Being an investor today is a wonderful thing. We have access to employer-sponsored plans, like 401(k)s and pension plans, and tax-deferred vehicles like IRAs, or post-tax savings accounts like Roth IRA’s. There is a slew of acronyms for all the different types of investment options available to us – ETFs (exchange-traded funds), mutual funds, and REITs (real estate investment trusts) to name but a few.
So, how are you managing your money? Are you working towards your retirement goal alone, or are you working with a professional? If you’re traveling solo, now may be the time to consider finding a wealth advisor to help with your financial journey.
Today, anyone with some spare change can invest in a low-cost ETF or the S&P 500. But, investing wasn’t always so accessible. There was a time when the Captains of Industry (think J.P. Morgan, Andrew Carnegie, Andrew W. Mellon, and John D. Rockefeller) dominated the investment world.
These “Robber Barons” were ruthlessly powerful US capitalists and industrialists who controlled the lion’s share of American wealth. In the late 19th century, when these big names reigned supreme, investing in the market simply wasn’t an option for everyday people – the market was small, and it was limited to these Titans, as they were the only people with money to invest.
The times have changed, thanks to technological innovation and the disappearance of that level of wealth inequality. Over the past century, the market has opened to more and more investors. These days, investing is more accessible than ever before. And so is working with a wealth advisor.
Americans who are self-directed, typically love the work of investing and have the time for it. These are the do-it-yourself investors that enjoy the process and have a high level of confidence about not only managing their investments (and stock positions, ETFs, etc.), but also about handling things like their taxes, estate planning, and health care planning. They have taken the bull by the horns, and it works for them.
As to those who work with a professional, these folks believe in outsourcing their money chores, including investment management, wealth management, tax planning, estate planning and private equity opportunities. Generally, the higher net worth a person enjoys, the more likely they are to hire a professional to help manage their finances.
As your wealth grows larger, it also becomes more complex to manage. A team of pros can help you understand all the ins-and-outs, and they can serve as a voice of reason, cutting against some of the emotion investors invariably feel about their money when they’re going it alone.
The same technological advances that helped open the market up to average investors have also driven down the cost of wealth management, making this service more accessible than ever, too.
I often get asked, “How much should I expect to pay an advisor?” While the exact number will depend on your goals and overall net worth, my broad strokes answer is that it should be in the range of 1% of your portfolio.
That 1% fee could itself prove to be a monetary perk of working with an advisor. Vanguard, a major investment firm, has concluded, based on extensive research, that there can be a quantifiable increase in return from working with a financial advisor. Vanguard calls this edge the Advisor’s Alpha. When certain best practices are followed, the result can be an Alpha in the 3% per year range.
Many firms offer additional value in the form of estate planning, tax advisement and preparation, and health care planning. Indeed, new financial advisory firms have identified what investors need holistically – and are typically equipped to deliver on many fronts. Investment firm Fidelity puts it nicely in their graphic of “The New Advice Value Stack.” From the bottom to the top, this stack of benefits includes: Managing clients’ money; building upon that to help clients work towards their goals; helping to create peace of mind for clients; and ultimately helping clients reach fulfillment or a sense that they’ve accomplished their life’s purpose and are leaving a legacy.
Today’s wealth management firm is here to help you all along your financial journey – from strategizing for early retirement to planning for college costs, from making sure your loved ones are taken care of to ensuring your charitable donations are impactful.
At Capital Investment Advisors, we are a modern firm of this caliber. Think of us, along with our various business affiliates, as a one-stop-shop for your retirement planning needs. On our office floor we have estate planning attorneys, health care planning specialists, tax specialists and family law attorneys. When the time comes, our firm is happy to connect you with one of our trusted partners.
This is the present and the future of the wealth management industry. And, we at Capital Investment Advisors are on the front lines. As always, we are here if you need us.