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Four Levels of Financial Advice

Written by Jonathan Perrin

Volunteer Director of Financial Education, More Than Baseball


Do it yourself


You can open a self-directed brokerage or retirement account. Nearly all online brokerages now allow easy sign-up, an ACH bank link, and immediate access to trading. Every major retail brokerage charge $0 for per trade. Most brokerage platforms do not have account minimums, and those that do typically have very low minimums of $1,000 or $2,000. Doing it yourself is the lowest cost option, but with that cost savings you are 100% responsible for your investment decisions. If you are going to go this route, it is always a good idea to begin familiarizing yourself and learning about markets first and starting out with a smaller amount of money. There are a lot of great free online resources that you can use to learn about investing and to do your own research. Here are a few of my favorites: investopedia.com, thebalance.com, seekingalpha.com, & smartasset.com.

For a brief tutorial on how to open your own account click here: (link to video from August newsletter)



Robo-Advisor


Robo-Advisors have a very popular way to invest in recent years. This is the “in-between” level of advice from doing it yourself, to paying a human advisor to manage your investments. Robo-Advisors charge minimal fees, allow you access to an online portal to be able to view your account, and give you access to an automated call center. These are digital platforms that provide automated, algorithm-driven investment services with little to no human supervision. Typically, robo-advisors use model portfolios built by using a basket passive index funds. These platforms then allow to choose between a mix of pre-packaged options, based on a short risk-profile questionnaire. Robo-advisors are low-cost option, and typically charge an annual flat fee of 0.2% to 0.5%. Account minimums typically range from $1,000 - $5,000 depending on the platform. This option is great for getting started if you are simply interested in saving and investing over time with a “buy and hold” strategy. However, it is not as well suited for more complex financial planning issues and estate planning.

Some popular robo-advisor platforms are: Betterment, Wealthfront, Vanguard Digital Advisor, and Ellevest.



Broker-Dealer (Stockbroker)/Investment Advisor


An investment advisor is a person or company who is paid for providing investment advice to clients. Investment advisors can also manage client assets directly. A broker-dealer is an individual or company that buys and sells securities such as stocks, bonds, and mutual funds. For both types of financial advisors, portfolio management solutions are more custom built to client needs and includes a human advisor/manager as a point of contact. There are some key differences between Brokers and IA’s, typically brokers are what they call “fee based” which means they charge a % fee of the assets that are managing, in addition to commissions paid on the investment products they sell to you (typically mutual funds). Investment advisors are typically “fee only” which means that they only get paid a flat % on the assets they are managing for you, and do not make commissions on the investment products that they use. For human advisors, the argument in favor of using one is that you get what you pay for. According to a 2019 study by Vanguard a relationship with a financial advisor can be worth over 3% per year in annual returns.

If you choose to hire an advisor, check out 5 questions you should ask your financial advisor to learn the questions you should ask when selecting an advisor.



Full service Financial Planning


The most comprehensive approach to building wealth. Full-service financial planning involves working with a team of advisors & assistants to utilize a full suite of services. These services can include:

  1. Investment Management/portfolio management

  2. 401(k)/company sponsored retirement plan review

  3. Retirement savings and distribution analysis

  4. Budget & Cash Flow analysis

  5. Debt planning and reduction

  6. Stock options

  7. Education Planning & Student Loans

  8. Insurance Planning and Protection

  9. Regular Plan updates and reviews

Financial planners are typically either “fee only” advisors, or instead they charge a monthly retainer fee for the services they provide. Due to the fact that some of the services that financial planners provide are not regulated, such as budgeting and debt reduction strategies; many advisors who engage in full service financial planning hold the Certified Financial Planner (CFP®) designation. CFPs have met the rigorous training and experience requirements of the CFP Board, have passed the certification exam, and are held to high ethical standards.



Conclusion


Picking your level of investment advice is a personal decision and can be determined by any number of factors. No matter what your personal feelings are about money. It never hurts to educate yourself enough have a basic understanding of what you need to do to set yourself up for success. The internet is a great place to start, with today’s technology anyone can access information about investing that was never possible before. Many of the above sites mentioned in this article have great financial education and investment research resources. If you are more of a conversational person, don’t hesitate to reach out to people in the industry and pick their brain a bit. Most financial advisors or planners would be willing to sit down with you over a cup of coffee or a phone call to walk you through some investing basics, and more than likely give a couple free pointers. As a member of the MTB team, you also have access to Max and Myself, if you would like to reach out with any financial questions you