DIY vs. Financial Advisor: How to Know When It’s Time to Get Help │ Root Talks

Summary

Episode Summary: DIY vs. Financial Advisor: How to Know When It’s Time to Get Help │ Root Talks

In this insightful episode of Ready For Retirement, host James Conole, CFP®, delves into the critical decision-making process between managing personal finances independently (DIY) and enlisting the expertise of a financial advisor. Through a comprehensive discussion, James and his co-host explore the benefits, challenges, and indicators that suggest when it might be time to seek professional financial guidance.

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1. Proactive vs. Reactive Financial Planning

The episode opens with an engaging analogy comparing financial advisors to medical doctors. James emphasizes that just as we consult doctors to maintain our health proactively, financial advisors play a similar role in maintaining and optimizing our financial well-being.

Speaker B: "When you work with an advisor, sometimes it's about timing... there's a way to think about it so that when you do hire an advisor, you go, my life's way better." [00:00]

This sets the stage for understanding the importance of proactive financial management versus a reactive approach that only addresses issues as they arise.

2. Identifying the Pain Points of DIY Financial Management

James and his co-host discuss the common challenges faced by individuals who manage their finances without professional assistance. These challenges often include feeling overwhelmed, lacking confidence in financial decisions, and the risk of missing critical details that could impact long-term financial health.

Speaker B: "It's not just investment stuff. It's taxes, it's insurances, it's legacy. It's all that." [05:54]

The conversation highlights how DIY financial management can lead to unnecessary stress and potential financial pitfalls.

3. The Value Proposition of Financial Advisors

Delving deeper, the discussion explores the multifaceted benefits of hiring a financial advisor beyond mere investment management. Advisors offer expertise, save clients time, and provide peace of mind, allowing individuals to focus on what truly matters to them in life and retirement.

Speaker B: "How can we spend our money to get our time back so we can spend that time with each other?" [07:00]

This perspective underscores the idea that financial advisors not only manage money but also enhance the quality of clients' lives by freeing up their time and reducing financial stress.

4. Evaluating the Worth of Hiring an Advisor

A central theme of the episode revolves around assessing whether the cost of hiring a financial advisor is justified by the benefits received. James raises the critical question of value versus expense, prompting a thoughtful examination of how professional financial management can lead to better financial outcomes and personal satisfaction.

Speaker A: "Is it worth it?" [09:34]

5. Client Testimonial: Ari’s Experience with Root Financial

A significant portion of the episode features a testimonial from a client named Ari, who initially preferred a DIY approach but ultimately chose to hire Root Financial. Ari shares five compelling reasons for his decision, providing real-world insights into the benefits of professional financial advice.

1. Outside Expertise

   Client (Ari): "Sure, I could spend hours or days trying to get versed in all the rules and issues, but my wife and I both agree that... we might not trust that we didn't miss something." [04:08]

2. No Hassles

   Client (Ari): "We meet with our advisor often. In between, we exchange emails without any effort on our part." [04:08]

3. Peace of Mind

   Client (Ari): "We just sleep better, knowing we're not alone on a multi-decade journey." [05:54]

4. Pre-Tax Fees

   Client (Ari): "Fees are pre-tax for our accounts, which are majority in a 401k IRA." [15:00]

5. Cost-Benefit Justification

   Client (Ari): "I have to say I don't mind the fees at all. When I weigh out the cost benefits, it's certainly worth it to us." [15:00]

Ari's testimonial provides a relatable narrative for listeners contemplating the shift from DIY to professional financial management.

6. Understanding Advisory Fees and Tax Implications

James and his co-host delve into the specifics of advisory fees, clarifying how these fees are handled in a tax-efficient manner. They explain that fees deducted from retirement accounts like IRAs are pre-tax, meaning clients do not incur additional taxable income from these payments.

Speaker B: "If you're paying an advisory fee and that's coming from an IRA... it's spending the money to hire an advisor before taxes come out." [17:07]

This clarification helps dispel common misconceptions about the financial impact of hiring an advisor.

7. Recognizing When It's Time to Seek Professional Help

The episode concludes by outlining key indicators that suggest it might be time to consult a financial advisor. These include ongoing financial stress, lack of confidence in financial decisions, and a desire to optimize financial strategies more effectively than DIY methods allow.

Speaker B: "If you're asking that, if you're continuing to ask yourself that, it's probably a symptom... something in your financial life that's not fully at peace in your mind." [18:06]

James encourages listeners to reflect on their financial management satisfaction and consider professional assistance if they identify any areas of concern.

