How much does it cost to work with a Financial Advisor?

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Ask an Expert – How much does
it cost to work with a Financial Advisor?

Jason Conger Financial Advisor

Answered By
Jason Conger – Financial Advisor – http://jasonconger.nm.com/

Question

How much does it cost to work with you?

Answer

I will often hear in my meetings, “Jason, what you’re saying sounds great, but I know you don’t work for free. I mean, how much does it cost to work with you?” I’ve even had people ask how much it costs to sit down with me for an initial meeting. There seems to be a fear that there is a barrier of entry that is too high to even begin meeting with an advisor, and that is simply not true, especially not for an initial meeting. When understanding the cost of what it takes to work with an advisor, it helps to understand what exactly your advisor does and who is sitting across from you (or on the other end of the telephone).

Many advisors hold the title of “Financial Advisor” or “Financial Planner.” What they do for you is only one specific thing and not necessarily a holistic approach to planning. Below are three types of planners, what they do for you and the associated cost. A disclaimer on the examples that follow is that these are three general types and not every possible type out there. The descriptions will help give you a better idea of what to look for or and what to ask when you sit down with someone.

1.
The first type of Financial Advisor is really only an Insurance Agent. This advisor’s main objective is to help you obtain insurance, and that’s about it. An Insurance Agent is compensated based on a commission of the sale, and the commission can range from anywhere between 40 – 95% of what you’re paying. Insurance is based on your age, sex, and health; therefore, the younger and healthier you are, the less expensive it will be. An insurance policy can be as cheap as $9/month, or you have the option to put beyond one million into a policy. It really depends on what your needs are and the company that you choose. It should be noted that on insurance, some advisors are paid out in the first year, and it doesn’t matter whether you keep your policy past that. Other advisors are paid out slowly over several years; therefore, they want you to keep your policy for the length of the contract. The second version is typically the better option as you can have more faith they’ll do it right the first time.

2.
The second type of Financial Advisor is an Investment Advisor. This advisor’s main objective is to manage your assets, and that’s about it. With the Investment Advisor, you could potentially see multiple fees, whether hidden or not. The possible fees are as follows:

a.
The “Fee Based Advisor,” which means there is a fee for them to make a recommendation on how to manage your investments. This fee can be anywhere from $1,000 – $10,000 as it’s up to the discretion of the advisor. This fee is not to manage your money, but only to make the recommendation on how to manage your money. This should be explained up front and should be a one-time fee.

b.
There could be a “Brokerage Fee,” which can be thought of like a sales charge for each transaction. Every time you invest you pay the fee, and the fee can range from 0.25%-5.75% depending what you’re investing in and with whom.

c.
There could be an “Advisory Fee,” which is not a transaction but more of an ongoing fee on your account. This fee can range anywhere from 0.75% – 2% based on account sizes and who is sitting in front of you. Generally, the larger the account, the smaller the percentage. This advisory fee can be a flat fee or one that moves with the account size. Typically, it’s preferred to have one that moves with the account size, as you want your advisor’s pay to be tied to your performance. If you make money, they make money. If you lose money, they lose money. The flat fee advisor has less skin in the game as they’ll make money whether you make or lose money.

d.
There will always be underlying fund/hidden fees, and these fees can have a very wide range. Make sure you have your advisor explain these underlying/hidden fees. I’ve often seen an advisor say, “There’s no fee to invest with us,” only to see the underlying fund/hidden fees be double or triple what they would be somewhere else

3.
The third type of Financial Advisor is the true Financial Planner. This advisor integrates the insurance planning and the investment planning to create a holistic plan, and the cost is a combination of the previous two. The advisor will be compensated based on commission from any insurance, there will be a “Brokerage/Advisory” fee on the investments and this advisor could also be a “Fee Based Planner.” It is often the third type of advisor that is the most helpful as they are protecting against what could go wrong AND planning for what could go right.

Do it yourself?

