Welcome, everybody! My name is Aaron Marks, and I’m a marketing strategist with Avalaunch Media. Today, I’m joined by Sam Dechtman with Dechtman Wealth. He’s a wealth advisor and the managing director for Dechtman Wealth.
We’re talking about the things going on in the industry right now — a lot of unknowns — maybe there are things changing in your life. I know in my life, things are always changing. So we’re talking about the need for a financial advisor.
But first off, Sam, thanks so much for joining us today. How are you?
I’m doing great! Thanks, Aaron. I appreciate you for being here as well.
So let’s just start very broadly. Why do folks — if they’re doing it on their own, maybe they’re investing on their own, maybe they’re saving on their own because they think they can save some money — why does someone need a financial advisor?
That’s a great question and one that a lot of folks are asking now, in particular, given what’s going on with the state of the market and the economy. Even when things are going well, we always bring this point up with our clients that, in most areas in life, you want to seek out professionals when it’s something that’s extremely important to your health or happiness. When it comes to working with a financial advisor, that can impact a lot of different areas.
When it comes to retirement, in particular, it can be extremely complex. So working with someone who can help you with investments and financial planning and taxes, which is a huge topic that’s very misunderstood, especially in retirement, Social Security, and Medicare. There’s a lot of different topics that are all interrelated with each other, and it’s important to make smart decisions. When you don’t make smart decisions, that can have potentially bad consequences for you or your family.
So just following up with that, I think a lot of folks would ask, “Can’t I just do this stuff myself?” We’ve got tools like Google and YouTube. I know I fixed my washing machine one day off YouTube. Can’t I handle my investments with that sort of thing? What’s the advantage to having a professional join me and paying that individual?
Yeah, Google and YouTube are fantastic resources. I use them all the time when I want to learn and fix things. I’d say that you can pretty much accomplish anything you want to on Google and YouTube. If you’re not feeling well, you can go to Web MD and give yourself a diagnosis on what you have and how to cure it. But when it comes to my health, when I’m not feeling well or I want a second opinion, I’m going to go see someone who has the experience, the education, and the wherewithal to properly identify issues that may not even be apparent to me at that time.
So working with a financial advisor is the same sort of scenario as working with a medical professional. You can find a lot of reading and education online, but it’s what you don’t know that can really end up hurting you in the end.
That’s a great analogy, Sam. I actually just had some some general testing done, and something came back that’s not super alarming but of notice. Instead of messaging my doctor, I Googled it, and that was like the worst decision ever. I ended up talking to him, which made me feel a lot better about it, so you’re right on with the medical analogy. So in addition to handling your investments, what are some other services that a financial advisor can help me with?
Yeah, so all financial advisors and all financial advisory firms provide different types of services. So if you are interested in seeking out help, it would be very important in the beginning of your relationship or discovery process to really understand what services they offer. Again, everyone’s going to offer something different and everyone has a little bit of a different expertise. But I’d say that, broadly speaking, most financial advisors provide some version of the services that I’m about to describe here.
Financial planning, I’d say, is a service that most financial advisors are providing now. Financial planning in its essence is really a financial roadmap. It takes a true inventory and accounting as to where you are at now. A financial advisor will help you identify your goals or really the finish line of where you would like to be.
Then, it’ll be important to lay out all of the services to help you get from where you are now to where you would like to be. Some of those services to help you get to the finish line, if you will, is investment management. Investment management is a service where the advisor would do all of the investment research, buy and sell investments on behalf of the client, or in conjunction with the client’s approval, and make those reallocation decisions over time, depending on market conditions and your personal financial situation. So that’s an extremely big one.
Some financial advisors, such as Dechtman Wealth Management, help with tax-reduction strategies. So what that means is are there different items or are there different areas of opportunity that you can take advantage of to reduce your taxes this year? Are there different opportunities that you could be taking advantage of to reduce your taxes in the future years?
CPAs and accountants are fantastic, but by and large, if you’re only meeting with them once a year — especially during tax time, they’re probably very busy — they’re probably not giving you too much insight by and large as to making proactive decisions on how to reduce your taxes. So it’s not that a financial advisor would take over the role of your CPA but be a nice added value to that.
Another service would be helping with Social Security timing. For a couple, there are 81 different ways to file for benefits, and it’s one of the most important financial decisions you’ll make in your entire lifetime. And when we’re running these different analyses for our clients, particularly those that are married, we can find that the least ideal to the most ideal Social Security timing decision can mean, depending on the assumptions you want to use, over $100,000 over the course of their retirement picture. So it’s extremely important not to leave that to guesswork.
