6 reasons why you don’t need a financial planner

I have several financial regrets over the last two decades.  Though I have always been relatively frugal and responsible with my money, I didn’t always know what to do with my money and, as a result, could have done many things better.  But the single worst thing I’ve ever done financially is spending decades thinking I just needed to find the right financial planner, and then everything would be okay.  I thought that I would find them, and then they would tell me everything I should be doing with my money, and then I would magically be wealthier and happier and have the peace of mind that I was doing the right things with my money.  Slowly I learned this isn’t true, but it was a lengthy and expensive journey.  For decades I believed I needed to find the right financial planner, but I didn’t know where to begin. I would do interest research, I would ask friends, and I’d get all sorts of recommendations and advice.  I have worked with three different financial planners and had detailed discussions with a fourth.  They all provided me with advice bordering from wrong to terrible to irresponsibly negligent.  I won’t go into the specifics of my experiences with each of them, but I will instead share with you what I have learned over the years and why I believe most people do not need a financial planner.  Yes, I am sure there’s someone out there with so much money and such complicated finances that they would benefit from one. For those people, I think they should be using a fiduciary and paying for hourly services vs. a percentage commission.  But most “regular” people, like me and likely like you, do not need a financial planner.  And beyond just not needing one, I believe the majority of them cause more harm than help.  It turns out all of this is easier than I initially thought it was.  Financial planners wanted me to believe it was hard and overwhelming, but it’s neither of those.

Six reasons why you do not need a financial planner:

1. You will save money. Financial planners cost a lot of money.  It will often seem like they do not, as they won’t charge you anything upfront, and sometimes you’re not paying them money directly.  They are taking their fees out of your investment accounts, and it adds up significantly over time.  Most commission-based financial planners charge a flat % of your overall investment portfolio under their management.  This fee is often 1%, and it can vary.  And they charge you that same % every year your money is with them, and they are usually doing very little new work over time.  There is some work upfront to get things set up, but it’s minimal, and it’s all things you can do yourself.  Let’s say you have $100,000 in total assets, and they are charging you 1%, then they are charging you $1,000 a year.  That might not sound like a lot, but over time that adds up, and if you instead invested that $1,000 a year, it would grow significantly with compound interest.  Those fees can quickly cost you hundreds of thousands, if not millions, of dollars over a couple of decades.  In addition to this, financial planners often make additional commissions on selling you products like whole life insurance, which is a terrible investment.
2. You can do it better yourself; It is not a value-add service that’s worth paying for.  You may think you can’t do this stuff yourself, and a financial planner will also convince you that you can’t do this stuff yourself. This is not true.  What you need to do with your money is so simple that you don’t need to pay someone to tell you how to do it or to do it for you.  You need to spend less than you make, save your money, and invest it in low-cost index funds.  It’s that simple. And if you don’t know how to invest in index funds, listen to this podcast episode on 5 simple steps to start investing, or just google it, and you’ll find tons of articles, and you will learn how simple it is.  And you don’t need a financial planner to tell you which index funds; you just need to buy low-cost index funds with your brokerage of choice (e.g., Vanguard, Fidelity) and purchase ones with low fees and track the broader S&P 500 or full stock market index.  There are decades of research that show that managed investment funds and financial advisors’ selections of investment funds underperform the S&P 500; This means having a slice of the entire stock market is your best bet and will perform as well as, if not better than, anything a financial advisor would steer you towards, and the fees will be lower!  Between the equal or better performance and the savings on fees (so you have more money to invest), most people will make more money and get stronger returns buying low-cost index funds vs. using a financial planner.  And to further clarify, when I am saying “buy index” funds, I literally mean just buy lots of the same index fund.  Buy new shares each month as you have the money.  Here is a great article comparing two of the most popular index funds with Vanguard and Fidelity, and in the end, you’ll learn they are both great fund options.  Almost any brokerage you already use will have a low-cost index fund option. If you don’t yet have a brokerage account, I’d recommend Vanguard as they have stellar customer service and some of the best low-cost and top-ranking index funds.
3. They are “old-school,” and you should be “new-school.” No, not all financial planners are “old school,” but most financial advisors I have encountered are.  They aren’t focused on understanding your unique goals and interests; they believe you have to work until you’re in your 60s and 70s as that’s what people always did; they don’t focus on tax-advantaged strategies, and much more.  They will condone lifestyle inflation and not warn you of the perils of it.  They may not give you terrible advice, but they often won’t give you options and ideas that are trending in the personal finance space.  They will provide you with the options and suggestions that make them the most money.  That is how they are trained and incentivized.
4. You still have to do work, either way. A financial planner can’t do all of the work for you.  They will do some of it, but there is a lot you still have to do yourself.  I’ve spent hours preparing all of the documents financial planners want to see, and that process of getting all that organized is half of the work.
5. They do not have your best interest at heart. Do you know who does?  Only you do, which is why you should do this yourself.  Many financial advisors or financial planners are skilled salespeople.  They are trained to sell you products and services you do not need.  They make money off selling you things you don’t need.  I really hate to bash an entire career field, but I feel pretty strongly about this, so apologies as I am in the process of attacking it.  If my bashing is turning you off, please keep reading as I do explain some alternatives below.  Financial planners will distract you with advanced and complicated strategies for things that are actually quite simple to do on your own.  They are trained, incentivized, and paid in a way where they do not have your best interest at heart.  I gain absolutely nothing by telling you that you do not need a financial planner. I do co-host a personal finance podcast called friends on FIRE in full transparency, but this is a passion project, and it’s not something that costs you any money to engage with.  It’s free advice from two regular people who are passionate about personal finance.
6. You should understand your finances. Understanding your finances matters, and it doesn’t need to be complicated, but it can be beneficial to understand what is happening with your money.  When you outsource it to someone else, you have a license and excuse not fully to understand it.  Do not be intimidated by thinking managing your money or building wealth is complicated.  It can be, and a financial planner wants to make you think it is, but it does not need to be.  The most successful wealth management strategies are the simplest. 

