Why Should I Use a Financial Advisor for Asset Management? (Updated Jan. 2024)

Why Should I Use a Financial Advisor for Asset Management?

Topics: Investment options/allocations, tax consequences, contribution limits, associated costs of investing and outsourcing your finances

This is the updated version of my very first blog post! This initial blog is in two parts: 1) a bit of personal stuff about me and 2) 5 reasons addressing the question I asked above – Why Should I Use a Financial Advisor for Asset Management? For more about me, read on. If you don’t have a couple extra minutes and want to skip the personal stuff, scan down to the next heading, but either way please check out my website: www.mhb-advisory.com.

Before diving into the question posed above, I thought just a little background info might be necessary on why I am writing a blog in the first place. Nearly 6 year ago, I started my own financial service company to provide financial education to those who might need it and more bluntly, to help people save money. Most people today would have a hard time coming up with $1,000 in an emergency!

While I didn’t learn about investing from my parents, they stressed the importance of saving when I was young. So fortunately, they taught me the first and most important step in wealth building and let me figure out the investing for myself. Investments are tricky, but the most important thing about investing for the future is that it’s even more difficult if you’re not saving money in the first place. While you may not have a big bank account, there is one thing to take away from reading this: Establish a plan and goals to get your savings on track so you can get where you want to be in retirement. Not just retirement in the traditional sense, but Financial Independence. Living the lifestyle you want balanced with adequately saving for the future. If you need help establishing a plan for Financial Independence, I suggest a Financial Advisor. I know a really awesome one with email! matt@mhb-advisory.com.

My hope is this blog will provide information through some original content and answer some of the questions you may have or address the thoughts you’ve been thinking. I also want to let you know how you can help. Admittedly, the marketing aspect is a challenge for someone spreadsheet-oriented like me, but researching topics, analyzing data and writing reports has been my life since joining the world of financial services in 2005 as a Research Analyst – so kind of like a blog. Since I started up an Advisory business and began blogging, I’m ready to formulate your financial plan and/or manage your money! I hope you might help me in continuing to spread the word or tell others about the blog if you find something interesting. Even if you are not a client, a personal referral would be greatly appreciated!

Okay last plug for me and the website. I’m up front about my fee structure (Personal Services fees and Business Services Fees), and you can check out the different levels of services, but if you are looking at starting a budget to ramp up your savings, I hope you will sign up to access our Free Budgeting Tool.

If you have read to this point, then God Bless! On to the good stuff and the question:

So…Why Should I Use a Financial Advisor for Asset Management? Here Are 5 Reasons:

Investment options and allocations

Well for starters investing is confusing given the sheer number of investment options. A study noted the average number of investment options in a 401k was 27. Depending on age, risk tolerance and investing timeline, most investors need maybe a third of those to be well-diversified, so how do you know which ones? Then if you are looking to invest outside a 401k there are thousands of options – stocks, bonds, mutual funds, target retirement funds, ETFs, commodities, REITs and the list goes on. Most advisors (including me) preach diversification. Once you’ve identified the best investment options, how much of each do you need? Well that depends on a lot of things (again age, risk tolerance, investing timeline). Furthermore, each of the options has different tax consequences and underlying costs as we discuss more below.

Tax consequences

The impact of taxes on your investments can be critical – obviously. Pre-tax contributions to your 401K help reduce your annual tax bill, but what about when you take distributions? What about other investment accounts like an Individual Retirement Account? Contributing to an IRA has different tax implications as well depending on if a Roth IRA is right for you or if a traditional IRA is preferred based on your income level. Furthermore, if you are contributing to a taxable account you may have to pay capital gains taxes on dividends even though you don’t get the cash in the form of a distribution, so balancing your investment strategy across different types of accounts is important not only regarding how money goes in but also how it is withdrawn. Also – talk to a CPA!

Contribution limits

Admittedly, a google search can help you understand the contribution limits you can make on an annual basis to your various accounts, so you don’t necessarily need an advisor for that. Plus, I posted it below. But the amounts do change, so knowing how to adjust your savings rate accordingly at the beginning of the year might be helpful. If you save ahead of schedule, generally your employer will track this for you so you will not be allowed to contribute more than the maximum amount once you hit your limit. Where an advisor can help is with allocations to each if you must choose where dollars go within these accounts, or obviously how to allocate within the accounts themselves. The orange bars represent catch-up contributions for those 50 and older.

