Note: this article can also be heard as a podcast episode: 13 Myths About Working With a Financial Advisor [podcast].
Of all the life skills that you can develop and strengthen, managing your money is perhaps one of the most impactful and important skills. Money is foundational to everything we do in life and how we relate to and handle money can have a significant impact on our quality of life.
For this reason, many people choose to seek help from a qualified financial advisor. A good financial advisor can help you improve your success with money and can be a valuable resource.
However, there are a lot of myths and misconceptions about financial advisors. Because of this, some people are hesitant or downright resistant to working with someone based on inaccurate perceptions.
So let's talk about the myths surrounding financial advisors and get the real story.
Myth #1: I have to have a lot of money to work with a financial advisor
Not necessarily true. While there are a lot of financial advisors who do have minimum requirements, there are also those who don't. In fact, the industry is evolving toward a more varied and flexible approach to serving clients and some of this movement is being pioneered by organizations like XY Planning Network (of which I'm a member).
The profession is gaining an increasing number of financial advisors who are rejecting the old-fashioned models of the past and embracing a more modern, efficient service model based on technology and efficiency in order to provide service to clients who may not have a lot of money (yet). Don't let this stop you from seeking help. A period in your life when you don't have a lot of money may be the right time to seek help.
Myth #2: A financial advisor will make me feel dumb
So I wish this myth was 100% false. Yes, there are financial advisors who will talk in jargon and roll their eyes when you don't understand. I recommend avoiding them.
A true financial advisor will have the heart of a teacher and will be patient while explaining concepts to their clients. Remember: you are the client and it's your money. You deserve to be treated with respect.
Myth #3: A financial advisor will just tell me to stop spending money so I will have to just wait until retirement to do what I want to do
False. Many people think financial planning is just about cramming as much money as possible into a 401(k) or IRA which means having no life until you retire. Sounds depressing!
To me, financial planning means organizing your money in a way that supports the life you want to live. This means helping you enjoy life right now.
A good financial advisor will go beyond just saving for retirement. They will be a money coach to help you get control of your finances so that your stress decreases and you start making progress toward your goals. And that's fun!
Myth #4: A financial advisor will put all my money in stocks and that sounds scary and risky
A good financial advisor will definitely not put all your money into stocks. A core tenet of financial planning is to ensure that you have a good strong short-term savings for things like emergencies and larger purchases. This typically goes into a good old fashioned savings account.
Beyond that, if it's appropriate to invest money into longer-term accounts, then stocks may be involved. However, in most cases for most people, your money is not going to be invested in single stocks. That would be fairly risky. Most financial advisors create well-balanced well-diversified portfolios for their clients that are made up of mutual funds and/or ETFs which are made up of hundreds of different stocks and/or bonds.
And before they do that, they are going to asses your risk tolerance and profile to make sure that your investment strategy is appropriate for your individual situation.
This diversification gives you a lot more stability than single stocks. While there are always risks when investing in the market, diversification can help remove a lot of the anxiety around volatility.
Myth #5: I need someone local to me and I’ll have to drive to their office all the time to meet
You're in luck! Many modern financial advisors use technology to communicate so nobody has to travel. For example, I use Zoom to meet with my clients via video conference. It works great and allows you to meet from the comfort of your own home. Everyone is busy and who has time to drive around more than we have to?
Many financial advisors like me have clients all over the country and meet with clients thousands of miles away via video conferencing.
Myth #6: I will feel embarrassed about my money habits
If a financial advisor makes you feel embarrassed about your situation or money habits, run away. No one is perfect and we are all doing our best to improve. A good financial advisor will approach your situation without judgment and will be empathic to your needs. The right person will help you feel safe when discussing your money challenges.
Myth #7: It will cost too much in fees
A good financial advisor will be worth a lot more than the fees they charge. More on that later.
That being said, there is some variety in how financial advisors charge for service. Some do everything as a percentage of the assets they manage for you (generally around 1% annually give or take) and this usually comes directly out of your investment accounts so you never have to write a check or swipe a card.
Others will also charge an upfront and/or ongoing fee depending on what they do for you. It can vary. But the point is, there is someone for you and your specific financial situation. Don't let the fear of fees keep you from getting help. Great financial advisors love to help people and will make it affordable for you.