8. Conclusion and Next Steps

Wrapping up the discussion, James reiterates the transformative potential of working with a financial advisor. He underscores that while not everyone may need professional financial help, those seeking greater peace of mind and optimized financial strategies can greatly benefit from it.

Listeners are encouraged to visit Root Financial's website to explore whether hiring a financial advisor aligns with their retirement goals and personal preferences.

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Key Takeaways:

• Proactive Financial Management: Similar to maintaining health through regular check-ups, proactive financial planning with an advisor can prevent issues before they arise.

• Peace of Mind: Professional financial advisors alleviate the stress and uncertainty of managing complex financial matters alone.

• Time and Expertise: Delegating financial management to experts allows individuals to focus on personal priorities and enjoy their retirement more fully.

• Cost Efficiency: Advisory fees, when managed correctly, can be a cost-effective investment in one’s financial future, especially considering the tax implications.

• Personalized Support: Financial advisors provide tailored strategies that align with individual goals, values, and life circumstances.

This episode serves as a valuable resource for anyone contemplating the transition from DIY financial management to professional advisory services, offering both strategic insights and relatable client experiences.

Transcript

[A]

James, when you work with an advisor, most people reach out because they go, I want peace of mind. I don't want to have to worry where I have a new job, having to do this in retirement. However, when you first go to hire an advisor, it's not as black and white as you might think. Some people think it's as simple as, hey, I just broke my leg, now my legs broken, I need to go to a doctor who's going to fix my leg so I can walk again. When you work with an advisor, sometimes it's about timing. It's about, oh, I currently have an advisor. They're my best friend, how am I going to break up with them? Or when it comes time to working with an advisor, there's often a framework that we'll talk about and there's a way to think about it so that when you do hire an advisor, you go, my life's way better. And I've thought through this intentionally when it comes to truly going, yes, it's time to hire an advisor. How is it that you think about this when you're speaking to someone.

[B]

Kind of like what you just mentioned, I think, but in the sense of, is something broken? Is there pain? Is there something that needs to be fixed? And that's only one part of it, though. And I'll say like, like the doctor, very much like the doctor, your leg is broken, you feel pain, you know that that needs to be fixed. The difference is when you're doing that, that's very much a reactionary thing. That's very much of a, something already happened, I need to fix it. Hopefully with an advisor, it's also a preventative thing. It's not just a doctor that fixes things. It's the doctor that helps to keep you healthy. It's the doctor that helps to keep you in shape, in line. And all this from a financial perspective, of course, to hopefully avoid some of those pains that may have existed without an advisor. And so I think that the biggest thing is, well, does something hurt? Is something painful? That could be anything from, I know I'm getting crushed in taxes because I don't know how to manage my portfolio, my tax strategy correctly, to I know I'm not performing as well as I should, or my portfolio is way out of whack, whatever the case might be. That is a type of pain. Maybe you feel totally good. And in fact, I would venture to say a lot of people who are listening to this, people that listen to podcasts and listen to videos and they're, they know a lot of that stuff. They've listened to the, the how tos, the what to look for. It's not necessarily a my portfolio is out of whack, my tax strategy is missing, or it's more of that peace of mind is lacking, which is very much a type of pain. And one thing that we'll talk about, Ari, is will encourage people to spend their money a lot. What do you spend spending on something that's going to increase your quality of life. That can be a vacation, that can be a home upgrade, that can be something that feels totally frivolous, but it just adds to your quality of life. It increases your peace of mind in many ways. If it's the right advisor and if it's the right person looking for advice, that's the role that an advisor can fill as well. You are paying for something that's providing peace of mind. It's making you happier. There's actual studies that show this, that they there is this pain I feel and it's not as quantitative as I know I'm paying $30,000 per year too much in taxes. As much as it's, I'm feeling the weight of this financial burden that I have to manage for the rest of my life or I'm feeling like the cost of a mistake here is not something that I want to potentially live with. And it's that anxiety or that burden that is a pain. And you hire an advisor, a good advisor, if you want to alleviate that pain. And much like a doctor, not just fixing things when they're broken, but take that preventative approach to a health, healthier overall, more well balanced approach to things that hopefully prevents a lot of the things that otherwise may have broken.

[A]

The number one word that you just said is proactive. Throughout all of that is I want a proactive planner to tell me things I otherwise couldn't have known because I'm not doing it all day. Now, I have a very simple question for you, James. I'm about to ask you, but I'm going to be sharing just a moment, a statement from a current client at Root who has given us permission to very kindly, when we asked him, hey, what was your experience like working with Root, he shared something that I think might surprise a lot of you. And I'm going to start sharing this in a moment. But James, my first question for you is if someone were to ask you, such as myself, when is the best time to invest, what would you say?

