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A financial adviser would not solve all my problems. More’s the pity.

Sometimes trying to get out of debt isn’t fun. It would be easier to have other people do it for you. I’d love to have a professional looking over my finances with me, helping me make plans, and….it would be great if this person went so far as to live out the frugal life for me. So I could be doing whatever I want and still getting out of debt!

But of course, getting out of debt requires us to change how we live. *sigh* Same as dieting. People can plan with you but they can’t actually make it come true. So I often wonder, is seeking professional advice worth it, when we have to do the actual living ourselves? Might it not make us stronger to do it on our own with the resources we can get our hands on?

I started thinking about this after reading Walter Updegrave’s (senior editor at Money Magazine) column this week on whether or not to ditch your financial adviser. The premise was that you’d started investing in index funds. Do you need the help anymore, or is your adviser just financial deadweight?

Well, I don’t have one. I’m very involved in our finances and read books by numerous financial planners and gurus (free advice, if you get them from the library). Plus I subscribe to a lot of blogs for more ideas and suggestions.

Yet I can see a few times when consulting one might be the right thing to do. Updegrave points out that there are a lot of questions facing us, even those of us who’ve decided to go the indexing route.

There are plenty of other questions you’ve got to deal with, starting with which index funds should you invest in? There are hundreds, after all, if you include exchange traded funds, or ETFs. Then there are questions like, how should you divide your money among whatever index funds you want to buy, and how do you maintain those proportions over time when different index funds are generating different rates of return?

And we haven’t even gotten to broader issues, such as how much of your earnings should you be putting in these funds anyway, so that you’ll have enough a large enough nest egg to retire comfortably? And when you’re ready to retire, what’s the best way to turn those balances into a reliable income that will support you the rest of your life?

Heavy stuff. For people who want to put their finances in order but don’t want to spend as much time as we PF bloggers do, maybe hiring an adviser makes sense. And for those of us who get involved, a one-time consultation might not be a bad idea. I like Updegrave’s suggestion that one not go the traditional route of paying a percentage of the portfolio. Unless one’s finances are very complicated, I think this is the route to go.

Today, there are a growing number of ways to get financial help, ranging from working with a financial planner or other adviser who charges an annual fee to hiring an adviser on an hourly or project basis to working with investment firms that provide advice over the phone or through online tools for a fee or maybe even for free. (To read an earlier column of mine that goes into these options, click here.)

I could see myself having a one-time meeting with a financial adviser whom I’d paid a fee to look through my life and make suggestions. Well, I could see doing it if I needed good advice. Otherwise, I’ll just invest the money. Support groups and the like are probably better for changing behaviors. Because in the end the adviser can’t do the living for me, just give suggestions.

And if you ever go with one, take Free Money Finance’s advices us and make sure your financial planner is not a loser!

{ 8 comments… read them below or add one }

frugal zeitgeist September 30, 2007 at 1:04 am

I don’t think you need a financial advisor. You’re clearly motivated and you’re learning as much as you can, so you’re way ahead of the curve relative to many people your age.

Mrs. Micah September 30, 2007 at 1:42 am

Thanks, Frugal Zeitgeist. It sounded like you also had a better handle on your finances than the Dude you were working with. Are you going to replace him?

Anonymous September 30, 2007 at 2:51 am

Good luck when you come up with new ideas please publish them here. It is a constant battle (Debt) but, we will make it. We just have to hang in there. Have a good weekend!! Annette

Andrew Stevens September 30, 2007 at 6:58 am

I sympathize with your dilemma, Mrs. Micah, but I agree with Frugal Zeitgeist that you probably don’t need a financial advisor particularly. It’s difficult to get solid recommendations from online sources (never mind books) about specific asset allocations or specific mutual funds (or ETFs), but it is possible.

Updegrave’s article was a good one since he pointed out correctly that personal finance is not rocket science and doesn’t require you to be a financial whiz kid. However, he also argues, correctly, that there are many people who are unwilling or unable to grapple with these issues. (My wife is in the unwilling camp.) For these people, a financial advisor isn’t just a luxury; it might be a necessity.

I sympathize with this dilemma to such a degree that I have always planned, on retirement, to volunteer my services as a financial advisor to the working poor. In my beatnik days, I was working poor myself and did pretty well for myself financially (no debt at all, large emergency fund, decent retirement accounts, etc.) so I’ve always thought that I could use that special perspective to convince people that they can actually accomplish something by living frugally and engaging in sensible personal finance. Too many working poor don’t think it’s possible to get ahead on their small salaries. It’s certainly more difficult, but it’s not impossible. Personal finance is only about 20% knowledge and about 80% behavior. A financial advisor can’t do anything about the 80%, but he can solve the 20%. Unfortunately, there are also a large number of “financial advisors” who are actually salesmen in disguise and this can positively hinder your financial planning.

Queercents September 30, 2007 at 1:43 pm

I think most people need a financial planner… you might find these two posts to be helpful:

When Do You NEED a Financial Planner
How to Pick a Financial Planner

Something to keep in mind: a financial planner should educate as well as advise. And an advisor will help plan your future, not just finances.

frugal zeitgeist September 30, 2007 at 8:25 pm

To answer your question – no, I’m not getting a different financial planner. I only gave it a try this time because it’s a new free service offered by my employer.

I think andrew stevens is right: financial fitness consists of about 20% knowing and 80% doing. As far as knowing goes, I prefer the KISS rule (Keep It Simple, Stupid). Putting the knowledge into practice is where the rubber meets the road: I think most people find practicing fiscal discipline on an ongoing basis to be something of a challenge.

In the meantime, my unsolicited suggestion is to not try to bypass the lean years too quickly. Ten years down the road, you might look back with great fondness at the simplicity life held at this stage.

Mrs. Micah September 30, 2007 at 9:20 pm

I think I’d mind less living frugally because I want to. I do, actually, want to live frugally or responsibly. But it’s scary to know that there could be a financial crisis if we don’t do things quite right. It’d be more fun simply to do it for the joy of doing it.

Andrew Stevens September 30, 2007 at 10:02 pm

I agree with Queercents that it’s probably true that most people need professional financial advice at some point in their lives. However, anybody with enough motivation and interest in personal finance to write a blog about it probably doesn’t, unless they either have a boatload of assets or they’re just hopeless at math. (I.e. the people who could never do “word problems” in algebra, no matter how good they were at arithmetic.)

Of course, if you’re sufficiently motivated and interested, there’s a good chance you eventually will have a boatload of assets and then a financial planner will come in handy. To give an example of this, the personal finance community quite rightly gives a good kicking to the idea of universal or variable universal life. 98% of the time, that’s right. I work in life insurance (actuarial) and I strongly recommend that people always buy term and invest the difference on their own (and then only when they have dependents). However, if you have a boatload of assets, universal life insurance makes a ton of sense, even without dependents, as long as the Cost of Insurance (COI) charges are smaller than the estate taxes (and that’s going to be true unless you’re very old or very sick). As an investment and life insurance vehicle, it’s hopeless, but as an estate planning tool, it’s quite useful.

For Mrs. Micah’s case, though, there are plenty of step-by-step guides readily available (for free) on how she can go about reducing her risk of wipe-out so that she can live frugally because she wants to rather than because she has to. I certainly wouldn’t recommend spending very much of her cash on consulting a financial planner who’s going to give her basically the same advice, especially given how tight her finances are right now. (If I’m reading her statement right, her liabilities outweigh her assets, even if we ignore the student loan debt, which I’m inclined to do, since it’s “good debt.”)

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