After all of this, if you decide to work with a financial planner, or a financial coach, I would highly encourage you only to work with an hourly or fee-based financial planner or coach that charges you for their time vs. on a commission basis.  These financial planners are often called fiduciaries, which means they hold an ethical relationship of trust with you.  There’s no legal relationship of trust, so it’s all based on the ethics and knowledge or expertise of the person you’re working with.  Talk to their other clients, ask them a ton of questions, and understand what they do and don’t do before you agree to pay them any money or work with them.  There is a growing field of what is known as “financial coaches,” and those I can get behind a bit more if you genuinely feel like you need that sort of help.  It could be worth investing in paying a coach for a few hours of their time to help kick your finances and your habits into gear.  You know yourself, and you know if this sort of thing would be helpful and worth the cost for you.  I prefer to learn and do this stuff myself, but I know that’s not the case for everyone.  The right financial coach could look at your budget and finances and give you advice that will more than pay for the cost of their hourly fee.  That being said, you could read one $20 book and get to a similar place.  Which book, you may ask?  Here are some of my favorite personal finance books.

Regardless of what you decide is right for you, I would encourage you to dig in and learn more about your finances, goals, and where you need to focus based on your goals.  Spending time getting your finances in order can dramatically improve your mental health, confidence, your relationships, and your overall happiness.  I like to call it getting financially fit.

Now that you know why you don’t need a financial planner, what should you do next?  Just get started.  You don’t need to do everything at once.  You just need to get started.  If you have no idea where to get started, listen to a podcast or read a book.  If you have savings and are ready to get started, create an online brokerage account and start buying shares in a low-cost index fund like VTSAZ or FZROX.  Good luck, you can do this!

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Written while listening to Don’t Your Worry by Oh Wonder

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