[B]

Yesterday?

[A]

And that's the exact statement I'll hear from most People when it comes to why didn't I hire Root earlier? Now, that is us tooting our horn. But I will give the example of, I don't necessarily wake up in the morning and go, I need to go to the dentist today, but I know I should. And so we all know, okay, what's really best for us in terms of our health, which is start as soon as possible. I'm going to give you guys the statement, partial statement from a client, and I'm going to start digesting this with James so you guys can start to see why it is that we're making this episode today. So this comes from a client who says, I am a DIY person. We're going to explain what that means in a second. But he goes on to say, I often do things myself, even if it means buying tools that cost nearly as much as hiring someone else or spending hours of study on how to do something. It's not unusual for me to take on almost any job to save money, and in some cases, not just to save money, but just to do it myself. He gives five reasons why he hired Root. I'm going to go through all of them by the end of the episode, but I'm going to start with the first one. And the first one he says here is outside expertise. He goes on to say, sure, I could spend hours or days trying to get versed in all the rules and issues, but my wife and I both agree that even if I did that, we might not trust that we didn't miss something and likely not sleep very well on a plan we created on our own. He goes on to talk about how his advisor saved him money and that that's not the main reason he hired Root. So we, when it comes James to actually going, wow, peace of mind. Is it worth it? Could I do it on my own? Do you actually. And have you met with people who said, hey, I can do it on my own. I don't want to?

[B]

Of course, a lot of people who have gotten to the point where they're reaching out to us, they didn't just wake up one day with a massive inheritance or win the lottery. They got there because they saved prudently, they invested, they did a lot of the right things along the way. And it's just they're at the point where they're saying, I recognize that life is kind of short. I recognize that this window of time to enjoy everything I want to do is not going to be here forever. Why would I want to do anything that pulls me away from being able to live the best version of the life I want to love. And I think that that's something that doesn't have to start when you retire. By the way, I'm not going to try to make this about me, but I think that as I look at, like, what my wife and I will do, a big part of our philosophy I used to talk about, like, yeah, what we'll do is we'll pay for a grocery delivery. Because I hate going to the grocery store. And if that saves us two hours a week, I'll pay for that $10 delivery fee, plus tip all day long. Like, that's just two hours back that we now get. And I think of just how that's even evolved over time of everything from. And obviously this depends upon financial situation. Don't just spend frivolously based on how you are. But the. A lot of the financial decisions that my wife and I have made are very much. How can we spend our money to get our time back so we can send that time with each other? And that's everything from meal delivery, grocery delivery. I should say to can someone help clean the house? To things around the least handy person in the world. So that was an easy one to delegate. If something breaks in the house, have someone come fix it. But, like, we're recording this on a Monday, Monday night, Ashlyn and I, we do our date nights every single week, and we have someone who comes and watches our kids. And that's an expense. And we could try to say, well, let's try to time it to make sure my parents are available rather than your parents. Or we get, no, we're just going to pay someone. And every single week, this is going to be a thing where we're. These are just simple examples. But it's the. We know that we don't have to think about this. We just get to go spend some quality time together because we have someone that we fully trust watching over the two most important people in our lives. And we just get to go be together and connect. And that doesn't necessarily relate perfectly to an advisor, but people hire an advisor because it's. Look, I've gotten to this point, I don't want to. A mistake to be made by myself continuing to do this. But more importantly, life is short. There's only so many. And it's not even just time thing. Yes, there's only so much time that we have, but there's only so much attention that we have. There's only so many things we can focus on. There's only so much bandwidth I can give. There's only so much bandwidth I should say that I can give all of myself to. Is being my own advisor one of those things I want to give all of myself to? It might be good on you. If that's the case, great. If that's not detracting from your ability to do everything else, awesome. But for those people that say I know what I value, I know what's important to me, it's my time with my spouse, it's my time with my family, it's my time pursuing the things I'm passionate about, wonderful. How do you take everything that's not that and use the money that you have to buy back your time to buy back your attention to buy back the only non renewable currency they'll talk about, which is your time to actually do the things that you love. And that's a big part of why people come to root. Of course they can do some of these things. I would argue that we could probably do them better just simply because this is our profession, this is what we've studied, this is what we spend all day, every day doing. But the biggest thing isn't just the we're doing it better. Which can we substantiate? That depends on the situation, all that stuff yet full disclosure, that's who knows. But it's the bigger picture stuff. That's the peace of mind, it's the time they get back, it's the bandwidth they get back, it's the attention they get back. That now they can just totally go live and do what they want to do knowing that this very big piece of their life is being taken care of.

