After spending over a decade in the investment management industry, I realized something crucial: managing your own investments is entirely doable and has some major advantages if you keep it simple and have the right framework in place. This insight is what inspired me to offer investment advice only rather than “investment management” services for my clients.
The Value of Investment Advice
Hiring a financial advisor to analyze your portfolio and provide advice with a comprehensive financial plan is invaluable—worth every penny. The crucial steps of determining an appropriate investment allocation, investment location, investment fund selection, and staying the course when markets are volatile are where an advisor can add serious value for your investments. But paying an advisor to also take on the day to day management of your investments and implement the strategy for you? That’s actually really more of a luxury than a necessity.
Why Investment Management is a Luxury
Let’s take a step back to understand what investment management services entail. While it tends to be portrayed as this highly complex process to try to “beat the market”, investment managers on average actually deliver the same return as the market less their fees. So at the end of the day, for the average person who does not have a complicated portfolio an advisor’s role in investment management often boils down to periodically pushing a few buttons to submit trades and rebalance your portfolio on your behalf. With some guidance and a solid plan, these straight forward tasks really don’t require that much time or effort to do for yourself and still get good results.
The Costs of Paying For Investment Management
The cost of outsourcing your investment management can be substantial. A common fee structure is to pay a 1% annual management fee (as a percentage of your portfolio value). This fee may seem small, but over time it can take a big chunk out of your wealth. Consider this: with a $300,000 portfolio, paying a 1% fee annually over 30 years could cost you more than $500,000 in lost potential growth. Relying on someone else to manage your investments can also leave you feeling disconnected from your own financial journey. It can be much more empowering to get investment guidance from an advisor, so that you can take control of this process and also save yourself a lot on fees in the long-run!
The Unfortunate Reality of Portfolio Minimums
Another important factor to consider is that many advisors who offer investment management services require high portfolio minimums just to take you on as a client. Their business model is designed to maximize their fees, which keeps them primarily focused on serving older, wealthy clients with large portfolios. I noticed how this dynamic tends to leave my generation, folks in their 30s and 40s, who have not accumulated a large portfolio yet underserved by the financial community. I firmly believe that my generation can be much better served by paying a simple, flat financial planning fee to get the crucial advice they need to take control of their finances.
Bottomline
Choosing to pay for investment advice over management services is about getting yourself the tools and confidence to manage your own financial journey. The traditional investment management model often prioritizes the wealthy, but for those of us still building wealth, a simpler, more direct approach can be just as effective. By focusing on the essentials and receiving clear guidance, you can take control of your investments, avoid unnecessary fees, and make informed decisions that support your long-term goals.
Disclaimer: All written content is for informational purposes only. None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. All information provided should be discussed with a registered advisor, accountant, or legal counsel prior to implementation. Opinions expressed herein are solely those of Sheer Empowerment Financial LLC (“SEF”), unless otherwise specifically cited. Presented material is believed to be from reliable sources and no representations are made by our firm as to another parties’ information accuracy or completeness.