Myth #8: I’ll have to hand my money over to someone and I don’t want to do that
When you work with a financial advisor, you are still in control of your money. It is typically kept in a custodian, which is a financial institution that is responsible for holding your money. It's in your name and it is your account. You will have access to it online anytime and you can move money back and forth and manage your account. Your financial advisor is assigned to your account but they are not holding your money.
And ultimately, you always have the final say on what you do with your money.
Myth #9: A financial advisor will just try to sell me products to make a commission
This fear is understandable. Until recently, much of the industry has been rooted in commission-based product sales. A financial advisor would traditionally recommend a product like life insurance or mutual funds and then receive a commission when their client bought it.
The industry has evolved (in a good way) in that most modern financial advisors are fee-only fiduciary advisors. This means that they don't make money on commissions. They instead charge a fee based on the service they provide. This removes any conflict of interest or incentives and helps the client feel reassured that the financial advisor is always working in the best interest of the client.
Myth #10: My life is so simple, I don’t need a financial advisor
So maybe you're single with no kids, no debt and a "normal" job. Maybe you have no need for a financial advisor. But maybe you also don't know what you don't know and you could be making better money decisions with the right guidance.
There is no one size fits all on the spectrum of life complexity and the need for advice. Life may be simple now but it rarely stays that way.
You may be 100% on track and handling your money beautifully. Or maybe you could use some advice. Either way, simplicity at a certain stage in life is not necessarily a reason not to seek help as you plan for the future.
Myth #11: All financial advisors do is tell me how to invest my money
Some financial advisors keep their scope focused on investment management. However, the growing movement of modern financial advisors are much more holistic in their approach.
Many financial advisors not only offer investment management but also create a financial plan and provide assistance in implementing that plan.
Many great financial advisors also help their clients through financial coaching and accountability to help them navigate life's money challenges and stay on track through budgeting and other support services.
Myth #12: I don’t need a financial advisor because I can do it all myself
Most of us are DIYers at heart. I get it. However, did you know that there is science behind the notion that financial advisors provide value? In a recent Vanguard study, it was concluded that financial advisors add about 3% in returns for their clients versus not working with an advisor. And that's just focused on investments, not even including the planning and coaching services they provide.
Additionally, like many other professions, financial advisors do this work day in and day out and make use of a full suite of tools, applications, and information sources to serve their client effectively and can often see a bigger picture than someone who doesn't do this as a full-time job.
So many people can go the DIY route just find. But I would argue that the majority of people could benefit from the help of a financial advisor. And this help could make a significant positive change in their money trajectory with far-reaching effects in the future.
Myth #13: I hate math and numbers and working with a financial advisor will be so boring and it sounds terrible
So most people don't wake up and say "I can't wait to meet with my financial advisor" any more than they say "I can't wait to go to the dentist" (no offense to dentists). After all, it sounds pretty boring and spreadsheets are no fun.
Actually, working with money is less about math and more about life. Sure, math is important (very important) but that is handled with tools and software. The real fun is in planning out life as it relates to money. The excitement happens when you start to finally take control of your money through budget coaching. It gets really interesting when you become debt-free and start to build up your net worth.
And it's even more fun when you create the space and systems to enjoy life now instead of stressing out by hiding from your money problems (hey, no judgment — I've been there).
Additionally, not all financial advisors are boring and stuffy. A good financial advisor will be a good personality fit for you. They will be able to relate to your situation and they will help bring the numbers to life without dragging you too far into the weeds.
A great financial advisor will help you see possibilities and will motivate you to strengthen your money muscles. I would even venture to say that it could be fun.
I've found through working with my clients that one of the most powerful and valuable experiences that my clients have is at the very beginning of the relationship. The first thing we do is gather all their financials into one streamlined dashboard and for the first time ever, they can see their financial "life" all in one place. For someone who has lived under the stress of not knowing their situation for so long, this simple act can be liberating and empowering. And then it gets even more fun.
While these are some of the more common myths, I'm sure you can think of more. But whatever myth is keeping you from seeking help, know that there are financial advisors who are focused on helping you no matter what your situation is.
Don't let dated perceptions or fears keep you from working with someone. You might be pleasantly surprised at how accessible, valuable and enjoyable it is to work with a great financial advisor.