Expertise, objectivity and A Friendly Kick in the Butt
Like any service, financial advice comes at a cost. Yes, there is lots of free content online in the form of blogs and articles, which makes financial advice feel “free". Financial decisions are highly personal and unique to each person. You can learn the facts and lingo online, and that’s important, but the complexity of your specific situation requires more than just facts. You need a human being who can look at your financial picture in its entirety, taking the numbers and facts as the base, and overlaying your goals, personality, and life situation to figure out the best way for you to maximize what you have. Spreadsheet meets vision board.
For example, you might know that putting money into an RRSP gets you a break on your taxes today, but is it better to put the $10,000 you have saved into the RRSP or into your child’s RESP? Or both? There are different reasons for choosing one over the other – it’s not just your marginal tax rate relative to the government grant. Numbers are only one factor in the equation.
When you pay someone to help you figure out your finances, you are paying for three things: their knowledge, their objectivity, and the fact that they can overcome your inertia.
Good financial planners, advisors and coaches have built up their knowledge, experience and skills through formal education, work experience, reading, listening to podcasts and webinars, and managing their own finances and maybe those of family members. All of this is important and it’s similar to hiring an experienced contractor to do a complex kitchen renovation: they know what to expect, can anticipate the problems, and find solutions when the unexpected arises, instead of covering up the problem, ignoring it, or not showing up the next morning.
Objectivity is impossible to value. Money often comes with a tangle of emotions and that can make it hard to objectively figure out what you need to do. A third party who isn’t emotionally involved with you or your money provides an objective and rationale viewpoint, taking away the risk of acting out of fear or worse, not doing anything at all.
Which brings us to the third benefit of getting financial advice: it gets your butt in gear. If you’ve been thinking about doing something about your money but just never get around to it because you keep pushing it to the bottom of your to-do list after “clean out the garage” and “remove stain from couch”, you might need a little push. A financial coach is particularly good at this – their job is to motivate you and keep you moving forward, which may include a little friendly nagging.
How do you put a price on financial advice? How much should you pay and how do you know you’re getting good value for your money? Difficult questions, which I’ll address in my next blog post. I hate to keep you hanging so I’ll give you a short preview. You can measure the value you are getting by how you feel (confident or inferior? clear or confused?) and what tangible steps you’ve taken as a result of the advice you got. The cost of advice varies greatly, depending on who is helping you: a fee-based financial advisor will charge around 1% of the money you have invested with them, a commission-based financial advisor will likely put you in mutual funds with a 2%+ annual fee, and a financial planner will charge $2,000 to $5,000+ for a full financial plan. Financial coaches vary greatly, but generally they charge per hour ($150-$300) or by project. These figures are not precise, but give you an idea of what to expect. Hang tight for the next blog post!