How To Choose the Right Financial Planning Approach for Your Family

The Do-It-Yourself Approach
Personal Finance Management

The most common approach for most families is the do-it-yourself approach to financial planning.  Between low costs and easy implementation, it's not too surprising. Additionally, with financial advice readily available online, it's easier than ever to find information on a broad range of personal finance topics including: 

• • Investing best practices & recommendations
  • 401(k) contributions & elections
  • Budgeting & simple cash flow planning
  • Using digital tax services or doing taxes without a CPA (ie. TurboTax or H&R Block)

Benefits of Taking on Finances Yourself

• • You Have Complete Control Over Investments & Strategies
    When taking on your own financial planning, you’re in control of how and when you invest your money as well as what you choose to invest in. You can pivot quickly on your strategies or priorities without discussion with a third party, and as such, you can rebalance your accounts or change your contribution amounts on your own timetable. 
  • Low-Cost Option
    Arguably, the most attractive component of the D-I-Y approach is the low upfront cost. By taking on the burden of financial planning by yourself, you’re able to avoid fee schedules set by businesses and can rely on openly available resources. There are numerous free resources online on sites like these:
    • https://www.investor.gov
    • Forbes
    • Consumer Credit

Downsides to the D-I-Y Approach

• • You May Miss Wealth Building Opportunities or Incur Additional Costs
    If you aren’t financially savvy or a financial planning expert, you’re likely missing out on opportunities for wealth building. For larger estates & asset sizes, efficient financial planning can be extremely complex. While the old adage says, “more money, more problems,” we believe that it could also be amended to say “more money, more opportunities for problems to reoccur over time.”
    When a family’s assets begin encroaching on the $1 million mark, the potential for missed tax forms, hidden investment fees, legal or insurance needs, and savings opportunities compounds in-kind, and often on a recurring annual basis. While these inefficiencies may not appear to cost anything upfront, the potential long-term costs (ex. overpaid taxes, investment fees, missed wealth opportunities, incorrect insurance coverage, inefficient benefit elections, etc.) can be substantial over time. 
    

Read About the 3 Costly Tax Mistakes We See ALL the Time Here

• • Major Time Investment
    Effective financial planning is an ongoing process, which is typically too time-consuming for busy executives who already have a full-time profession and family obligations. A financial plan that helps you achieve long-term wealth requires a significant time investment and is constantly evolving. To effectively manage your financial plan, you'll need to be well-versed in the latest tax legislation, understand the nuances of comparing investment funds, and stay on top of every financial record provided from various bank cards and asset brokers on a continual basis. When your assets reach a certain threshold, this process can become extremely cumbersome, so we typically recommend connecting with a fiduciary advisor to get a second opinion. 

When Should You Hire a Financial Advisor Instead of Handling Your Own Finances?
Find Out Now.

Verdict: The DIY approach works best for lower account balances or those educated in personal finance

While a DIY approach to financial planning has the lowest upfront cost of the three options we’re covering today, it can have long-term consequences for those who are unaware of the nuances surrounding their financial situations. This approach can be a great place to start, especially for young families, and can also offer insights when discussing your situation with an advisor down the line. Handling your own finances typically works best for families with lower account balances or who have substantial knowledge or experience with personal finance.

What About The One-Time Financial Plan That Firms Offer?

When meeting with an advisor, there may be a few services offered on an ad-hoc basis. One of the most popular offerings is a one-time financial plan outlining the various strategies and approaches they'd recommend for a potential client's situation.  If you're considering this option, it's important to understand the cost, financial scope, and time required to make the most of it. 

Who Should Consider a One-Time Financial Plan?

Typically, these plans are highly technical documents that can only be implemented by very financially savvy individuals. If you're a successful D-I-Y investor who feels confident in executing the various financial strategies across different investment platforms, it may be a worthwhile option to consider. Keep in mind, these plans are the culmination of advisory recommendations without the advisor to walk you through them— in short, they can be very long documents covering everything from investments to insurance and 401(k) optimization to education planning for your family; additionally, the technical recommendations that would be simple for an advisor to implement can be very difficult for even the savviest of D-I-Y investors.  

