We at Mitlin Financial always communicate the importance of having a financial plan. As I have said in the past, people spend more time, energy and money on planning their family vacations than they do their financial lives. It is important to make sure you have a guide, a roadmap, for how you are going to be able to successfully retire and reach the financial goals you have in the future. We rely on tools to guide us all the time, such as Waze for the car, and it is important to have this tool to guide your financial life; a financial plan.
Recently we met with a prospective client who found us from our robust online presence. Once contacted by this family, which we will refer to as the Doe’s, we introduced the firm’s process and began to walk them through it. On the initial call we scheduled our “Is There A Fit” meeting with both Mr. and Mrs. Doe. It is key to have both spouses involved in the planning process, so it is a must that both attend our initial meeting.
The initial meeting was a huge success, the couple clearly had financial planning concerns that needed to be addressed and a financial plan would be paramount to their success. Following our meeting we forwarded the couple a proposal which outlined the areas we would cover in the plan and the detail they should expect to see in their personal financial plan. In addition, we quoted our fee for the plan.
When we contacted the couple, as we had scheduled during the initial meeting, to see if they felt we would be a good fit for them and confirm whether or not they were a good fit for us, things became interesting. As a firm, we felt this family would be an ideal client for us. They were in need of a financial plan to help organize and outline their financial life as they approach retirement and also needed assistance in managing their assets. I must say their assets were everywhere and invested in many different ways without a unified direction. In speaking with the prospective clients we learned that they too felt we were a good fit for their family and would provide the services and attention they need to work towards their goals.
The couple had a few questions about the financial plan and the fee. They felt that the fee was too high. When speaking with them to learn more about their questions, I came to learn that they had decided to choose to work with another firm. The reason they provided us was because the firm they were going to move forward with was not charging them for the financial plan.
Have you heard this before? Do you think a financial plan has no cost? I can tell you from personal experience that a good financial plan can take anywhere from five to thirty hours to produce, depending on its complexity. The pitfall with a free plan is typically it is simply used as a “sales” technique to get your assets under management. The financial plan is used as loss leader in order to have you move your accounts to the firm. Unfortunately, in many instances this may have consequences that you may be unaware of and it particularly problematic if you are not working with a fiduciary advisor like Mitlin Financial, Inc.
When offered a “free” financial plan by a non-fiduciary advisor you will typically see several outcomes that may come as a result. This is not to say that this is the case in 100% of the circumstances, but it does happen often. Many times the “free” plan is one you could probably do in five minutes using an online calculator and get the same result, not providing you much guidance. We have also seen outcomes that produce plans that are two hundred plus pages that are designed to confuse you and presented in a way you would never be able to follow or implement. One additional result we have seen with the “free” plan is the broker, or non-fiduciary advisor, using investment vehicles that will pay them handsomely in order to compensate them for the lost upfront revenue for the “free” plan. The “advisor” in this case is looking at the financial plan as a loss leader. Essentially they are using the plan as a tool to get you to transfer their assets to you and once that is done they will look to have you invest in high commissionable products. This will allow the “advisor” to recoup the money for the time spent on putting your plan together. This may involve you buying products that may require you to hold on to them for several years before you can get out of them without a penalty and/or purchasing products that may be in the “advisors” best interest and not your own. They have put several hours into this plan and need to be compensated somehow, did you really think they were doing this for free?
It is very important that you do your due diligence in advance, especially when working with a non-fiduciary advisor. This scenario can ultimately cost you way more than if you actually paid for the plan. We have not even spoken about the follow through and implementation of the plan, which many times will fall to the wayside once they are investing the assets and this is the most important part. We feel it would make more sense to work with a fiduciary advisor and pay for the plan on its own. This will allow you to implement the plan and incur those costs separately. More importantly, because you are working with a fiduciary advisor they will be required to work in your best interest and disclose any potential conflicts of interest.
Working with a fiduciary advisor in this instance is paramount. As a fiduciary, these advisors must disclose any costs and make investments that are in your best interest and not theirs. We have seen fiduciary advisors offer the financial planning component for “free”, but typically these are cases where the client is having them manage in excess of a certain dollar amount; typically over one million dollars or some higher threshold. When you think about, in this case the plan is not free either but is being done as part of the services for your family because of the size of your account and the benefit it produces.
There is no free lunch or financial plan and it is important when hiring an advisor that you understand all the costs. There is an unwillingness, especially among the non-fiduciary advisors, to have a discussion about the costs of doing business with a financial services firm. As a firm, this is something we disclose at our first meeting. Unfortunately, the Doe’s have most likely fallen into a trap that will end up costing them far more in the long run than if they move forward and worked with us. Chances are that they will learn this at some point down the road and either we or some other fiduciary advisor will have to charge them even more to fix and unwind the mistakes that were made.
We would welcome the opportunity to speak with you about your own experiences with financial plans and help you, your family and friends in any way that we can. Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.