So you think you need a financial advisor?

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  • 1. “A unique voice on money, i w r d an do i l l ail d i wn fo ds, one singularly attuned to…his generation.” t e y t nt loa a c ac er I WIll h y tic act Vis u t o l tip e sp —San FranciSco chronicle o a iv it b e r s, b re i c on ads h . us h co m ee ts TEAch You by RAmIT SEThI founder and writer of iwillteachyoutoberich.com ToBE No Guilt. No Excuses. No B.S. Just a 6-Week Program That Works
  • 2. THE MYTH OF FINANCIAL EXPERTISE I Bet You Don’t Need a Financial adviser Y ou’ve heard my rants against the media hype surrounding investment and the poor performance of most professional investors. Now there’s one more category of financial professionals that I want to warn you about: financial advisers. Some of you might say, “But Ramit, I don’t have time to invest! Can’t I just use a financial adviser?” Ah, yes, the old outsourcing argument. We outsource our car cleaning, laundry, and housekeeping. So why not the management of our money? Most young people don’t need a financial adviser. We have such simple needs that with a little bit of time (a few hours a week over the course of, say, six weeks) we can get an automatic personal-finance infrastructure working for us. SOME FINANCIAL Plus, financial advisers don’t always look out for your interests. AdvISERS wILL They’re supposed to help you make gIvE YOu gOOd the right decisions about your money, AdvICE, buT but keep in mind that they’re actually MANY ARE not obligated to do what’s best for PRETTY uSELESS. you. Some of them will give you very good advice, but many of them are pretty useless. If they’re paid on commission, they usually will direct you to expensive, bloated funds to earn their commissions. By contrast, fee-based financial advisers simply charge a flat fee and are much more reputable. (Neither is necessarily better at providing good investment returns, or your top line; they simply charge differently, affecting your bottom line.) The key takeaway is that most people don’t actually need a financial adviser—you can do it all on your own and come out ahead. But if your choice is between hiring a financial adviser or not investing at all, then sure, you should hire one. People with really complex financial situations, those who have inherited significant amounts of money, and those who truly are too busy to learn about investing for themselves also should consider seeking an adviser’s help. It’s better to pay a little and get started investing than to not start at all. If you’re determined 153
  • 3. I Will Teach You to Be Rich So You Really Think You Need a Financial Adviser? I f you really want to look into hiring a financial adviser, here’s an introductory e-mail you can adapt and send: Hi, Mike, I’m looking for a fee-based financial planner, and I found you on www.napfa.org. A little bit about me: I’m twenty-six and have about $10,000 in total assets—$3,000 in a Roth IRA (uninvested), $3,000 in a 401(k), and $4,000 in cash. I don’t need the money any time soon, so I’m looking for investments that will maximize long-term returns while minimizing costs. If you think you can help me, I’d like to meet for half an hour and ask you some specific questions. I’d also like to hear details on other situations in which you’ve worked with similar people with similar goals. Would next Friday, 2/6, at 2 work at your office? p.m., Alternatively, Monday, 2/9, is wide open for me. Thanks, Ramit For your thirty-minute meeting—which shouldn’t cost you anything— you’ll want to come prepared with questions. There are hundreds of sample questions available online (search for “financial adviser questions”), but at the very least, ask these three: n How do you make your money? Is it through commission or strictly fee based? Are there any other fees? (You want a fee- based adviser with no hidden fees.) n Have you worked with other people like me in similar situations? What general solutions did you recommend? (Get references and call them.) n What’s your working style? Do we talk regularly or do I work with an assistant? (You want to know what to expect in the first thirty days, sixty days, and ninety days.) 154
  • 4. THE MYTH OF FINANCIAL EXPERTISE to get professional help, begin your search at the National Association of Personal Financial Advisors (www.napfa.org). These advisers are fee based (they usually have an hourly rate), not commission based, meaning up paying tens of thousands of dollars over their lifetime simply because they didn’t spend a few hours learning about investing. If you don’t learn to manage your money in your twenties, you’ll cost yourself a ton one way or another—whether you do nothing, or pay someone exorbitant fees to “manage” your money. providing any special return on my investment, but costing me 1.5 percent in fees each year, I made the decision to open an online brokerage account and take charge of my money. —SARAH PURA, 24 155
  • 5. Get the full book at Amazon.com About the book At last, for a generation that's materially ambitious yet financially clueless comes I Will Teach You To Be Rich, Ramit Sethi's 6-week personal finance program for 20-to-35-year-olds. A completely practical approach based around the four pillars of personal finance—banking, saving, budgeting, and investing—and the wealth-building ideas of personal entrepreneurship.