And then I’d say Medicare planning is extremely important and health care planning in general, whether that include long-term care insurance planning, college education planning is another service, as well as help with estate planning. But I think those are the big hot-button topics that really encompass most people in terms of their situation. But of course, each firm might have a particular niche of individual that they work with to narrow it down even more specifically.
And so you mentioned that with a financial advisor, there’s financial planning, but we do have financial advisors and financial planners. Can they be different? You talked about the offerings. Are there differences and similarities? Is it common for a financial advisor to also be a financial planner, which you guys are at Dechtman?
Yes, I’d say that, in the most general sense, those words “financial advisor” and “financial planner” are interchangeable. I think what would be really important is just to understand what services are ultimately going to be offered by which party.
In a technical perspective, I think that a financial planner is someone that does financial planning in addition to the investment management and other services where a financial advisor may provide a whole host of services but maybe not put together a financial plan.
But even though we call ourselves financial advisors here at Dechtman Wealth Management, we do provide the financial plan as well as all other services. So I think it’s more just someone’s preference in terms of the title. I think they’re generally interchangeable.
Alright so let’s turn the coin a little bit here. We’ve talked about why I need a financial advisor and, in the end, why I should maybe rely on a professional. But now let’s go to the interview question that everybody hates — tell me your weaknesses. So the question that I have for you is (and this is just us being very transparent with folks): What are some of the disadvantages to working with a financial advisor when when would it be best to maybe do this on my own?
Yeah, absolutely. I would say that most folks would benefit immensely from working with a financial advisor, but it does not apply to all people. I would say folks who should be doing it on their own are those that want to maintain complete control over their investments and want to be the captain leading the charge as far as their personal situation.
A financial advisor, like any professional, is only going to be able to help as much as someone is willing to seek out and accept that sort of advice. Your doctor is giving you all of the different prescriptions and ways to change your diet and improve your lifestyle, but if you don’t end up implementing any of that, how much did that advice benefit you ultimately? A financial advisor is the same thing. They’re providing advice and direction, and if you want to go down your own path, then maybe it makes sense to continue doing things on your own. But I’d say the vast majority of people would benefit immensely from working with an advisor.
Let’s talk about the cost of financial advising and working with someone. Obviously nothing is free, but this is also kind of an investment, working with someone, because ideally, there’s value in working with a professional like you’ve alluded to numerous times. But what is the cost? Walk us through some of the cost structures and what, if I’m not working with a financial advisor right now, I could expect to pay, whether it be out of pocket initially or down the road, and how that all works.
Yeah absolutely. There’s not many things in this world that you get into that you don’t ask what the cost is before you end up purchasing it. Financial advice is certainly not dissimilar to that.
I want to start out with what the value will look like with a financial advisor, and there’s actually been a few widely cited studies on this topic. In fact, Vanguard in 2014 came out with a study where they tried to identify how much value a financial advisor actually provides. And based on the smart folks at Vanguard, you know, high-class, higher education degrees, what they found in their research is that, on an annual basis, a financial advisor can provide up to 3% in terms of value on an annual basis based on an individual’s portfolio.
Three percent is huge in terms of the value that is provided, and that number didn’t even include all the other services a financial advisor might provide. That research was based on just the investment management piece and some areas related to that. It did not provide any analysis on a financial advisor providing help with taxes or Medicare or college education planning or things of that nature. That’s very significant.
There was also another study put out by Russell Investments where they analyzed what a financial advisor actually provides in value. Based on the research, they found a financial advisor can provide close to 4% per year in terms of value.
There’s a whole host of other studies you can go read, but those two are the most notable and widely cited when trying to determine whether a financial advisor is something that might make sense for me.
In terms of cost, there are different ways that a relationship can be structured, but I’d say the most common way is when a financial advisor charges a percentage based on the amount of money they are helping you with. In terms of what that percentage might be, I’d say on the high end, you probably are you looking at 1.5% in terms of what the annual management cost would be. On the low end, it could be significantly cheaper if you were to go with a robo advisor. But again, a robo advisor is not an actual human that you’re being able to interact with in that particular relationship.
Another type of structure available is where a financial advisor still acts on a transactional basis and sells investments and makes different commissions, if you will, when products are sold. So that’s something at Dechtman Wealth Management which we do not feel is in the best interest of the clients; we follow the assets under management in terms of that percentage bottle.
Those are some great numbers in terms of the financial value, which is probably item number one on someone’s priorities with getting value. But you did allude to some non-financial benefits to having an advisor, and this goes to having a personal relationship I feel. So talk us a little bit about some of the non-financial benefits that would come with working with the financial advisor.