Downsides to an Ad-Hoc Financial Plan:

• • One-Time Plans Can Get Pricey
    As we mentioned above, these financial plans are thorough and can offer substantial value to individuals. As a result, they're oftentimes expensive to compensate the advisors for the time and knowledge of putting it together. Additionally, as you work to implement the recommended strategies, you may incur costs with the software or investments as an individual that a firm can absorb through group rates. 
  • When Life Doesn't Go According to Plan, the Plan Has to Be Amended
    Life happens and situations change. When you have ongoing asset management with a firm, your advisory team adapts as things change. One-time plans are exactly that — they're done at a specific time based on existing information. They aren't made to account for random occurrences or unexpected life changes. 
  • Substantial Time Commitment 
    For some, their financial plans are simple and straightforward. For the majority of corporate executives, working through investments, estate planning, retirement planning, and savings is more complex. Consider this, if you get a financial plan on a yearly basis, the advisor may address a year's worth of financial considerations and strategies within one document, which is a hugely time-consuming effort. If you've chosen to take on the implementation of a one-time financial plan alongside your job and family obligations, addressing the action items recommended by an advisor can be a monumental undertaking. 

The Pick & Choose Approach
Silo-ed Expertise 

One of the most common approaches to personal finance is the siloed expertise approach. Typically, this occurs when a family chooses to manage their own finances and add in hand-picked experts to manage a specific financial focus. A few of the many financial services you can hire on an ad hoc basis include:

• • Investment or money managers
  • Accountants
  • Probate or estate attorneys
  • Financial planners 
  • Insurance brokers 

Benefits of Selecting Independent Financial Planning Professionals

• • Wealth of Knowledge
    The greatest benefit of this approach is that the experts you choose will have deep knowledge and experience on their given subjects. Replacing an open-source service such as TurboTax with a Certified Public Accountant during tax season can not only offer certain benefits on your tax return, but having frequent discussions with your CPA about your situation and how to lower your taxes can yield substantial savings over the long-term as well. Supplementing your existing financial planning with experts frees up your time from research and implementation on whichever financial focus you outsource to them. 
  • Pay Only For What You Need, When You Need It
    If you only need a few services to cover your family, you can delegate and divide your assets across experts and only pay as you go for what you need. For example, let's say that your family is fairly financially savvy but navigating taxes and financial strategies isn't something you're well-versed in. If you feel confident handling your investments without help, you can save money on those services and, instead select someone who solely specializes in what you need: an accountant for your taxes and an advisor for your financial planning. 

Downsides to the Silo Approach

• • Silos Make You A Project Manager of Your Financial Team
    While being able to pick and choose a few financial experts to supplement your own knowledge may seem like a dream, it can also add more work to your plate. Upon hiring these experts, it quickly becomes your job to make sure they have every financial document they need, that you have an idea of what questions to ask to avoid costs, and most importantly, that they communicate with each other to get you the best outcome. Consider this: Before reaching your tax forms, your advisor’s expertise and recommendations can have huge impacts on your final tax picture. If your financial planner makes choices without considering their tax implications, important tax mitigation strategies can be missed along the way and cost you significant wealth over time. While this option can provide some families the freedom and expertise they want in their financial planning efforts, the hidden time requirements to effectively manage each part of your financial team can add up to a significant time investment.  
  • Expertise Comes at a Premium Cost
    When working with independent experts, each one has their own cost structure. When trying to plan what you'll need in a given year, it can be difficult to forecast as various events arise. Within many of these firms, costs are determined on an ad hoc basis which adds an additional layer of forecasting difficulty. Take for example, a CPA may charge an hourly fee for Form 1040 Preparation and filing. If you've made certain financial elections such as a Backdoor Roth Conversion, adding a Form 8606 may incur additional fees you didn't allocate for. As we briefly mentioned above, the other cost that arises is one of time. Coordinating between your financial professionals can cost you time as well as money, and a significant amount of energy.

Verdict: Best for families who know they only need one financial service

Getting an in-depth look at your financial assets can be an incredibly valuable step to achieving your long-term goals, but separating the expertise across multiple firms can be an inefficient, and often costly, way to manage them all. This approach is often best for families who don’t require multiple financial professionals, ie. those who only require a CPA for tax season and don’t require financial planning, estate, or investment advice. 

In-Depth Look: The Cost of Independent Financial Professionals in Houston

Let's pause to consider an example so we can illustrate what it would look like to take the multi-professional approach one year. Let's say you have a significant investment account, need to establish a trust for the next generation, and require a CPA for your taxes:

• • For a $1,000,000 portfolio, the average annual cost for a financial advisor in 2020 can range from 1-2% of the assets under management; additionally, when working with a brokerage or hybrid firm, hidden costs and fees for investment products may be present in your portfolio, which can add up to almost another percent annually
  • For a thorough review of your tax return as well as preparation and filing each year, you likely want to work with a CPA tax accountant. In major cities, like Houston, and for top talent, the average hourly accounting fees for CPAs can go as high as $500 per hour.
  • In Texas, the average cost for estate or probate attorneys can range from $235-296 per hour as determined by their experience, location, and extent of your needs as a client.

