Written by: Corey Janoff
This post was originally published on our previous blog website on April 18, 2018 and has since not been revised and/or updated.
Why do people choose to work with a financial advisor? There are plenty of free resources out there to educate yourself and learn how to manage your finances. From portfolio construction to retirement savings tools and debt elimination programs, you can put together a rock solid financial strategy without so much as speaking to a professional. So why would anyone ever hire a financial advisor?
Why would anyone ever hire a landscaper, a carpenter, a window washer, a lawyer, or an accountant?
Landscaper
If you want to install a sprinkler system and keep your backyard looking beautiful, you can do that yourself. YouTube videos can teach you everything you need to know. All you need to do is dig a few trenches, lay down some pipe, connect it to the existing plumbing system, install sprinkler heads, connect a sprinkler box to your existing electrical system, cover the pipe with soil, spread grass seeds, and voila! If you want some shrubs and flowers, you can plant those yourself. It’s not very hard to dig some holes. You can weed your own garden beds and mow your own lawn. Stop being so lazy. But nobody will question you if you hire a landscaper to do those things for you.
Carpenter
You want new kitchen cabinets? Simply measure the space, order the wood, cut the pieces into appropriate sizes, nail the pieces together to create the cabinets, screw in hinges, attach the doors and mount the cabinets onto the studs in your walls. If you don’t have the time for that you can order pre-built cabinets and simply hang those yourself. They will come with instructions and you can watch how-to videos online. But first, harness your inner Chip Gaines and shout out “DEMO DAY!!!” and tear down your existing cabinets. However, nobody will question you if you hire a professional to do this for you.
Window Washer
Do I really need to explain this one? Once a year, get a ladder, a bucket of soapy water, and a squeegee. Don’t waste your money on hiring a professional window washer. But if you don’t have the desire to do it yourself, nobody will question you for hiring someone to clean your windows.
Lawyer
We’re getting a little more high level here, but still. If you are in legal trouble or need legal advice, you don’t need to talk to a lawyer. You can purchase law textbooks. Read through the laws that apply to you. Educate yourself. If you’re going to court, your trial date will be set for months out, so you have plenty of time to study up. You can represent yourself or even use a public defendant if you must.
If you need a will or business documents drafted, there are plenty of free and inexpensive online tools to do that for you. There is no guarantee that they will hold up in the court of law, but there is no guarantee the ones done by an expensive lawyer will either. It has to be a competent lawyer and even then it can get tricky, because laws change! But nobody will question you if you hire a lawyer.
Accountant
Are taxes really that difficult? It’s just math. And the IRS gives you easy to follow step-by-step forms to get things done. If you don’t want to do it by hand, you can pay a small sum for accounting software to populate and file all of the necessary forms for you. Seems like a waste of money to hire an accountant, who has had thousands of hours of practice in this arena, and pay them hundreds or even thousands of dollars to do something you can do yourself. But nobody will question you if you hire an accountant for your tax planning and tax preparation needs.
Why are Financial Advisors Different?
There are plenty of free tools out there for those that want to manage their own finances. Yet, unlike other professionals, financial advising seems to be the only profession where your friends and colleagues will question you for using one. And I don’t know why. I can’t tell you how many times a client or prospective client has said to me:
“I was talking with one of my friends about using a financial advisor and my friend said, ‘Why would you ever pay for a financial advisor? You can do that yourself for free.’ So can you explain to me the benefit of working with you?”
For one, not everyone has the time or desire to manage their own finances. Unless you enjoy it, it can be painstakingly boring. And if it doesn’t interest you, odds are you’re not going to devote the appropriate amount of time and energy to it. Also, when things don’t interest you, there is a greater chance of rushing to make a decision just to get it over with….which could lead to undesirable outcomes.
You know that never-ending To-Do list you have at home? If you put in enough time and energy into all of the things you want to accomplish, you wouldn’t have a To-Do list. You would have an Already Done list.
