- 64% of Americans are living paycheck to paycheck (Lending Club survey 2022)
- 73% of Americans rank finances as their highest stress (CapitalOne survey 2021)
- 75% of Americans are managing their money on their own (CNBC survey 2019)
It seems that most of us could use some professional financial help. So why are only 1 in 4 seeking that help? I think there are several reasons.
All I need to know is on the internet
This is completely true. And mostly unhelpful. The same could be said about the medical profession, yet we still seek the input and help of doctors. The same could be said about the automobile profession, yet we still seek the input and help of mechanics.
These professionals, just like financial professionals, are trained to diagnose your specific issue, and what the options and best practices are to help you. A good financial professional will cut through all the unwanted noise and focus you in on what is pertinent and helpful for YOU specifically.
Money is personal
Let’s face it, talking about how much money we make or how much we have, or don’t have, is hard! It can be even harder if we think we’ve made mistakes along the way.
I’ve had friends tell me how hard it was to get into specifics about their financial picture. But after doing so they were glad that they did. Keep in mind that all financial professionals should be keeping your personal situation private, similar to how a medical doctor will be keeping your medical situation private.
I don’t know who to talk to
There are many types of financial professionals out there. CPA’s, insurance agents, securities brokers, financial advisors, financial coaches, etc. Are they all the same? While there is a certain amount of overlap between these people, the difference boils down to specific areas of focus. Over the course of your life, you may benefit from working with all of them.
To figure out who you may want to talk with now let’s quickly discuss the differences between them.
Certified Public Accountants (CPS’s)
They file your taxes and recommend actions you can take to save on taxes. Paying fewer taxes is awesome! It may benefit us to utilize these experts, especially if we have a life event that makes our return more complicated than we are used to. They typically get paid by the tax return or the hour. As we work with our CPA, we must keep in mind that they usually are not getting a holistic view of our finances, so their future looking input is limited.
Insurance Agents
They sell various insurance products. We all should have appropriate insurance coverage to avoid a potential financial catastrophe. They are typically regulated by the state they do business in and are bound by a “suitability” standard of care. This means they are bound to offer advice and recommendations that are “suitable” for the client. They typically get paid in whole or part based on the number of insurance products they sell to you.
Securities Brokers
They sell securities like stocks and bonds. They are nationally regulated by the Financial Industry Regulatory Authority (“FINRA”). Like insurance agents they are bound by a “suitability” standard of care. They typically get paid a commission on the sales of the securities they sell you.
Financial Advisors
They help you build wealth and prepare for your future through long-term financial planning. They usually work with clients who want to manage their assets, build an investment portfolio, and plan for their retirement. Some financial advisors may also help with taxes, estate planning, and long-term care planning. They are typically nationally regulated by the Securities and Exchange Commission (”SEC”) and are bound by a “fiduciary” standard of care. This means they must act in their client’s best interest at all times. They typically get paid a percentage of assets under management (“AUM”) or a fixed fee for the situation they are working with their client on.
Financial Coaches
They provide guidance and education to help their clients improve their financial habits and skills thereby improving their financial situation. This often takes the form of assisting them in creating a budget, and prioritizing saving money and paying off debt. They are not regulated and therefore do not have a specific standard of care they are bound to. However, because they do not specifically sell any products like insurance agents and securities brokers do, they have no incentive to do anything not in the interest of their client. They typically get paid by the hour or session.
Do I need an Advisor or a Coach?
In simplest terms, financial advisors work to manage and build on wealth that already exists while financial coaches provide information that helps put clients in the best position to create that initial wealth.
When working with an Advisor may make the most sense:
- I’m looking for specific investment advice
- I need advice about buying/selling a business
- I need advice about planning for my child’s college expenses
- I need estate planning help
- I have $100,000+ and want someone else to manage it according to my goals and risk tolerance
- I’m nearing retirement, and I want to ensure that I’m on the right track.
- I just inherited some money, and I want to get some advice on how to invest the money.
- My parents are getting older, and they/we need help managing their overall finances
When working with a Coach may make the most sense:
- I’m living paycheck to paycheck
- I can’t pay off my credit card balance every month
- I’m about to start my first “real job”
- I owe more money than I have saved
- I don’t know how to create a budget
- I need help sticking to a budget
- I have little or no savings and need a plan to create some
- I need to reduce my debt
- I lost my job and have little to no current income
- I’m about to get married and need to figure out how to make financial decisions as a couple
- My spouse and I have different financial goals and frequently argue about money
- I want to help my children be wise with money
- I want to help my kids pay for college but I can’t
- I’m over 30 and have no retirement savings
- I need to save for a house or car and but have to improve my credit score
- I want to regularly meet with someone for encouragement and to review my progress