Beyond the upfront investment required for each of these services, there’s also a significant time investment to onboard with each organization and to continually check-in on your assets. Additionally, as the point-person for your finances, if any of the accounts these organizations require adjustments or cooperation, it quickly becomes your job to coordinate and communicate between them.

The Integrated Approach
Full-Service Financial Firms

Within the all-inclusive wealth management or financial planning firms, a few services are standard offerings while others vary across the different firms depending on what can offer their clientele the most value. Many firms offer financial planning, retirement planning, insurance evaluation, and investment management under their standard fee; however, others may include additional services such as tax planning and filing, estate planning, company benefit advice, education planning, and more. Not all wealth management firms are the same, but discovering the one that can offer your family the most value through relevant services is an investment that can offer you unparalleled peace of mind. 

What makes us different from other wealth management firms? Find out here.

 

Benefits of Selecting an Integrated Financial Advisory Firm

• • Collaboration On Your Accounts Across Financial Disciplines
    Within an all-encompassing financial firm, one of the greatest benefits is the internal cooperation on your accounts. What does this boil down to for you? Streamlined service that makes the most of your time. With a coordinated team continuously working on the different pieces of your financial picture, there’s no waiting on information to be shared or back-and-forth phone calls to confirm account activity or approval. The time you spend discussing your accounts becomes more efficient as the various advisors on your financial planning team work together to help you reach your goals in a tax-effective manner.
  • Streamlined Communication
    With a multi-service wealth management firm, like Willis Johnson & Associates, there’s also a premium amount of personalized contact than you may expect from other specialty firms. Because advisors are handling multiple aspects of your financial picture in-house, they focus on one-to-one communication to keep you up-to-date on how you're tracking en route to your goals. Rather than receiving multiple updates from different offices and trying to piece the data together yourself, an integrated advisory firm can show you the big picture or walk you through the details since they have all the information needed to do so.
  • Financial Education and Objective Decision-Making
    One of the most underrated benefits of a financial planning team is the behavioral education they offer their clients. An investment advisor may give you situational advice based on a daily snapshot of the market, and a CPA may advise you to become more charitable to lower your adjusted gross income for the year, but a financial planning team can teach you about your specific investing behaviors and biases and how they impact your returns over time. Additionally, a financial planning team can teach you how to counter your instincts and popular myths over time while setting long-term strategies in place to help you reach your goals.
  • Peace of Mind
    No one likes to wonder where their retirement income will come from. Having a team of financial planning professionals can help you transition to a peaceful retirement and make recommendations for generational planning to ensure that all the pieces of your financial puzzle fit together effectively.
  • Access to Investment Opportunities
    Utilizing a full-service wealth management firm can provide access to additional investment options that the DIY approach may not be able to. Whether it’s funds with lower fees or options with high minimum asset requirements, a firm may have access to numerous funds that they can pass along to clients at lowered fee costs.

Downsides to the Integrated Services Approach

• • Premium Service at a Premium Cost
    The saying “you get what you pay for” oftentimes holds true in the financial services industry. While the full-service firms offer significant value and numerous services, they are one of the more expensive options for financial planning. The cost for various wealth management firms can vary, but oftentimes it is a percentage of assets under management on either a flat or sliding scale. At Willis Johnson & Associates, we believe in utilizing a tiered-sliding scale so fees are directly tied to the value we’re providing our clients.
    Consider this: Let's say your portfolio contains $1 million in investable assets, and you hire an integrated firm who charges .8% of assets under management. If the firm could achieve a commendable investment return, execute savings strategies that help you get over $50,000 into tax-efficient accounts for retirement this year, and help you lower your tax bill,  would the value justify the cost in money and time-savings? 

Verdict: Best for professional families with financial situations requiring expert know-how and implementation

When you've enjoyed a successful career and its benefits, it can be difficult to find the right team to entrust your finances; however, with an integrated advisory team, you have a team of experts who are not only capable of augmenting your portfolio through their knowledge, but who are also available to you as a trusted resource. With an advisor, you have a designated point-person to reach out to about your specific situation who can get the answers you need when you need them. At Willis Johnson & Associates, we take pride in developing strong client relationships and being among the trusted advice our clients look to when they're making major life decisions.
Additionally, when choosing a comprehensive firm, there's no coordination efforts needed on your part — you only have to focus on one office to set appointments at, one bill to pay, and you can rely on the information being shared across your designated financial team so you never have to worry about managing the communications or action items across accounts. At firms like ours, the onus of stress is taken from you and placed on the backs of your financial team so you can focus on what matters most to you.

Selecting the Right Financial Team for You

When it comes to financial services, there are several paths available to you. Whether you’re looking to supplement your existing strategy or looking for someone who can take the financial stress off your hands entirely, it’s important to check credentials and expertise to ensure that you’re getting the best value available.