Some of the Most Popular (and False) Myths About Financial Advisors
Unfortunately, there is a lot of uncertainty about the financial advisory industry. People are confused: Can a financial advisor really help me? Can I trust him or her? Do I really even need one? One major reason this industry is shrouded with potential clients’ hesitation and haziness is the prevalence of popular myths about financial advisors. Many of these widely-held (but incorrect) beliefs place a negative light on financial advisors and hold people back from reaping the innumerable benefits of working with one. The following are some of the most popular myths about financial advisors—debunked:
Financial advisors are only for the wealthy: A widely-held myth is that financial advisors are only for rich people. This is not true. Research data from Cerulli Associates and Meridian IQ, which is the world’s premier registry of information on financial advisors, found that the largest category of financial advisors — independent broker-dealers — had an average client account size of just $78,469 and small RIA firms had average client account sizes of just $65,447. Financial planning is not just for clients with a lot of money to spend or make investments but rather can be a beneficial tool for people of all income levels. Even at its most basic levels, financial planning can help almost everyone and assist them with saving and even making money in the long-run. This reasoning follows the idiomatic “a stitch in time saves nine” philosophy.
Financial advisors are only for “older” people: Many people incorrectly believe that financial planning isn’t necessary until you are older. Wrong. The longer your life goes on without doing any financial planning, the less options you will have. How much money do you need to retire? Well, it depends, but conventional wisdom commonly throws around the number $1 million to $1.5 million per individual. For every year you delay setting aside savings for retirement, the more you’ll have to save each successive year to create your desired nest egg. Also, you’ll lose out on the powerful compounded growth factor that tax-deferred and savings strategies can have on your investment portfolio. If you wait to start saving, you’ll have to come up with a much bigger annual contribution to help reach your retirement savings goal. How much bigger? Try putting in some hypothetical numbers using TD Ameritrade’s handy Cost of Waiting Calculator. Using this calculator, I entered that I wanted to retire in 30 years with $1.5 million and that my expected annual rate of return on my investments was 5 percent. Here are the results:
The DIY method will work just fine: Sure, if you just want to “get along” rather than “get ahead” in life, you may be able to get by using the do-it-yourself route to financial planning. However, if it’s important to you in life to get ahead, you’re much better off seeking the help of a professional. According to the Institute for Certified Financial Planners®, “It is found that households with income less than $100,000 – the majority of Americans – save and invest twice as much when they have a financial plan in place, than when they do not.”
Financial planning is a “one-and-done” type effort: Financial planning is not intended to be a one-time effort (i.e., you meet with your financial advisor once and then your plan is set for life). Financial planning is dynamic, just like your constantly changing financial livelihood, goals, and life events. As such, once your initial plan has been set, you need to periodically review it. At the very least, this periodic review should happen once a year at your annual review and anytime your financial status significantly changes. As discussed in the previously published Summit blog “Making the Most of Annual Financial Planning Reviews”, financial plans are not set-and-forget documents and as the blog states, “Since our personal lives and financial situations as well as the current economic climate are rarely static, the annual review is a time for financial advisors to look at any changes in the past year — changes such as the birth of a child, death of a loved one, marriage or divorce, a new job, any major purchases, and etc. — and readjust the client’s financial plan accordingly.”
Working with a financial advisor from a wirehouse brokerage firm is more desirable than working with independent financial advisors: We strongly encourage all potential clients looking for a financial advisor to do extensive research and vetting. Some people’s first thought is to just use a financial advisor from one of the big name wirehouse brokerage firms in the industry (i.e., Merrill Lynch or Morgan Stanley) because they think that the size and popularity of these firms make it a “safer” choice. While you can get top-notch financial planning services from such firms, they are not your only option. For many people, you may be better off working with independent financial advisors since they are not bound to using just one set of investment products (i.e., they can select mutual funds from multiple different companies to help you select the ones that are specifically the best choices for your investment portfolio) and you may get more individual attention instead of getting lost in the shuffle. Moreover, since independent financial advisors have to build their client base based on merit and client referrals rather than rest on the laurels of the big-name brand recognition of their major firm, they have more of an incentive to treat each client as if he or she is the most important client in the world.
The majority of people could significantly benefit from the guidance and learned advice of a trusted and experienced financial advisor. Don’t let popular myths about financial advisors hold you back from seeking out the potentially highly-valuable services that financial advisors can provide. By debunking popular myths and educating yourself so that you can separate fact from fiction in this industry, you can demystify the process and help find a financial advisor who can help you meet and even exceed your lifetime financial goals.
For more information on Summit Brokerage Services and our independent financial advisors, visit www.joinsummit.com or contact us at (800) 354-5528. Let Summit Brokerage Services show you why they are ranked the No. 1 Independent Boutique Broker Dealer in the Country.
We encourage you to take a closer look at all that Summit has to offer and find the best fit for you and your financial planning practice. Let us show you why we have been voted the #1 independent boutique broker-dealer in the country.
Summit Brokerage Services is part of Cetera Financial Group, RCS Capital Corporation’s (NYSE: RCAP) retail investment advice platform.
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