Why are DIY Financial Planners Turning to Financial Advisors?
“I’ve Got a 401k and Social Security. Why Do I Need a Financial Planner?” Is often said as people enter retirement. But what is the change that's driving those financially savvy self-managers to seek the help of professional advisors?
Today, we are closer to the year 2050 than we are to 1990. Which if nothing else, just proves the old adage that time flies, and that somehow it seems to go by so much faster as we get older.
Back in 1990, most people still believed in the traditional career paths that worked for our parents:
- Go to college
- Get a good job
- Be a loyal and productive employee
- Work 40 hours a week for 40 years
- Retire with a gold watch and a pension
But then, the whole world changed:
- Employers started rewarding loyalty with layoffs instead of gold watches
- 50- or 60-hour work weeks became the norm
- 401k accounts replaced company pensions as primary income during retirement
- Well-paying jobs moved overseas
- AND: someone invented the internet!
For today’s workforce, these changing tides have forced a whole generation to try and learn about what was once regarded as “high finance.” Where previous generations could count on a pension and perhaps a modest savings to last through retirement, the old rules no longer apply. To compound the dilemma, people are living longer than ever with rapidly escalating health care costs.
Many people approaching retirement age realize there are unique challenges this generation faces. Yet, too many still embrace a Do It Yourself (DIY) approach to investing and money management.
They listen to someone on the radio, cable TV or YouTube who calls themselves a financial expert and heed their advice, regardless of their actual qualifications. After all, if they have their own show, they must know what they’re talking about, right?
These DIY’ers may run a Google search, read an article or two, or even attend a “free steak dinner” financial seminar that pitches a financial product. They might even have a brother-in-law who majored in economics (back in 1990). A little of this, a little of that, a little advice from the brother-in-law and they think they have a solid financial plan for retirement.
While that sort of “planning” could work, it could also go terribly wrong! And it’s due in no small part to the unique challenges this generation faces in creating an effective retirement strategy in today’s unique economy. Most DIY people are blissfully unaware of how dramatically different the financial landscape is from 1990!
We all remember what happened in 2008 and the impact it had on retirement accounts, but most people don’t realize the aftermath of that continues to haunt retiree accounts to this day.
As a result of recovery efforts from the great recession, interest rates were dropped and stayed low – for too long! Because this also lowered the bond market rates, dependable ‘safe’ income was adversely affected. What that meant for retirees was that traditionally “safe” accounts or investments (savings accounts, CDs, money market accounts, treasury bonds) weren’t paying enough interest to keep up with inflation. And while inflation was low, for over a decade, that drastically began to change in 2021.
Meanwhile, the stock market had only one way to go, and that was up. Recent volatility aside, there was a widegap between the stock and bond market. While the simple solution is to invest in the stock market, we know how well that turned out for investors in 2007. There’s just too much risk for retirees there, since markets can crash even quicker than they soar. It’s often been said that the stock market takes the stairs up, but takes the elevator down.
So, in a financial environment where there is a historically large gap between safe investments and riskier equities, educated DIY investors understand that asset allocation (70% bonds, 30% stocks, or some such mix) is the key. They can research and perhaps find a mutual fund or an index fund they think might be a fit for them. But, is it the right mix of safety and growth that aligns correctly with their financial goals? Or is this a “hope-so” strategy for the masses? It’s much like buying a suit off the rack: while it might serve a purpose, it’s hardly a tailored suit, custom fit for the individual and made to last.
Now, of course, some savvy DIY’ers can handle the allocation on their own. But without an expert to help them manage risks like hedging against inflation, rising healthcare costs and tax planning, they’re either risking running out of money in retirement or possibly afraid to live the lifestyle they deserve. And yet, these aren’t the reasons most will ultimately decide to work with a professional.
While they may be confident in their money management skills, at some point, many realize planning is about more than achieving a comfortable retirement for themselves. It’s the love of their family that has many re-consider the DIY approach. They seek a professional for the planning, transition and well-being of the family.
If you’ve been a successful DIY’er up until now, but family considerations or current market conditions are pushing you beyond your comfort level, now is the time to find a trustworthy advisor to help you over the finish line.
The best advisors get to know their clients as individuals and take the time to understand the circumstances unique to each situation. After discussing goals, risk tolerance and all the other relevant factors, the advisor you’re looking for will have a holistic overview of your family as well as your financial situation. Before making any recommendations, a good advisor will stress test your particular situation against different market conditions, using the latest advanced technology to determine investment risks and returns, tax implications and the impact of any insurance products that could work to your benefit.
Even the most successful DIY’ers find it a challenge to account for all those factors when planning their financial future. You don’t have to go it alone anymore. Help is out there when you’re ready. You just have to know who to ask.
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance.
She utilizes advanced tools for in-depth calculations that analyze tax and retirement scenarios to help their clients avoid a future tax time-bomb. Whether this means enjoying more of your hard-earned money in retirement or passing along assets to loved ones with less tax burden, planning makes the difference.
Her new book, The Generational Wealth System outlines a holistic approach to preserving lifestyle, wealth and legacy.
