Do I (we) need a financial advisor?

Question

Hi everyone,

Need some feedback from you who have experience in this department. Do my wife and I need a financial advisor (or anything in that realm) this early in our careers?

We currently have 1 primary and 2 LTRs. I do plan on growing the RE portfolio and want to make sure the next moves are savvy.

We have decent 401ks, and limited liquid funds in savings...

Thank you for your time

Stephanie Knight · Answer

I would recommend seeing a financial advisor periodically over your career. You want to be sure you are investing in more than your 401k. I know from experience that I have too much money in a 401K that it will kill me in required maximum distributions, and therefore taxes when I hit the magic age. Making sure you are hitting a Roth, potentially saving (but not oversaving) for kids college, if you desire; these are all things an advisor can help with. Get one who understands RE is important as well, obviously.

Max Gallagher · Answer

Completely agree with @Josh St Laurent - You can certainly do it yourself but should have the time, desire, and expertise. There are many ways a (good) advisor can add value outside of managing a portfolio.

To know if it's "time" to work with someone, I would suggest reaching out to a few  advisors and request a consultation. Many would be happy to hear what you have going on and outline the ways they believe they can help. From there you can make an informed decision on if the value you're receiving outweighs the cost.

Josh St Laurent · Answer

Depends on how you're defining "need". Can someone get in shape without a personal trainer? Sure. Finance is similar in that regard.

A good financial advisor will work with you to maximize the rental income, ensure you have a cash flow plan that plans for reserves for your properties. Would make sure you are using the right diversified and low cost investments in your retirement plans. Analyze your estate plan to make sure your family is covered should you or your spouse (or both) pass away, become disabled or not be able to work. They'll design a tax plan to help offset any W2 or 1099 income that you have. Make sure you're saving enough for a RE investment fund, retirement, or whatever else may be important to you.

Some people like their advisor for accountability, others for strategy or outside the box ideas. Can you do all of that yourself without an advisor? Maybe, but do you want to?

If you plan to hire an advisor, look for a flat-fee advisor working for an RIA (Not a broker dealer) that doesn't have anything to sell you.

Bruce Woodruff · Answer

I think everyone can benefit from talking to a Certified Financial Planner once in a while......

I would prefer one that does not have a product(s) to sell.....

Patience Echem · Answer

Armando,

I think it depends on where you are starting from. Looking back, I think I got into using a financial advisor too early in my journey. The disadvantage is that they were assets under management group. Which means I paid a lot of the money in fees until I found out I was paying a lot. Remember with such a provider, the less money you have under management, the more you pay as a percentage in fees, so for a start, I was paying 2.5%. This happened in a good and bad year. It was not until I asked that the fees were dropped to 1% and even that is a lot when you zoom out to over 15 years.

Also, many do not know much about real estate and are unwilling to advise on taxes as they are not tax professionals. Your benefits for having one are guidance on portfolio set up, consult for total financial checkup, and development of trusts through a legacy attorney for your family. All these are very necessary which is why I think if I must do it over, I will go the route of fee for service, not asset under management.

In financial terms, having asset under management CFP is like a very healthy person with a low-deductible insurance which means you pay high premium every month for something you hardly use. While fee for service is like having HSA which grows while invested for years and is still there when you need it.

Jules Aton · Answer

I prefer to DIY for the most part and will check in with a fee for service financial advisor every 5 years or so to ensure I'm on track or for assistance like when I I set up my first back door Roth. In my opinion there isn't a need for anything fancy. I have a 3-bucket portfolio with Total Stock Market Index funds, RE and cash/bond type funds. Pretty much set it and forget it with a yearly rebalance to keep % as per my financial plan. It isn't difficult to do if you are interested in it but if not I would definitely go fee for service and avoid an Assets Under Management advisor. My accountant is where I find the value in outside assistance.

Armando Carrera · Answer

I appreciate both your responses! Sounds like I need to see an expert and explain our current and future plans.

Its nerve wracking speaking with a financial advisor since growing up we never had anything of value and those talks are "only for people with money"....

Josh St Laurent · Answer

@Armando Carrera the cost of a financial advisor/planner should always outweigh the cost. In your current situation tax strategy will likely have the most impact on your finances. Plus there are other things that are harder to measure, like having a will/trust to protect your family. Most professionals should be able to give you some sort of proposal to show what you will work on before they charge you a penny.

Do I (we) need a financial advisor?

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