Is the financial advice you're receiving worth it?

• Goal statement: I now better understand how advice versus fees for that advice can separately affect my situation. (02:13)
• Pensions are mostly a thing of the past and Social Security is not going to replace your six figure salary that you and your spouse have. You are now responsible for your own retirement in this society. (04:26)
• When they came out then, so Vanguard, this low fee, low cost company, when they came out and said their research showed that having a proper advisor could add 3% per year in overall net worth growth above what you would have gotten without them? (06:13)

Quote for the episode: " This study didn't even talk about things that a good comprehensive adviser will be doing for you, like taking advantage of say matching contributions through work, or analyzing your cash flow to maximize how much you could save every month, or making sure you have the right life insurance or disability insurance so it doesn't blow up all in your face." (10:07)

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Welcome to the Enjoy More 30s Family Finance

podcast. The only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

that tend to weigh on us, stress us out, and distract our focus

from simply enjoying life.

Hello and welcome once again to the Enjoy More 30s

Family Finance podcast. Today, what we're talking to you about

is the next episode of the Raising Your Investment Mindset

series. So this series we're wanting to help you reframe how

you may view the scary unknown, that's investments, and

therefore you can utilize them in a more constructive way you

can better reach your goals, you can make life more enjoyable.

That's the point of all this.

As always, if you like what you're hearing, please make sure

to subscribe, follow us on Apple podcasts, wherever you may

listen. Clicking those stars, leaving those reviews, it really

really helps us reach literally millions of other young families

that are just like you.

Now last week, we discussed how what may feel abnormal from an

emotional standpoint can actually be very normal from a

statistical standpoint. And by knowing what normal is then we

can better protect ourselves against acting emotionally, when

it does come to our investments. So take a look at if you know

what range of returns let's say for any one time period is

normal for your accounts. What is normal? What should you be

expecting, from a statistical standpoint on your accounts for

what can occur? So if you haven't checked out that episode

yet, definitely do that soon.

Today's episode I am super excited for. It is titled Advice

Should Trump Fees - The 3% Study, where what we're going to

do is review in my opinion, how advice should be viewed compared

to fees? What studies have supported being true in our

growingly fee focused society. So if you're going to pay for

advice, basically, you should really get some value out of it

right? That that should happen. And the goal for today's episode

then turns into so that if you can say this at the end of the

episode, then you have succeeded statement is "I now better

understand how advice versus fees for that advice can

separately affect my situation." So "I now better understand how

advice versus fees for that advice can separately affect my

situation." I want you to be able to know how if you are

getting advice from someone, is it worth it? Feeling confident

that it is worth it or that it's not. And so when we go through

today, the first thing I want to share with you is a story about

So when I was learning how to drive, you needed to take a

driving.

driving course for you know, so many hours as part of that

process. And I remember I started off really, really well.

The instructor seemed to be pretty impressed. You know, I

did have a lot of hours of racing cars and video game

experience. So I was really you know, excited to get behind that

wheel holding a controller would obviously be exactly the same as

driving a car in real life right? Now, as the time went on,

I guess the confidence was not helpful because I made a couple

of let's say shaky decisions before my time was up. But

luckily, I still was able to pass for my hours. And overall,

the reasoning for these courses, despite people that may have

extensive video game experience is that they want to make you

take these courses because it's important to know what you're

doing before you get behind the wheel of an actual car, a

machine that could kill you or somebody else. And no one really

argues with this process. Nobody says, "Oh, why are they making

me take this driving course?" Because the negative outcome is

so clear. It's injury or death. When it comes to investment

advice, it isn't so easy to see it. Some people have no advisor

and they're fine, right? "Don't advisors cost money? Are they

really worth the money? Can I see that value? How do I know if

I'm even getting a benefit?"

So let's start back two generations first with your

grandparents. My job didn't even exist back then. Because there

was no real planning that was needed. Everyone pretty much had

a pension. Everyone pretty much had Social Security. They would

retire and then they would just sit on their front porch for

like 10 years or so before they passed away. Now things are much

different today. Pensions are mostly a thing of the past and

Social Security is not going to replace your six figure salary

that you and your spouse have. You are now responsible for your

own retirement in this society. Now fees tend to come to the

forefront of the discussion. So how much is an advisor actually

worth? As of today there have been several studies that

actually tried to tackle this question. And they've been done

by leading firms. Not you know, not Joe Schmo down the street,

big, big notable firms. The most notable of these is Vanguard. So

pretty much everybody out there has seen a Vanguard commercial,

or probably has Vanguard funds in their 401(k), or something

like that at work and Vanguard decided to do a study that

talked about just this. Talked about fees. So I'll link this

study to the show notes if you want to really dive into it but

what they were trying to do is quantify this value. "How much

is an advisor worth?"

