Financial writers like myself, or the client advisers in our firm were often asked in media when we should choose to use an adviser and when we should do-it-yourself.
With roboadvisers getting popular, consumers have another in-between option.
I may be more bias now than before I joined the wealth advisory firm. If you ask a barber whether you should get a haircut or when you should get a haircut, most likely it will lead you to get a hair cut one way or another haha.
I may be more bias because I am forty-years-old and not twenty-five years old anymore.
The value of advice very often is asynchronous.
Asynchronous means not-in-direct-sync. It is a concept I grew to hate during my days in the School of Computing.
Basically, you call a method or a procedure to carry out some computer job.
Instead of waiting for the job to finish running and then do the next task, you go ahead and do the next task. When the async task comes back, you handle what needs to be done to close off that task.
For some reason, my brain do not work in an async mode so till today, I find asynchronous programming to be challenging.
There are services in this world where the value you enjoy is not often paid when you require the service. If you subscribe to a legal service and pay a recurring retainer fee to it, your cost is divided over time.
There may be an event in your life/business that the value of the payoff of having the legal service outweigh the cost of paying that retainer service over time.
Financial advice in a retainer model, or a recurring fee model, or a percentage of AUA/AUM fee model is something like this. There will be some value that you would see annually.
However, my experience tells me the greatest value occurs in a few of those instances where the touch of those advice allows you to make the most appropriate financial decision or prevent you from making shit financial choices.
The challenge is that… how many of you have that humility to accept that you will have frailities, a lack of sophistication that you would need help?
There are enough conversations where prospects haggle over fees. This happens because it is a mixture of not knowing what and the extend of value they are getting, and also not the right fit.
I do find that you will likely identify the value better with more life experiences.
Ron Lieber wrote a very personal post on his family’s experience with a financial planner. I think it is as good as the eventful FIRE sharing this week.
Ron’s father was diagnose with amyotrophic lateral sclerosis (I have to Google up to realize what a horrible problem to have).
By all measures, Ron’s family should be able to handle a problem like this well. His brother was a lawyer and his sister runs a nonprofit that helps cancer patients. Ron, for a decade, writes at the New York Times what you should do with your financial lives.
Their combine experiences should help them navigate the situation well.
They soon found out that they were not very well equipped:
Almost immediately, my siblings and I found ourselves out of our depth on a number of levels. What to say about any embarrassing financial details that emerged? What happens when Dad doesn’t want a feeding tube or doesn’t want one anymore? How do we honour his wishes, and when does the family need a lawyer to advise all of us? Will he starve? Will it hurt?
As we contemplated such things, pacing the cul-de-sac outside my father’s house in Boca Raton, Fla., the three of us repeated one phrase, over and over: “We just need to call her.”
I shall not elaborate too much and you should read this personal story and go away with your own conclusions.
I managed to pick out a few subtle instances of value that we might otherwise missed out:
- They feared a breakdown in family dynamics if they weren’t careful.
- The living needed as much help as the dying.
- They have no idea which tasks to tackle first.
- Any illness that might mean a precipitous decline involves countless questions as the worlds of medicine and money collide. A good financial planner can answer them off the top of her head.
- She reminded us that one clever way to find good in-home caregivers is to ask your local hospice for the names of recently unemployed caregivers.
- “Making decisions under duress is difficult,” she wrote. “Having as much information that is as clear as possible hopefully makes it easier.”
What might be a bit shocking here was thoughout the article, there was very little mentioned about the investments.
The biggest concern about paying 1% of his investable assets (in his father’s case) would be the money aspects. We realize that what the family remember may be more than just the digits.
This would be challenging for some to swallow because isn’t the value supposed to link to investment performance? Wasn’t that the hard part that we should be paying for?
If you are looking for a planner, it is best that you ask what are the specific range of sub-services and deliverables that you will be getting. This is so that both sides do not miscommunicate the tangible value.
The intangible value is another monster altogether.
20 years ago, do you have any idea out of all your friends who will be your closest friends? Today, would there be people you were surprised, you have such a deep connection to?
I think find someone who is sophisticated enough, have good bedside manners is a bit like which one of your friends turn out to be your closest friend. You can do a lot of right work or have good judgement but whether you hit a good one can be subjective.
Recently, I had a conversation with someone and he remarked the value of human investing advice may be too over-emphasized. We should be able to use tech to design adequate rules to make up for that.
I think the challenge is to find competent and good fit. I just find that there are some assurances and enough deviations of plan that people underrate.
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Monday 22nd of March 2021
It's the AUM's that I just can't agree with. I have no problem paying for advice, but that advice should be a reflective cost. Why should the advice be determined on the actual underlying assets? Should the fees charged not be determined by the advice given?
Wednesday 24th of March 2021
Hi moneysavegeek, that is a good question. How should it be priced then? How much?
Sunday 21st of March 2021
It's like having insurance for when shtf.
And just like insurance, you can have those that cost moderate & provide adequate cover. As well as many that are expensive, poor returns, and insufficient coverage.
Good luck for average Joe's finding FAs with that range of expertise. They typically target the top 20% income earners. In S'pore, probably the top 5% SES group.
Monday 22nd of March 2021
yup. that is the reality