As a Financial Advisor, Are You Delivering All These Services?

Clients not getting these services will fire you and find a replacement advisor

Ric Edelman: It's Thursday, September 14th. Back in August, I interviewed Matt Barthel of Barron's. He heads the top advisors ranking and he told us how Barron's identifies the nation's top advisors.

Steven wrote in and he said, “Ric, during your podcast with Matt, you discussed the range of services that investment advisors can and should provide to their clients. Can you say more about these services, the services that every advisor should provide? This would be helpful to both advisors and their clients.”

It's a good idea. Steve. By the way, if you want to do what Steve did, you can write to me to write a note to askRic@thetayf.com.

So let me answer your question, Steve. What is it that advisors ought to be doing for their clients? Well, first, let's begin with what it is that advisors are charging their clients. Most charge an AUM fee assets under management, typically 1 to 2% of assets. So if you have $1 million account, the fee is call it ten grand. Now it's pretty clear that most people turn to most financial advisors because they mostly want help with their investment management. But there's a lot more to personal finance than just investments. So if you're a financial advisor and all you're giving your clients is investment advice, you should probably prepare to get fired. 

Investing is now a commodity. It's pretty much available everywhere, really, really cheap. So you need to do more than just investment management to justify your fee. Oh, for sure. In the world of investment management, you need to be doing everything a client either can't or won't do on their own. Building a diversified asset allocation model, finding great investments to fill that model, rebalancing the portfolio, periodically engaging in tax loss harvesting. Sure, that's what you need to be delivering for the investment management piece. And in fact, maybe that's all your clients say they want, fine. But even if that's all your clients say they want, you know, they need more than that.

As an advisor, you need to be delivering more than that. You need to be delivering financial planning. In other words, if you ask somebody, Why did you make that investment, you get an obvious kind of a dumb answer to a dumb question. Why did I buy that investment, so that it would go up in value? Well, okay, but how much does it have to go up? It's not enough that you're trying to make your money grow. You've got to have a target. You've got to have a goal in mind. How often do you get in the car and have absolutely no idea where you're going?

We begin with a goal. That's why we go to college. My goal is to get a degree in a given field. Right. We need to do the same thing with our investments. Why are you buying that investment? It's to produce X amount of money at X age. That's what financial planning is. We want to plan for our financial future. How much money are you going to need at retirement in order to sustain your lifestyle for as long as you're likely to live? How do we make sure you're protected against the costs of health care, long term care that we're dealing with other related issues associated with this? That's what financial planning is all about.

And in fact, it goes far beyond just basic financial planning. We're talking about related elements such as home ownership and mortgages. How much of a house can you afford? Should you pay cash for that house? How much are you going to put down as opposed to getting in a mortgage? What kind of a mortgage should you be getting fixed rate loan or an adjustable rate loan? How long should the term be a 15-year loan or a 30-year loan? How about automobiles? Should you buy your next car or lease it? How about cash reserves? How much do you need in cash reserves? Where should that money be maintained? What about your credit cards and existing debts? How do you manage those?

Clearly, there's a lot to be engaged in in the subject of financial planning, and then we can get into very specific subjects college planning, wedding planning and estate planning. 

College planning is essential because it's every parent's biggest fear. We all know that the average cost of college today is higher than ever $100,000 to $200,000. We know that the average student emerges with $30,000 of student loan debt, $1.7 trillion owed by 40 million households around the country. How do you make sure your child gets the degree they want without being saddled with the debt that they don't want? College planning is an essential part of financial planning these days.

Related to that is career planning. How do we make sure the child's going to get a degree in a field that it's going to exist in ten years with technological innovation?

Related to that, wedding planning. If you think about it, a wedding is nothing more than a four hour party. Do you really want to spend $50,000 or $150,000 on that four hour party? Some say sure, absolutely. Others say no. But I'll simply tell you this. The average bride says, “I want the wedding.” The average wife says, “I wish I took that money and used it as a down payment on a house instead.” Think about wedding planning as a key element of the services a financial advisor can provide.

And then there's estate planning. It comes down to only a few simple issues. Number one, most predominant, who gets what? When you pass, who gets all of your assets? Surviving spouse, surviving children and grandchildren, charities? What if there's an estranged member of the family? What if you have a special needs child? What if you have a child who spends more time in rehab or jail, or someone who's a spendthrift or someone who's married to someone who is putting them in a troubled marriage where you might end up giving money to an ex-daughter in-law, only to discover that you never see the grandchildren again. Estate planning can get very complicated when you begin to consider the family and the intergenerational planning that goes along with it. And that's why estate planning is a fundamentally important topic for financial advisors.

Related to all that is the notion that when it comes to making money, it's not the money you make that matters. It's the money you keep that matters. I'm talking about taxes. It's not enough to make money. We want to minimize the taxes, make sure you're paying every cent you owe under the law, but not a penny more. 

For wealthier clients, the conversation can get even more complicated. Wealthier clients tend to own businesses, and you've got all of those attendant issues. They often have second properties, even yachts and aircraft. You might need to provide these folks concierge services, helping with everything from concert tickets to dog walking.

The best advisors help their clients with everything associated with a dollar sign. The best advisors work with the best firms. You'll find these lists of the top advisors and the top firms at Barron's. And yeah, in case you need to be reminded, Barron's named me the number one independent advisor in the nation three times and they named Edelman Financial, the number one firm in the nation six times, including in 2023. And yeah, I'm also in the Barron's Advisor Hall of Fame.

You know I like to talk about the things that matter most. So I encourage you to listen to my wife Jean's podcast, Self-Care with Jean Edelman. Her new weekly episode comes out today. Jean shares her experience and knowledge with you on self-care, mindfulness and overall wellness. You can listen to Jean everywhere you get your podcasts and you can also subscribe to Self-Care with Jean.com.

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