Absolutely. And I’ve referenced this a little bit earlier, but like most things in life, the things you don’t know can definitely hurt you. When it comes to your overall financial situation, those things can hurt even more, so working with a financial advisor and someone you develop a deep long-term relationship with, they should be able to point things out to you that you hadn’t ever thought of. Or, if they’re a wealth of experience, they can point out the best practices from things they’ve seen in the past with their clients that have been successful or things that maybe haven’t been successful so you can avoid those particular downfalls, if you will.
For example, we have clients all the time ask us questions related to estate planning and how they should be listing beneficiaries or how a different account should be structured. That’s something where, unless you’re going to consult an attorney who maybe knows the correct answer, working with a financial advisor can help you out with that aspect and maybe more importantly, really make sure that your heirs will have everything all tidied up when that time comes.
So let’s say I’ve been doing this myself for a few years and I feel like I’m getting a pretty decent return on my investment working alone and I’m not having to pay anyone. But there could be some signs that it’s time to start consulting with a financial advisor. What are some of those signs — things I should be looking for if I’ve been doing this on my own for a while that it might be time to seek out some advice?
What I’d say is that when markets are up, it’s easy for investors to become complacent and possibly even a little overconfident, if you will, that things will continue on their path forever, depending on how overconfident you may be in that camp.
Even if you think you’re doing a great job doing it by yourself, most financial advisors will provide a free second opinion. It’s of no charge and no risk of your own to work with an advisor just to have a second pair of eyes look at it and point out things to you that you hadn’t ever really considered.
But most importantly, in a scenario we’re dealing with right now, do you have a plan for when the market starts to turned or when it has turned? It’s very important to build the ark before it starts raining. When things are going in the wrong direction and the market is headed downward, that’s an opportunity when you want to avoid shooting yourself in the foot and really causing damage to your overall financial situation.
So do you have a plan? And if you do, what steps are you going to take when the market starts to turn and what indicators are you going to look at to make those adjustments? If you don’t definitively know those answers, it could be worth just having a conversation with someone to talk through what a strategy might look like.
So I start the process, I’ve been doing this on my own, and I’m taking your advice and going to get a second, maybe third or fourth opinion to see who would be best to work with — how do I go about identifying the best financial advisor for me and my specific circumstances?
If I were in your shoes, I’d say the best financial advisor for you is someone you trust, is knowledgeable in the areas that you need help with, and has the experience. Now I know for some people, that may be difficult to fully and immediately pick up on, but there are some things you can do to kick off that discussion and really make sure that you’re having a constructive conversation.
So one thing that would be extremely important to understand is whether the advisor is a fiduciary. What a fiduciary means is someone has a legal obligation to always act in your best interest. Not all advisors have to always act as a fiduciary. So that’s something that is extremely important — just knowing that this person has an obligation to always be looking out for your best interest.
The next part is do they have experience our specialty in the areas that you need help with? The best way to go about that is asking them, “Have you helped in these particular areas,” and maybe, “Can you describe a time when you actually worked with a client in my situation and how you helped them?” And then, in terms of the experience, ultimately you can gain this by understanding how long they’ve been in business and how long they’ve been helping in a particular area.
But one thing that I think is common with the internet age now is looking online and seeing their reviews. Do they have clients that have decided to go on Google or wherever it may be and talk about their experience? And I think that might give you a really good indication as to what their clients are saying about them and how they feel about them.
We’re talking with Sam Dechtman. He’s a wealth advisor and managing director at Dechtman Wealth Management. Sam, let’s wrap this conversation up with Dechtman Wealth. We’ve been talking about how sometimes, different advisors fit different individuals’ needs. So who is the ideal client for you guys at Dechtman Wealth?
Absolutely. So everyone at Dechtman Wealth is here first and foremost because we want to help our clients and their families reach their financial goals. I’d say our experience is primarily focused on retirees and pre-retirees, business owners, women in transition, whether that be divorce, marriage, debt, or those that have inherited money, and professionals. We believe that we provide the most value when our clients have $500,000 or more in investable assets. Over the years, we’ve learned that those are the type of people that have benefited the most from our services.
Well Sam, we really appreciate the time today. If you guys are interested to learn more or you have follow-up questions, we’ve got all of Sam’s contact info in the link right here on this video, so you can contact Dechtman Wealth Management. We hope that this answered some questions on how to identify and best utilize a financial advisor. Sam, thanks so much for the time.
Thank you, Aaron. I appreciate it.
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