There are many people out there who are more of a “do-it-yourself” mentality, which has created the following two problems: people being underinsured and performing worse on average than the market itself:

  1. Over a third (35 percent) of all households would feel adverse financial impacts within one month if a primary wage earner died.1
  2. The average investor gained 5.19%, while the S&P 500 averaged 9.85% for the twenty years ending in 12/31/2015.2

Vanguard performed a study that showed an advisor can add roughly 3% in net returns vs the average investor.3 Half of the ~3% came from behavioral coaching, which essentially means preventing a client from destroying their own plan, often due to their emotions. Many of the advisors at my office have a colleague do a double check of their own plan to ensure that they aren’t letting their emotions get in the way of the prudent planning.

When it comes to the fees that you’ll pay an advisor, it’s best to keep things in perspective. Think of how often you’ll go out to dinner, grab coffee, or grab drinks throughout the year, and roughly add up that number. When you add that up, consider what kind of tipper you are on average: 15%, 18% or 20%+. Multiply the amount you spent by your average tip to get an idea on how much you’ve paid in tips to have someone bring you your food, make your latte or mix that cocktail. Now compare that to the 0.75% – 2% fee you would pay to have a professional manage your life’s savings and plan for you to eventually retire, send your kids to school, save up for your wedding or buy your dream home. Which would you say was more meaningful to you in the long run?

References:

1. 2018 Insurance Barometer Study – LIMRA

2. 2018 Quantitative Analysis of Investor Behavior – Dalbar Inc.

3. Quantifying Vanguard Advisor’s Alpha – Vanguard Funds

When it comes to the fees that you’ll pay an
advisor, it’s best to keep things in perspective.

Jason Conger is an Insurance Agent of Northwestern Mutual and Northwestern Long Term Care Insurance Company, Milwaukee, WI (long-term care insurance), a subsidiary of NM.

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Power of Attorney and Health Care Proxy now?

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Ask an Expert – Power of Attorney and Health Care Proxy now?

Jason Conger Financial Advisor

Answered By
Cathy Sikorski – Speaker, Elder Attorney – www.cathysikorski.com/Speaker/

Question 

Why do I need a Durable Financial Power of Attorney and Health Care Proxy now?

 

Answer 

We, especially Baby Boomers and Gen-Xers are consumed with retirement savings, but we tend to play-down or stick our heads in the sand when it comes to that tsunami of caregiving and long-term care issues that can leave a huge hole in all our carefully laid out retirement plans.

 Even when we are bold enough to have taken precautions with long-term care financial planning, consider this: about 7 in 10 people will spend a significant amount of money on long-term care.

 

Question

First, what is a Power of Attorney?

 

Answer

It’s a legal document that gives someone (called your “Agent”) the complete power to act as you in all matters financial or concerning your health care. Your Agent will have the authority to spend, invest, purchase and liquidate your assets at will. It is a very powerful document. You must choose your Agent wisely, but you must choose. And here’s why.

 If the likelihood of your needing someone to make decisions for you during a serious or chronic illness is 70% (7 in 10, remember?) then YOU want to decide who that person is, don’t you? Especially, if that person is in charge of all your money…..or your health.

 If you don’t pick that person, that Agent, guess who will? A court. If you need someone in charge of your affairs, because you are disabled and you haven’t executed a Power of Attorney document, someone must go to court and ask for a Guardianship. Nobody really wants that. It is expensive, time-consuming, and you are required to report every penny you spend and every medical decision you make as a Guardian to the Court.

 This is true even if the person who is disabled is your spouse. This is especially true in the financial world we have now created for Baby Boomers and those behind us. Saving money has become an exercise in 401Ks and IRAs. If your spouse has the bulk of his/her money in a 401K or something similar or IRAs (and everyone does now), you cannot access that money when they are disabled if you don’t have the proper legal documents.

 That’s why every adult should execute a Durable Financial Power of Attorney and a Health Care Power of Attorney or Proxy (it’s the same thing) and keep it in a safe place until you need it, which I hope is never. But being prepared is always better than being unpleasantly surprised.