[A]

I'm going to pretend to be someone who is reaching out to root and I'll often do this because it's fun. I think a lot of you resonate with it and you tell me this, but James, everything you just said there was very logical. Yes, you go pay for grocery delivery so you get more time to record more podcasts and you can hang out with your family and beautiful. But is it worth it? That's what I think a lot of people are always going back to. Is it worth it? Now the answer very well may be and I think you do a beautiful job of framing this of you can quantify it to the nth degree and if that is what's going to be the decision for you, meaning you're going to have to pay X dollars and that's going to stress you out because every month you're going to see a dollar and wonder, could I do that? Instead? I believe we would be the people to truly say, I don't think you should hire us, because you're going to be beating yourself up every month going, I don't want groceries delivered. I want to go pick out the groceries. But for most of you, if we were to ask you, what do you want to spend your time doing in retirement? I have never had someone tell me, I want to read tax laws. Now, if someone were to say that, I'd go, look, it sounds like you really love it and that this is what you'd want to spend your time doing. But going back to that, is it worth it? If someone were to ask you, James, is it really worth it? I know I could probably figure this out. I mean, my wife. Yeah, I haven't seen her in a few years because I've been working, but I can't be with her all the time at home or vice versa. My husband. Is it really worth it to pay an advisor? How would you help frame their. Their mindset?

[B]

Do you enjoy doing it, Mr. Ari, who's my prospective client right now?

[A]

I really enjoy doing it, but I am getting older, and so I'm starting to enjoy it less, only because I know I have less time, but I do think I'm really good at it.

[B]

How much of your time and attention are you spending ballpark each month doing this?

[A]

Each month? I would say each month I'm probably spending 20 hours.

[B]

20 hours. Okay. What are the things that you do care about most? What. What lights you up? What's. What makes life worth living to you?

[A]

I love traveling more than anything in the world. I want to be in an rv, and that's actually one of the things that is interesting because sometimes I don't have wi fi when I'm in my RV and I'm trying to rebalance my portfolio. So that stresses me out. Okay.

[B]

Could it be, Ari, that we're playing the wrong game? And by the wrong game, I mean are we. Are we tracking the right things of if. If the financial optimization is all that there is? We talk about this all the time. Could you have saved dollar here? Could you. If you really enjoy this, if this lights you up, if you get excited by doing this, if you're really good at this, Ari, I can't speak to that or not. I just. I'm just meeting you for the first time. I don't know what you're doing for those 20 hours in your RV, rebalancing your portfolio. Maybe you're really good. Maybe you really enjoy it. Maybe there aren't family concerns of what happens if something happens to you in terms of your. Your. Your estate plan, your legacy plan, the continuity of your financial affairs being continued. That's the case, you probably don't need to see an advisor, make sure everything's dialed in. You know, there's. It's not just investment stuff. It's taxes, it's insurances, it's legacy. It's all that. But maybe you don't. Someone that loves doing this and wants to save money, like, why would you. Why would you go see an advisor? I'll use my dad as an example. He. I was shopping for new cars. This was about 10 years ago. I hate car shopping.

[A]

He loves it.

[B]

He was going online everywhere. It was just like, dad, you're doing all this and you might save, I don't know, 300 bucks for hours and hours and hours. Is it really worth it? He's like, yeah, I love doing it. It's like a game to him. Very different. So if this is a game to you, if you love doing this, if you enjoy it and you're getting some savings, awesome. If you're not enjoying it, I would rather see you pay someone so you could spend your time doing what you actually enjoy. I don't mean to cut you off there, Ari. I think you were trying to say something. The last thing I'll say here is when I started talking about playing the wrong game. Sometimes the game that we're playing is just a financial game. How do I optimize the numbers? That's because it's all we know. We've kind of been living this. I don't want to get too philosophical but. Puppeted lifestyle our whole lives of. We're supposed to go to work, we're supposed to get the bonus, we're supposed to save. And it just becomes all about optimizing the numbers on paper or on the balance sheet and less about, well, who do I actually think that I am? What do I actually want to do with my life? Is that really rebalancing and tax loss harvesting and retirement planning and all this stuff? If the answer is yes, great, do it. But if it's not yes, that might be time to consider having someone help you with this so that you can figure out who you are and go do those things that light you up.

