When you think of financial advice, are you thinking of investment advice, like buying financial products or asset management? Or are you thinking of things like creating a budget, setting financial goals, and college 529s? The latter, right?
But here's the thing--in the real world you will find out that to the financial industry, “financial advice = investing.” That’s because there is so much more money to be made by investing someone’s money than by engaging in financial planning.
At Aptus, we believe something radical. To us, financial advice means financial planning.
Let’s take a 45-year-old gastroenterologist. He is at an age where he can imagine retiring one day, maybe at 62. He has built a nice $1 million nest egg in his retirement account. Now he is about to start a job at a new hospital where he will make a bit more money, and he wants to get a financial plan to make sure he is on track to retire.
He finds an advisor through a referral from another doctor friend. In the meeting, the advisor agrees that he can run a financial plan as part of their service. The advisor hands him all the paperwork, including a fee schedule. The doctor is pretty sharp and does the math in his head, realizing that he would be paying a significant fee that would only increase over time. But what he needs is not investing, it’s financial planning. Can’t the advisor do that for him? The advisor responds, “No, not unless I manage your assets.”
The advisor and client are at an impasse.
The advisor wants to help with financial planning. The client wants help optimizing his finances through financial planning. But to get financial planning from the advisor, the client would have to make suboptimal financial choices.
Why can’t the client just pay for the financial planning? Well, in this world that’s not a great deal for the advisor. Financial planning can generate a few thousand in fees, and even in a long-term engagement, will see fees go down as the workload goes down. Managing a million dollars, however, can generate $10,000 in fees in just the first year, alone. The fees over 17 years could add up to over $300,000 in the advisor’s pocket.
Bundling financial planning into an investment management service is good business for the advisor, even if it’s not what the client wants to pay for.
Let’s say the doc moves forward with the advisor, what should he expect in financial planning help? Is it 5 hours, 10 hours? Who knows? Remember, the financial planning is free since the client is paying for the investments. How can you hold someone accountable to a free service?
When you think about it, this is an absurd business model. Imagine you want a haircut, but there is no direct haircut industry. Instead, a nail salon will sometimes tack on a free haircut if you purchase a manicure or a pedicure. You don’t need or care that much about the mani-pedi. You just want a haircut. But you get the manicure and are led to a back room to get a haircut. Maybe it’s fantastic and exactly what you have always been looking for. But maybe it’s not. But, honestly, they are throwing that haircut in for free, so how can you complain?
We recently took our kids to get a haircut, and a woman there spent 15 minutes on each kid versus the standard 30 minutes we are used to. Bottom line, they got bad haircuts. Fortunately, we had options from there: Don’t go back or even go to the company and request a fix or a refund.
We should expect that with financial planning.
“Hi industry, I would like financial planning.”
“Hi client, here is financial planning. We will spend 5, 10, or 12 hours doing a planning process that will cover these 16 financial planning topics, and here is how much it will cost.”
And then you can objectively evaluate if you got what you paid for. If not, you can move to a different financial planner or ask your current financial planner to fix it.
But right now, the industry is still trying to convince us that financial planning should be like the free haircut in the backroom of a nail salon.
Sorry, industry, I have a serious problem with this. I believe that every physician and dentist should be engaging in financial planning, preferably starting at the very beginning of their careers.
At Aptus, we offer financial planning. Our team of financial planners is adept at running financial planning processes for early- and mid-career physicians who want to do well with their money and save hundreds of thousands of dollars in fees over their lifetime by self managing their assets with our help.