YOU want to decide who is in charge of all your money…..or your health.

Cathy Sikorski is a practicing attorney dealing in Elder Law. She has been a significant caregiver for the past 25 years. Cathy does presentations, seminars, radio programs, television, and podcasts.

Her first book Showering with Nana: Confessions of a Serial (killer) Caregiver was released by HumorOutcasts Press.

Corner Office Books, a business imprint of HumorOutcasts Press released Cathy’s second book premiered as a #1 Amazon book Who Moved My Teeth?, a practical and legal guide for adults and caregivers.

Cathy has been featured on the Huffington Post, and AARP and is a SheSource Women’s Media Expert. Cathy has been recognized by financial, legal and aging organizations as a key educator and thought leader. Humor is a vital part of her presentations and she can be seen on the West Chester Story Slam YouTube channel.

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When would I consider a financial coach?

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Ask an Expert – When would I consider a financial coach?

Jason Conger Financial Advisor

Answered By
Maggie Germano – Financial Coach – hello@maggiegermano.com

Question
When would I consider a financial coach?

 

Answer
Here are some instances where you might want to consider a financial coach… When:

• You feel anxious, stressed, or fearful about money

• You struggle with creating, managing, or sticking to a budget

• You want to create new, more effective money habits

• You want to improve your relationship with money

• You need guidance when creating your money goals

• You want to be confident about your money decisions, once and for all

Improve your relationship with money.

Maggie Germano is a feminist and financial coach for women. She helps women improve their relationship with money so they can take control of their financial future.

She does this through one-on-one financial coaching, workshops, writing, and speaking engagements. Shealso founded Money Circle, which is a safe space for women to talk about money without feeling judged. It’s a way to create community and openness around personal finance.

Passionate about many issues affecting women, Maggie is a member of the Women’s Information Network and was trained as a salary negotiation facilitator by AAUW.

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When do I purchase business insurance? How much do I need?

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Ask an Expert – When do I purchase business insurance? How much do I need?

Meg McKeen | Insurance

Answered By
Meg McKeen – Adjunct Advisors, LLC – mckeen.meg@gmail.com

Question 

I am starting a new business.

When do I need to purchase business insurance and how do I determine how much I need?

 

Answer 

Congratulations on taking the leap! There are so many aspects to consider as you grow your business – even before you think you may be “ready,” you’re smart to consider business insurance as a part of your management approach.

 Before we dive in, remember that you do not need to answer these questions alone – a trusted insurance advisor can help you to unpack the questions or concerns you may have, and the insurance solution that is best for you. Take your time to find the advisor who understands your unique business and your approach to managing the risks associated with it – they should be an ally for you as you navigate this process.

 In general, there are regular events that take place in the life of a business that will mandate the purchase of business insurance; for example:

 • Your landlord requires property and general liability insurance when you sign a new lease

 • The finance company requires property insurance when you lease a piece of equipment

 • Your customer, a vendor or supplier requires general liability insurance when you enter into a contract together

 • You purchase a vehicle for the business, necessitating automobile insurance

 • You hire an employee, requiring workers’ compensation insurance

   Often, however, the timing isn’t quite so clear, and other considerations, like these offered below, maybe your guide:

• Do you have…
tangible assets that could be damaged or stolen? Imagine being a photographer and experiencing the theft of your equipment – with a lucrative gig coming up.

• Are you…
offering a product to the general public that could cause harm? Imagine manufacturing a seemingly innocuous household product that is deemed a choking hazard for children after it hits the market.

• Are you…
a brick-and-mortar storefront business or are you offering sales through the internet? Imagine if a breach of customer data occurred during a payment transaction and is your responsibility to remedy.

• Do you manufacture…
a small-batch food product that unknowingly contains an allergen; individuals become ill and you need to recall the product from store shelves.