Now, Vanguard, like I said, I think most of you probably have

heard of them, but they are one of the largest investment firms

that are out there. And their approach to how they became one

of the largest investment firms out there is to try to have

mutual funds and ETFs. So you know, basically investment

options for you to use, that are as low cost as they can be. So

have the fun, just basically track an index as cheaply as

they possibly can so that, you know, they have the lowest fees.

And that's how they're competing against the rest of the market.

It's not a company that says, let me try to hire the most

expensive manager out there to try to outperform everybody

else. They do the exact opposite of that. So low fees, they very

much value. Low fees are their foundational element that built

them up to where they are today. When they came out then, so

Vanguard, this low fee, low cost company, when they came out and

said their research showed that having a proper advisor could

add 3% per year in overall net worth growth above what you

would have gotten without them? 3% more per year in overall net

worth growth, above what you would have gotten without that

proper advisor, it obviously got a lot of attention. How did they

come up with this net number? How did they get to this huge

value that they calculated?

Now, when you break it down, the biggest chunk of this came from

behavioral coaching, one and a half percent on average. And

they went about it in a really cool way. Because they have all

these accounts, they have all this data. So how do we go about

and say behavioral coaching actually adds one and a half

percent? How can we structure something to really prove that

one way or another? So what they did is analyze over 58,000 self

directed target date funds. So these are accounts that are

retirement accounts and using target date funds that are

selected based on your expected retirement year. So there's no

reason to touch it. So if you're going to retire in 2040, and

that's roughly when you think you're going to retire, there

really should be no reason that you would ever change your

investment. It's set up to get to be slightly more conservative

over time to when you get to that 2040. So unless you decide,

"hey, I'm going to retire 2050 now", or "hey, I'm gonna retire

in 2030 now." There should be really absolutely no reason to

ever make a change. Over five years, they charted the data for

these 58,000 accounts. And it came out that those people that

made even one investment change, just one, they trailed the index

by an average of one and a half percent. Again, there should be

no reason to make a change at a target date fund, it is set for

your retirement. Yhese investors were almost certainly acting

emotionally when they made these changes. And the data that

Vanguard calculated over five years shows that it cost them.

Now depending on somebody's situation, asset location was

another major item that they talked about. So basically,

asset location is where do you put your money? What kind of an

account? Are you putting it into an IRA? Are you putting it into

a 401(k)? Are you putting it into just a general taxable

account? Where are you putting that money? Does that matter?

Could add as much as 0.75%, according to all the data that

they tracked. So if you're earning $100,000 a year, let's

say and you're putting that money into a joint account,

instead of a Roth IRA that grows tax free, that's a huge

difference down the line. All the growth taxable to some

degree, or all the growth tax free. That really adds up. The

last very significant area was withdrawal order in retirement.

Where do I take my money out from first? Where do I take it

out from second, third, so on and so forth. I have all these

different accounts, I have a 401(k). I have a joint account,

I have an individual, I have a Roth, I have a 403 b. Where do I

take the money out of first, second, third, fourth, and so

on? And they found that this could add another 1.1%, up to

another 1.1% in additional value. This is kind of like if

you go back to algebra class, that whole order of operations

thing that we learned. So parentheses is first, then

multiplication and division, and so on and so forth. So following

the right rules can make your money last significantly longer.

They may all be three accounts, but which one you go to first,

second, and third, can actually affect how quickly you run out

of money. That's super important, right?

So if we take the approach and just go on the high side or

towards the high side, we're already way over the 3%. And we

haven't even gotten into comprehensive planning. If we

throw in let's throw in another 1% fees, you're still coming out

way ahead based on their data. This study didn't even talk

about, like I just said things that a good comprehensive

adviser will be doing for you, like taking advantage of say

matching contributions through work, or analyzing your cash

flow to maximize how much you could save every month, or

making sure you have the right you know, life insurance or

disability insurance so it doesn't blow up all in your

face. And it certainly doesn't address the most important thing

of all that an advisor should be doing for you; relieving you of

any anxiety that you may have, allowing you to go to sleep at

night with, with peace of mind. Without that anxiety. You want

to have clarity in where you're headed. And so making sure you

reach the goals that would make you happy in life. Again, all of

this comes back to happiness.

