Three reasons we hired a financial planner

The words “financial advisor” are almost profanity in the FIRE community. I understand why. For years, I believed we were absolutely capable of managing our investment portfolio and getting exactly where we wanted to go without paying someone else. That actually hasn’t changed. We did not hire a financial advising firm in hopes of beating the market. Like so many things in life, we might never have hired a professional if some coincidental events hadn’t happened.

One of Mr. Vine’s close family members started working for a small, fee-based planning firm. We had investigated advisors enough to know that if we ever hired one, it would be a fee-based firm. We knew we wanted their incentives tied to the growth of our portfolio, not what products they sold us. Mr. Vine’s relative introduced us to the firm’s Chief Investment Officer, we showed them our books and shared our strategy. The CIO said we didn’t need the firm. We asked some questions about how they might invest our money differently. We liked what we heard–including that we had a solid plan together. The next step involved number crunching to find out what fees we were paying with our current investment plan. Because even in “fee free” mutual funds and low fee funds, you are paying some fees. Those fees can really be buried deeply, though.

After all the research, it turned out we were paying around 1% in fees, which is about what it would cost us to move our money to the firm. The knowledge that we wouldn’t pay much, if anything, more to have personalized advice was nice. I also intuitively understood that index fund investing is a somewhat “quick and dirty” strategy. It would get the job done, but it isn’t exactly sophisticated. Index fund investing is based on the fundamental belief that all markets will tend to grow over time. I continue to hold that fundamental belief, but also know that markets are complex. A well-researched plan can take advantage of some of the ways markets can behave at different times. For example, some industries do well during recessions. This is not meant to discourage or dissuade anyone from this approach–it is solid and it was our plan.

But after talking with someone who spends the bulk of their time watching both the US and international markets, we decided to hand over the reins. Part of this was based on my experiences with an employee stock purchase plan at a former employer. Because I was an employee of the company, I was familiar with the company’s health and the market segment in which it operated. I understood that there simply wasn’t enough time for me to become that knowledgeable about any other company. Although a financial advisor or other type of professional investor may not have that level of familiarity with any one company, she spends all of her working hours studying companies and watching markets. Simply by virtue of this attention, she will have more knowledge than I have time to accumulate right now.

The next piece is trust. I have to trust that the advisor will make the good choices with my money. This is why we knew we wanted a fee-based planner with fiduciary obligations to us. This means that the advisor must act in the best interests of the client. Most fee-only financial planners require a minimum account size. Because we were family, this minimum was waived. It seemed like a good opportunity for us to get some professional help without a big cost to us. We also researched what type of people should hire a financial planner. Some of the types resonated with us.

First, our portfolio did not have a clear direction and Mr. Vine and I did not work together on fund selection for our employer-accounts, like our current 401k plans. We each just picked the investments we thought would do well. My index fund strategy was just taking off with Vanguard VTSAX and we held our Roth accounts in Fidelity target funds. Our 401k plans were based on the funds available to us through our employers. Our financial advisor helps us organize our investments to best meet our goals. It feels more strategic and less ad hoc. We are trying to do a big, uncommon thing. I wanted regular guidance and reassurance that we’re on track.

Second, outsourcing to save time. As I mentioned before, I believe we are fully capable of managing our portfolio, but we have other full time careers right now. Insourcing is a great way to save money and we do more than many of our colleagues. Growing our wealth is too important to get the back burner that it was getting. And as interested as I am in personal finance, I don’t really want to be a financial analyst or advisor. If I did, I would have chosen that career. Making the occasional stock pick is fun for me in the same way others might enjoy gambling, but that is not the foundation for a solid financial future. And considering that we aren’t paying significantly more to have an advisor, it felt like the right choice.

Third, we wanted help developing a strategy to meet our goals. I understand the 4% rule, cross-referenced a lot of other blogs, learned about index fund and dividend investing and decided it could work for us, just like it had for so many others. But Mr. Vine did not completely trust that this was the correct investment path. He hadn’t done all of the research personally and he was not confident my math was correct. He always talked about other investment opportunities like real estate for example. To be honest, I was a little skeptical whether we could pull it off. Hiring a financial advising firm means the professionals come up with the investment strategy. We tell them our goals and they help us map out the path to get there. It’s also fun to occasionally blow their minds with seemingly oddball things we say, like: we never plan to buy another car. But that’s a post for another day.

Mr. Vine and I find value in having a financial coach. Our advisors provide reality checks here and there. They are more conservative than I would be with the numbers and retirement readiness. We appreciate their input and the fact that they’re watching the markets for opportunities every day. Mr. Vine and I are great setting large goals together, but we aren’t always the best at working together in the day to day. Having a financial advisor helps us communicate on those small details. Having a financial planner is not right for everyone and is probably necessary for even fewer. But there is no shame in enlisting the help of a professional, as long as you understand why it works with your goals.

Leave a Reply

Your email address will not be published. Required fields are marked *