Should You Manage Your Own Money?
There is a biblical verse, “No one can serve two masters.” This analogy can be applied to your investments. They can work for only one goal, to build your wealth. When you add traditional money managers or financial advisors and their associated fees you simply lose too much of your return, unless you can save extraordinary amounts over long periods of time to overcome these fees. This eliminates the option for early retirement for most and even hurts the chances for prosperous retirement for many. This is the conclusion I’ve drawn after reviewing our investments. Below we will lay out the reasoning behind this statement as clearly and objectively as possible. If you are using a financial advisor or are considering one, you may be shocked to see what this is/could be costing you.
In the past year my wife and I began to get serious about gaining financial independence and looking at early retirement options. We realized we needed to understand our investments better. We had been investing with an advisor through Ameriprise Financial for about 10 years. Most of our investing knowledge was what he had taught us. Together with him, we determined an asset allocation we were comfortable with. We gave him our trust, allowed him to basically make all of our decisions as to how our money was invested and were for the most part passive in the process.
Initially, we were pleased with the service we were getting and we were definitely building our assets. We were paying our advisor by commissions through the purchase of loaded mutual funds. We also were being charged an annual planning fee. Initially, this fee didn’t seem excessive. However, as we invested more money we felt that our advisor was already making a significant sum from the commissions. We believe we were getting little value from the advising fee for two reasons. First, we wanted a comprehensive financial plan, but our advisor seemed to have little interest in any outside investments such as our work related retirement plans. Second, we talked regularly about our desire to retire early, but our annual written financial plans and projections never reflected this. We felt that we were getting cookie cutter advice rather than the personalized plan that we wanted.
This led us to begin doing research on whether we were getting good advice and to see if we could find someone to provide more customized service to our goal of achieving early retirement and financial independence at a relatively young age.
We began to read early retirement blogs and several lead us to the “Stock Series” at jlcollinsnh.com. This series began to open our eyes as to how superficial our understanding of investing was. I found his post titled “Why I don’t like investment advisors” particularly interesting and informative on this topic. We then discovered Todd Tresidder’s Financial Mentor website. I looked at the financial coaching services offered to see how the cost and quality of these services compared to the advice we were receiving. We began working through his articles and listening to his podcasts which were revelations! One podcast, an interview of Jeff Rose, was of particular interest. They shared some of the financial industry’s secrets regarding how advisors are paid, shedding light on their motivation when selling investments.
After educating ourselves, we began to tear apart our financial statements to see what we were really paying for our investment advice and what quality of advice we were getting. We hope that we can provide an interesting case study to anyone currently using an advisor or considering using one. Now that we have begun to educate ourselves we have elected to manage our own investments. We want to make clear that we are making no accusations of being ripped off or scammed. We simply didn’t do our homework and for that we take full responsibility. We got what we’ve since learned is , unfortunately, pretty standard for this industry. We are doing the only thing that we can at this point and cutting our losses and using this as a learning experience. Hopefully, sharing our story will help others do the same. In the next post we will break down in detail what we learned that we were really paying for our investments. (Spoiler Alert: It was much more than we thought!) We will then show you exactly what quality of advice we received for this price. (Spoiler Alert: It wasn’t pretty!)
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