Experiencing an unplanned event like these could result in financial hardship for your business – but with the right business insurance program in place, could be reduced or eliminated. Once you’re ready to move forward with a formal insurance program, you’ll want to decide just how much insurance to purchase.

Consider your budget and your own interest in taking financial risks – know that when it’s not required by a third party, business insurance is one of many tools that you can use to protect the financial health of your business, and your insurance program can grow and evolve just as your business grows and evolves.

Your instincts in launching and now scaling your business will serve you well, and, along with the support of your insurance adviser, I encourage you to follow these instincts as you evaluate your own approach to building a business insurance program.

 

*A reminder that the information shared here is not intended to be all-encompassing and is not an offer of insurance coverage.

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Divorce & Debt

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Ask an Expert – Divorce & Debt

Jason Conger Financial Advisor

Answered By
Joanne Rogers – VP of Mortgage Lending – www.rate.com

Question 

How are debts paid by another person considered (i.e. marital residence or other real estate)?

Also, are there any other recommendations or tips to establish and protect credit?

Answer

Debts may be omitted if the loan applicant provides the legal separation agreement or divorce decree ordering the spouse to make payments. (FHA required 12 months of timely payments.)

Contact creditors to establish sole (your own) accounts.

Review your credit report to determine if your ex-spouse is a joint account holder or authorized user, then contact creditors to establish sole accounts. Your financial institution may have specific guidelines on these issues — don’t assume all terms are identical from one bank to another.

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Is My Husband’s Life Insurance Enough?

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Ask an Expert – Is My Husband’s Life Insurance Enough?

Jason Conger Financial Advisor

Answered By
Heidi Prom – Financial Counselor – heidiprom@icloud.com

Question 

I’m a stay at home mom. My husband has life insurance through work and we did purchase an additional policy for him.

Since I don’t work, I don’t have any life insurance. But should I?

 

Answer 

Yes! You should have life insurance! Let’s talk about this for a moment. Just because you’re a stay at home mom, doesn’t mean that what you do is not valuable.

First, let’s consider that you are going to live a long and healthy life! The purchase of whole life or a permanent life insurance policy can provide a living benefit that would allow you to utilize the cash value for benefits that include funding a child’s education, helping to buy a new home or car, or paying for a wedding, as well as providing a valuable income supplement for your retirement. There are many advantages of life insurance for the living!

And, consider that while your husband may have insurance through work, it is most likely a term policy that has no value or is not portable for you to take over if he were to leave his company. This is something you need to check out! What exactly does he have, is it portable (movable to you), and is it keeping pace with your family’s financial needs over time?

A stay-at-home mother is worth approximately $143,000.

Now let’s get serious and think about what would happen if you weren’t around anymore to continue to do what you do for your family? Who would replace you, and how would that happen? You are indispensable!

Most likely, your husband would have to find someone to fill in to perform the very valuable roles that you play for your family. While your presence, love, and values may be gone, a family needs to be cared for while your husband continues to work. Would your husband be able to afford to quit his job to raise your children? Would he be able to afford to hire someone to take over your responsibilities?

In most cases, no. And despite the fact that he may remarry at some point, your loss would create a huge void in fulfilling your family’s needs. Life insurance for you would assure that someone might be able to be hired to fulfill some of the everyday duties you perform as a mother and caretaker.

In addition, it could be used to make sure that your children’s lifestyle would remain as is, in the same home, and in ways that might continue or create a sense of normalcy after such a devastating loss. Consider that life insurance can be called ‘love’ insurance. It can be used in a host of ways to improve the life of your children and help make the goals and dreams you have for your family a reality, even in your absence. Life insurance is a way in which you can create a legacy that would continue when you’re gone.

And if this doesn’t resonate with you, consider the 2017 Salary.com survey that valued a stay-at-home mother’s worth at approximately $143,000. We know we are worth infinitely more, but that takes into consideration hiring someone to perform most of the duties that we so adeptly take care of on a daily basis. Food for thought but the bottom line is that you need it and so does your family. Life insurance = love insurance.

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