Associated costs of investing

This is a hot topic for me, and the reason I became an Advisor. In terms of associated costs of investing, yes you will pay for the services of a Financial Advisor, but it may well be worth it (like for your CPA, doctor, or plumber). I believe this to be a differentiator among advisors – some have a fiduciary duty, some do not. Some sell their Company’s products, some do not. However, the good news is that trends are in favor of the consumer with lower fees, lower trading costs, and lower costs for the underlying assets. More on that last point: In terms of underlying asset costs, let’s compare two popular investment choices, US Equity mutual funds and US Equity index funds. It’s noteworthy that the average equity mutual fund cost 0.63% of your assets annually (or $6.30 for every $1,000 invested) while the average equity index fund cost 0.08% (or $0.80 for every $1,000). While this difference seems minuscule, in an example of two clients – one using mutual funds, one using index funds – with identical $100,000 starting balance, 7% return, 30-year investment horizon and these underlying asset costs deducted quarterly, the account using index funds would have accumulated well over $100,000 more in 30 years than the account using mutual funds.

Outsource your finances

If you don’t like numbers or investments or thinking about your finances – outsource the heavy lifting to an advisor. Think about the tasks you might outsource to a professional (or someone who can do the job better than you or in less time than you or both, ultimately saving you time for more important things) – maybe your house cleaning, lawn mowing, pool cleaning, dog-walking, getting a haircut, among others. But you want to handle your finances by yourself? I would argue that second only to your physical health (and let’s include your spiritual and mental health with physical health too) must be your fiscal health. How much time do you spend on your physical health (gym, healthy eating, regular doctor visits), your spiritual health (worshiping, quiet time, prayer) or mental health (reading, studying, learning)? Are you spending at least that much time on your fiscal health? You should at least be tracking spending and maintaining a budget. But things like formally setting goals and establishing a plan to achieve those goals (or seeing if you are on track), as well as the actual allocation and portfolio management should be left to a professional.

Okay – those are 5 reasons, and I’m sure there are more, but a few more closing thoughts. The rebuttal for not utilizing an advisor is that you have been generally crushing it in the market. Yes, there have been a few swings for the Great Recession, Covid and Interest Rate Hike of 2022. And I'm not here to say I'm smarter than the market. But, if you find yourself selling at the market bottom or buying at the top, consider your emotional state as part of your investing. Having an advisor won’t likely stop you from losing money in investments when the downturn comes but knowing you have a long-term plan of action in the event the market softens can be reassuring, and an advisor should help you maintain your asset allocation, which in turn will make sure you are following the adage of “buying low and selling high”.

Lastly, after realizing you need an advisor, the next question is which advisor? Well me of course, but why? Well back to the main point about saving money. If you have an advisor, I still might be able to save you money. I can run an analysis of the expenses related to your portfolio to make sure you are getting the best value. Advisor fees and the cost of underlying assets can significantly slow the growth of your investments over longer time horizons as outlined. I rely on the aforementioned index funds or ETFs to construct the core of your portfolio. I’m not selling my company’s mutual funds or benefiting directly from any specific asset I might purchase for you. That’s part of my fiduciary duty, which not all brokers are required to adhere to. So, I work in your best interest, not mine, with the goal of keeping your costs low to save you money over the course of a long investing time horizon. In addition to a core portfolio of low-cost index funds and ETFs, I also rely on my background in oil and gas and real estate investing to offer knowledge to take advantage of inefficiencies of investing in real assets to supplement your core stock and bond portfolio and provide additional diversification.

Based on the principles of time value of money, there’s no time like the present to start saving and investing, or if you’ve managed that, at least develop some goals and a plan. If you or someone you know has any financial-related questions, I would love to have a conversation, so please feel free to reach out: matt@mhb-advisory.com.

Best wishes on your financial path!

Matt

This post was created by Matt Beeby, the Founder of MHB Advisory Services. Matt has been working in Financial Services and investing in real estate since 2005, though his investment experience spans nearly two decades. He is a Christ follower, active in both his church and his neighborhood association. Matt enjoys sports and family time. Read more about Matt on his website bio.

Disclosures:

Information contained in this document is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any product or security.
This information is believed to be accurate and should not be considered tax or legal advice.
Please consult tax or legal professionals for such advice and be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed.
Investments involve risk and are not guaranteed to appreciate, and past performance is not indicative of future results.
Additional information including our privacy policy and Form ADV are available on request or can be found on our website: mhb-advisory.com.

Sources:

https://finance.yahoo.com/news/58-americans-less-1-000-090000503.html

https://401kspecialistmag.com/how-many-investment-options-are-in-the-typical-401k-plan/

https://www.bankrate.com/finance/taxes/retirement-plan-contribution-limits.aspx

https://www.nerdwallet.com/blog/investing/typical-mutual-fund-expense-ratios/

Photos: https://unsplash.com