But people don’t have enough time for everything. If you enjoy gardening, you will put in the time to grow a bountiful garden of vegetables. If you don’t like gardening, you will buy your vegetables at the grocery store and save yourself a lot of time and backache.
Feedback Loop
Money is a very sensitive and emotional topic. As a result, people do irrational things when it comes to money. Often, they don’t realize the mistake until years later.
Money mistakes don’t give you instant feedback. As humans, we learn through trial and error and the instant feedback loop will tell us whether a trial was successful or not. The quicker the feedback, the quicker the learning curve.
If you are learning how to shoot a basketball into a hoop, you receive instant feedback as to whether or not your attempt was successful. If the ball goes through the hoop, your brain registers it and will attempt to repeat that same motion the next time. If you overshoot the basket, your brain will attempt to dial down the strength. If you miss short, you learn to increase the strength. If you miss left or right, fix the angle. Instant feedback. It will take hundreds of thousands of shot attempts to master the art of basket making, a la Steph Curry, but you can get to an acceptable level of proficiency fairly quickly with a little practice.
When you invest money, it could be years, even decades before you can determine whether or not that investment was successful. And you can’t rewind the clock and redo it if you find it wasn’t the best choice. The feedback is extremely delayed, which makes it very difficult to learn from. That’s why you see people make the same mistakes time and time again. They read about some hot sector to invest in and a few years later it didn’t pan out as expected. So people pull money out of that sector and invest in the new hot sector. And they potentially pulled money out of an area that they should be staying invested in.
If you want to pay for your kid to go to college, you may start investing a certain sum regularly, but you won’t know if that was the correct amount (or the right investment choice) until you get much closer to your child’s 18th birthday. So it’s important to review it regularly and update the college costs you are shooting for. If needed, adjust the amount you are investing to stay on track.
How Do You Approach Finances?
In actuality, your behavior surrounding your finances is what will most likely predict success or failure. If you are constantly looking for greener grass, or going into debt to make major purchases, odds are you will fall short of your investment goals. If you try to avoid money conversations altogether, then good luck. But if you develop a plan, review regularly, and stick with it, you will likely see success.
Heck, I know some financial advisors who use financial advisors! The reason is they want someone to hold them accountable and make sure they stay on track to reach their personal financial goals. When left to their own devices, people often cut corners or wander astray.
Similar to using a personal trainer at a gym – two more things that are a giant waste of money. You don’t need a gym. Go for a run outside and do push-ups and sit-ups in your living room. There are free yoga classes on YouTube. But we all know, you probably aren’t going to do as much on your own as you will if you know you are paying for a facility to exercise at. You want to get your money’s worth. Also, you probably aren’t going to set fitness goals and draw up a plan yourself to reach them. Hiring a personal trainer will ensure you do that and hold you accountable.
“Great session today. Now run two miles a day, followed by 100 push-ups and 100 sit-ups. Track your time and send it to me. I’ll see you next week to check your progress and give you your homework for the following week.”
Well, you have that weekly appointment on the calendar and you don’t want to feel embarrassed, so you darn well are going to run two miles a day and do your push-ups and sit-ups (maybe you’ll skip a day). You want to see results for those $100 training sessions.
The difference is, not everybody cares if they are in tip-top shape and can run a mile in under six minutes. But everyone should care if their finances are in good order. Aside from you and your family’s health, I would argue that your financial health is next in line in order of importance.
So next time someone asks you why you are working with a financial advisor, you can tell them, “Because I don’t have the time or desire to learn how to do it myself and I want someone to hold me accountable and keep me on track to reaching my goals.”
And if you’re not using a financial advisor, ask yourself, “Am I really doing everything I should be to reach all of my financial goals (or at least the important ones)? Do I even know the answer to that question?”
Disclosures:
In case you couldn’t tell, I was being sarcastic when discussing other professionals. This post is not meant to be misconstrued as tax or legal advice. Consult with a legal or tax professional for those matters.
