you who are middle income or middle wealth and don’t get the normal, regular attention of a financial advisor: you are not missing much.
Most financial advice is given under a % of assets managed business model. Not much of a penalty when the advisor doesn’t warn a cliff is ten feet away.
Here is the deal: Each year, the advisor charges you 0.5% - 2% of the value of assets managed, regardless of the outcome of their recommendations.1
Well-trained advisors know diversification is important. It is also “set it and forget it” financial advisory.
Suppose the advisor recommends you put 100% of your savings in a financial security, VTI, a total stock market ETF offered by Vanguard.
Here is an image of the price of a share of VTI over the past 20+ years.
If I am the investor enduring the noise of the last week, maybe this helps calm me by putting a week’s activity into a longer-term perspective.
If I were the advisor, I would like my business model. Well-diversified funds will not go to $0, and my long-term management fee is mostly protected. Clients who lose 8% of their asset value feel the hurt. My phone will ring. My advisory revenue will be fine. The hurt is more substantial if individual stocks are purchased. Apple down 16%. Yikes.
But financial advisors, like investment newsletter writers, should help their clients avoid the downfall, right? This is virtually impossible.
So, here we are. The $50,000 account holder now has $46,000, and the advisor will still earn their percentage of assets under management fee.
Should you have a financial advisor? It's your choice. I don’t like the extra cost, knowing that predicting the future for individual stocks and the broader market is impossible.
Your evaluation of financial advice is simple. What else is the advisor delivering for their assets-based management fee? Alternative investments? The forecasting problem still exists. Hedging risk via options. That could be interesting, but at an extra cost. They should explore Upside Investing because it informs clients about their living standard floor.
What should financial advisors offer: non-investment financial planning guidance. How about personal income tax filing and planning? Wrap it up with some good estate planning advice. Now we are talking.
Upside Investing is in Chapter 6 of our book. A paid subscription includes the book, along with direct messaging with me to help you with your financial questions.
NerdWallet suggests 0.25% is a lower bound. By the way, there are also fixed-fee financial advisors.