A financial planner can be a valuable person to have, but they also might be wasting your time and money. If so, you may want to fire your financial planner.
I’ve long thought that it’s important to have a team of experts at your disposal, especially in financial matters.
- An accountant? Not a bad idea, especially if your situation is anything other than dead simple.
- A financial coach? I’m biased, but I believe it would benefit you financially—and massively too—to learn how to move beyond your old money stories, and become more confident in how to manage your money.
- A financial planner? Sure, someone to help you manage your assets is a good thing, especially when you have enough assets to be worth managing.
But let’s be honest: not all situations require a financial planner, and not all financial planners are worth it. I’ve seen this first hand, which is why I’m here to give your three reasons why you may want to fire your financial planner.
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1. You don’t understand what they’re doing with your money
You are entrusting your money to a professional. Yes, there is trust, but this trust has to be earned.
I know far too many people who have given their money to a financial planner and then have no idea what’s actually happening with it. Is their money properly invested? Are their returns adequate?
Some of this onus is on you though. You have to ask your financial planner what they’re doing. And you have to understand what they say in response.
Some financial planners don’t want to share their strategies. They may either pointlessly obfuscate/complicate their positions, or just not want to talk it with you.
That’s not good enough. You want someone who can teach you, and who wants to do so. And then you need to know what you planner is doing, to the point that you can explain it to someone else. If all you know is “I have a guy who takes care of my money,” and you’ve tried on multiple occasions to learn more, it may be time to fire them.
2. You’re not making more than you would without them
It’s actually not hard to make a great return these days with investments, at least when there are returns to be had.
Putting your money in a low-cost index fund, like one that tracks the S&P 500 or total stock market, will earn you somewhere around 8% a year on average over time. More if you don’t factor in inflation.
That’s pretty good, as it allows you to double your money every 9 years or so, by the Rule of 72.
Can your financial planner beat that kind of return? If not, you may want to think about firing them.
Not only that, but you need to work a little harder under a financial planner. This is because they work for a fee (and hopefully not on commission, see below).
If your advisor charges 1%, say, then you would need to be making 1% more than you would otherwise just to break even.
Now, there is more to a financial planner than just returns, but it’s a known fact that passive investing often outperforms active investing.
Are you just subsidizing your financial planner? If so, you know what to do.
3. Your financial planner works on commission.
I joke that there are two kinds of financial planners: the ones who are fee-based, and the ones you shouldn’t use.
A fee-based planner typically works on the “Assets Under Management” model (AUM), where their fee derives from the amount of money they are managing, usually a percentage. More money, greater fee. That seems fine by me.
But a financial planner who works on commission is paid by the companies that offer financial products. So the planner will encourage you to purchase a product (stock, mutual fund, annuity, etc.) and they will get a kickback if you do.
If that sounds like a massive conflict of interest, you’re correct. When a financial planner gets paid by someone else to offer you advice, they are no longer working in your best interest.
You want to be able to trust someone who is managing your money. Working in your best interest should priority #1. If they can’t hit that low bar, fire them.
What happens after you fire your financial planner?
When you fire your financial planner, you have two options:
- Find a new one
- Manage your money yourself
If you want to find a new financial planner, I recommend interviewing people and see if they pass the above tests. Ask if they can explain their strategies to you, ask them how they are better than passive investing, and make sure their fee structure doesn’t include commissions. (For that last part, just ask if they’re a fiduciary, which takes care of most of the red flags.)
You might also decide to manage your money yourself. There’s nothing wrong with that, especially if you don’t have millions of dollars in assets. In my experience, it doesn’t take a ton of knowledge to put your money in simple, broadly-diversified, low-cost funds that you can forget about. And you can feel empowered that it’s you who is managing your money, not someone else who won’t do as good of a job.