[A]

Roleplay. Ari was ready to interrupt you and say, oh, James, trust me. I get all these calls. It says likely spam, but I think it's people who just want me to manage their money because there's no way they can know. But I think they just know secretly, deep down that I'm an expert. And the joke that I'll often tell clients is I'll say, hey, you just told me that this is a prospective client. I'll say, you just told me that you love this. Is that right? And I go, yeah, I really love this. And I go, why are you reaching out? And they'll say, well, I feel like maybe there's something I'm missing, but I just don't know, like maybe I have everything. And I'll go, do you want to live your entire life wondering if there's something you're missing? And then they start to go, you know what? No. And I'll say, is this something that you love doing or your spouse? And they'll go, I love doing it, but my spouse, that they have no interest at all. And then all of a sudden they start to go, wow, it feels different having an advisor. So I like what you're saying, James, which is it's not for everyone. I don't think what we do is a need for everyone. I think it's a desire where people go, you know what, my life would be better with Root or a financial advisor in it. And that's when it makes sense to hire an advisor. Do not go hire an advisor. If you're going to look at this statement every month and wonder, oh my gosh, this is so annoying, could I be doing this myself? So what I would like to do now, James, if any other thoughts, save them. I want to hear them. This is. I just want to read the last few comments from this statement from our client. And once again I left off. They said, look, my wife and I both agreed that even if I did, we might not trust we didn't miss something and likely not sleep very well on a plan we created on our own. He goes on to say the second reason we hired Root, no hassles. We meet with our advisor often. In between, we exchange emails without any effort on our part, we see a deposit every month for our expenses. Coming from the optimal place, we get an extra deposit for any taxes that are due. No work on our part, we just enjoy what we want to focus on. Number three is we just sleep better. Knowing we're not alone on a multi decade journey lets us sleep better. He goes on to say, I was the primary financial control for our accounts before joining Root and now I know if anything were to happen to me, my wife would be in great Hands. He goes on to also say fees are pre tax for our accounts, which are majority in a 401k IRA. James, I think in a moment it's worth explaining that not because people should work with us because of this, but many people aren't even aware of this. And he goes on to say this isn't a huge thing, but it does mean the effect of paying them, does it show up as income you need to pay taxes on? Which we'll explain in a second. And then number five, he just says, bottom line, as someone who doesn't usually like paying for something for anything I can do myself, I have to say I don't mind the fees at all. Sure, would I rather not pay them. I'm a human. But when I weigh out the cost benefits, it's certainly worth it to us.

[B]

To have my time.

[A]

So, James, that point there on fees or pre tax, happy to kind of touch on that to end. But if there's something else you just think people need to take away from this episode, please.

[B]

No, I mean pre tax. What does that mean? It means that, you know, if you're taking $1,000 out of your IRA and you're in a 30% tax bracket combined, you're only keeping 700 of it. So really you need to take something like 1300, $1400 to end up with $1000 of expenses. Well, if you're paying an advisory fee and that's coming from an ira, that fee is not taxable when it comes out. So if I pull $1,000 in fees out of an account, it's $1,000 pre tax. I mean, that thousand dollars in 30% tax bracket represented or represents $700 to you of actual spendable money. When you look at it that way. So it's spending the money to hire an advisor before taxes come out. Big picture. Just taking this back. Why are we doing this episode? Yes. Is this to promote root to some extent? Only to the extent that we believe that the work we do is really powerful, transformative work. There's a lot of amazing advisors that we think do incredible work. Transformative work.

[A]

So yes.

[B]

Is this self promoting? Of course it's self promoting, but that's only because when you see something and you see the transformation it has, why wouldn't you want every single person to experience that? And I think that those people ask, when is it right to work with an advisor? If you're asking that question, if you're feeling like you might want to work, there's probably a reason you're feeling like you might want to work with an advisor. If that question never comes up, it probably means you're so confident in what you're doing. Either you've got a ton of blind spots and just aren't aware of them, or you're maybe good. Maybe you have this in hand. Not everyone needs an advisor. I don't think everyone does. But if you're asking that, if you're asking yourself that, if you're continuing to ask yourself that, it's probably a symptom. It's probably a signal that there's something in your financial life that's not fully at peace in your mind, something that could be done better, something that could be done in a way that gives you more peace of mind. That by itself might be the sign that it's time to reach out and at least talk to a few advisors about possibly working together.

[A]

Beautifully said. That's it for this episode. I hope this was helpful. We have our joint episodes, James, called Root Talks, which is where all of you are listening or watching this right now. We both have our individual channels, both under our individual names. This is what we love to do. We make videos and podcasts to help give you insight when it comes to retiring, when it comes to making you think differently and really asking you to go, wow, am I making the most out of what I'm working so hard for? If you really want to take it to the next level and optimize, this is once again what we love to do. If you go to our website, root financial.com, you'll see a button in the upper right that says, see if you're a fit. You can click there and get started.

[B]

Thank you all. See you next time.

[A]

See ya.

[B]

It.