So let's do an example of some of those things. So Vanguard,

they helped us out they did that, that study the 3%. And I'd

even go into a bunch of the other areas. But we've got to

way over 3% if we wanted to already just based on those

three main items that they talked about. So let's do an

example of some of these things that we just talked about from a

comprehensive planning standpoint, things that the

study did not even include. So we already have that 3% from the

study, let's go outside of that, above that to some of the things

that the study did not even include. So I call this the

million dollar example. All right? So if we take advantage,

let's say we have a client that comes in, and they have a 401(k)

that offers a match that they are missing that they're not

taking advantage of. And let's just say that the person earns

$100,000, that matches 3%. So that would come out to almost

$375,000, over 30 years at 8%. Just because of that match being

missed. Now let's say that the advisor meets with them annually

and makes sure that they increase their savings as their

income goes up by 5% every year. Okay, now that adds another

$275,000 with those same assumptions, because of their

increasing contributions. You might say, "hey, oh, I already

take advantage of my match." Most people out there don't

systematically increase how much they're saving every year into

their plans as their incomes go up. In addition to that, now,

let's say that the advisor helps them save a piece of their bonus

every year. Most people that come into our office, and we ask

them, Where did your bonus go, they put their hands up into the

air, and they have no real idea where it goes. "I think I save

some of it does, some of it definitely gets spent. But I

really can't tell you Joe exactly where that bonus goes."

So let's say another $5,000 a year at those same assumptions,

which adds now over another $560,000. Now, let's say that

the advisor uses a Roth IRA that they weren't available weren't

aware of being available, or you know, 401(k)'s that are Roth

through work. All of that could now be tax free as well. So with

those elements that we talked about matching, incremental

savings increases 5% every year, saving part of the bonus $5,000

a year. We are already well over a million dollars in value at

that 8% growth. Let's say let's knock it down again, let's knock

it down to 7%. Let's add another 1%. In fees, you're still over

$1 million in value. So between the Vanguard study of the 3%,

plus all the other stuff we talked about, and all the stuff

I haven't even covered, whether it be life insurance, or

disability, or stock options, or all these other things that an

advisor a good advisor can help you with, I hope that it's clear

to see that a good advisor most likely can add significant value

to your situation. So I can't say that every advisor would add

value. I'm saying that a good comprehensive advisor, focused

on planning absolutely should in my opinion. If all you're

getting from your advisor is some investment recommendations,

and not planning in any of these areas when it comes to asset

location, when it comes to rebalancing, when it comes to

behavioral coaching, when it comes to matching, when it comes

to Roth IRAs, when it comes to withdrawal orders, all these

different things, then yeah, I could see it not being worth the

fee that's being charged. When you look at them helping you

save more though, when you look at them, helping you save more

in the right places. When you look at them, helping you

protect what you have, protect these dreams that you're

building towards, it really is not complicated to add up the

value that accumulates over the long run. So circling back

around to the goal statement for today, if you can now say "I now

better understand how advice versus fees for those advice can

separately affect my situation", then you have succeeded in the

goal for today. Congratulations as always.

Thanks, as always as well for tuning in with me today and join

us for next week's episode which is the Series Recap. We're done.

We will run down and cover all of these various elements that

we discussed when it comes to raising your investment mindset.

Overall if you are able to implement what we covered today,

that is fantastic. As always, I'm hoping to empower you in

whatever way would be helpful. Less to worry about means more

focus on enjoying life. If you're wanting help with these

things though, if you have questions if you want things

clarified, check out the ASK JOE section on the show's website

EnjoyMore30s.com. You can also connect with me directly by

visiting my wealth management firm New Horizons Wealth

Management at nhwmllc.com. Until next week, thanks for joining me

today as always, and I look forward to connecting with you

again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

only. They do not constitute accounting, legal, tax, or other

professional advice for your specific situation. You should

only seek appropriate advice from a financial advisor,

accountant, lawyer, or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

of TFS Securities, Inc., and TFS Advisory Services an SEC

Registered Investment Advisor Member FINRA/SIPC.