If You’re a Smart Investor, Do You Really Need a Financial Advisor?

If you’ve spent years successfully managing your own investments, do you really need a financial advisor? That’s the question Bob, one of our listeners, sent in. He’s got an MBA, knows the markets well, and has always handled his portfolio solo. So, is working with an advisor just an extra expense, or could it actually add real value? In this episode, we break down when and why even experienced investors might benefit from professional guidance and when they’re probably fine on their own.

 

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Transcript: 

 

Speaker 1:

If you've spent years successfully managing your own investments, do you really need a financial advisor? That's a question that one of our listeners sent in, and it works really well, because earlier this month, we had a similar question, but from a business owner's standpoint. So let's tackle it now from the other side and see if we can help you break it down here on Plan With The Tax Man.

 

Hey everybody, welcome to the podcast. Thanks for hanging out with Tony and myself as we talk investing, finance and retirement. Of course, Tony here is the star of the show, if you will. He's the CPA and the CFP, he's the big kahuna. He's an EA with 30-plus years of experience helping folks get to and through retirement. And Tony, we had an email question that came into the website, yourplanningpros.com, you get lots of emails for things, and this one was based off the podcast. But either way, it was still interesting this month, so we tackled really two of them this month, in the month of February, thinking about the business owner's standpoint from our last episode for a question that had come in about, hey, I've built a nice business, but how do I make a retirement plan out of that? So if folks didn't check that out, feel free to go check out that prior episode, Plan With The Tax Man, on whatever app you like using. You can also find that information on his website at yourplanningpros.com.

 

And this week, we're going to do a similar question, but this is from Bob, and it's more the DIY, just do the normal thing retirement planning yourself. So Bob's question, Tony, says, "I have an MBA and I understand investments well. I've always handled my portfolio myself instead of having professional help, and I've done pretty good at it, if I'm being honest. So in your honest opinion," he says, "Is there really any reason for someone like me to work with someone like you, an advisor?" So we get a lot of this, and the DIY movement's been very popular the last couple of years.

 

Tony Mauro:

It has, yeah.

 

Speaker 1:

And so, it's certainly a fair question, because a lot of people definitely have taken this route. And Tony, I'll set you up this way, I'll let you just jump right in and tackle it how you want to with his question. But to me, the biggest piece is, is it the accumulation phase he's been working on or the distribution phase? Because it sounds like the accumulation, just based on this question, and that is a whole lot easier, I think, than the preservation, distribution, AKA the retirement phase. But anyway, what do you think?

 

Tony Mauro:

The honesty is it depends, because if he truly is savvy enough that he thinks he is and basically doesn't have a lot of worries about what he's doing and how he's progressing and he feels good about it, we would tell him, "Hey, look," if we were sitting... What we do, the first phase of our whole planning process is we sit the client down and have them basically answer 10 extremely easy questions and we score it, and if they don't, based on their own responses, show some anxiety or worry or need for help, I tell them, "I don't really know why you're here in this meeting because it looks like you've got it under control." So then you have a conversation from there, "Tell me why you are here," and let it go from there.

 

But I think that where we can lend value, even in the accumulation phase... Because I try to convince people right off the bat, it's not about what investments or whatnot we pick, it's basically about setting a plan, let's make sure all the bases are covered, whether it's accumulating to a certain amount, your estate plan, making sure we're doing it with some tax efficiency, whatnot, and then let's check in regularly and let's make sure that this plan's still on track, and that's really what you're paying for. The investments we choose, we tell them, "Look, if you want to go choose your own, you go ahead. You'll just pay us a fee, just like you would your attorney." If you want us to help you manage that a little bit and you want to give us an asset-based management fee, we do it, but it's fee-only, no matter what. And so, we leave it to the client.

 

So I do think there's some benefit to a good financial advisor, but you have to understand as a client, any financial advisor that's worth their salt wants to do more than just give you ideas for investments.

 

Speaker 1:

And so, let's look at it from that standpoint, Tony, because yeah, Bob sounds like a very smart gentleman, sounds as though he's able to handle things himself just fine, and many people are in that same boat, and that's great if you're thinking about one section of your finances, your money. So I want to look at it from a couple of different places to give Bob some reference. So the questionnaire and the thing you talked about, that's fantastic, helping people break it down. Is it just the portfolio? Because that's what he mentions, the portfolio. Okay, fine, you've got investment skills, you've done well managing your portfolio, but what about all the other pieces, Tony? So the stuff that we talk about here on the show quite often that maybe a lot of DIY people, A, don't consider, or B, really have much knowledge in or even thought about, like estate planning, just that piece of it, or tax efficiency, retirement income, any of those pieces. Wherever you want to go next, just jump in there. But I feel like those are a lot of things you go, whoa, I didn't even think about that.

 

Tony Mauro:

All those things make sense as far as us as advisors being able to help with. And I think a lot of other things too, as far as somebody brings us their portfolio and they're all chest out and pumped up about look how good I did, and we try to run it through some computer models, just to maybe address some of their risks that they didn't think about maybe. It might be they're overly concentrated in a few securities that doesn't really line up with their overall goal or risk assessment. And then, most of the time, the people that do it themselves generally are trying to time markets to an extent.

 

Speaker 1:

Or match the market, right, they're trying-

 

Tony Mauro:

Or match.

 

Speaker 1:

Yeah, I got 22% in the last two years, so I want to make sure I get that 22%, but your risk exposure is awful high.

 

Tony Mauro:

It's awful high. So we always ask them, "In order to get that, what did you have to do, what did you have to risk to get that, and is that really truly what you want?" And then, the other thing is, let's take taxes into that. If you're investing inefficiently, are taxes knocking down your returns? So a lot of it goes into that, especially on the technical side. But let's say he passes all that and he still thinks he's in good shape and we say, "You know what? You are." And then it's up to the client to say, "Am I going to get some real value out of working with this guy or gal?" And hopefully, it's something that they can definitely do and be better off with us than without us.

 

Speaker 1:

Yeah. And as a CPA, I would imagine, Tony, that one of the things, if the DIYers... Again, accumulating your wealth is a little bit easier nowadays, technology is very helpful, there's a lot of just some good stuff out there. Let's be honest, we've had basically a 16-year bull run. Yeah, we've had a couple of blips through the... But we haven't had a prolonged downturn since '08/09, right?

 

Tony Mauro:

Correct.

 

Speaker 1:

Not a long one, no more than a couple of months. The COVID thing was pretty short-lived, it was a little down in 2021, 2020, obviously, shortly there after COVID as well, little blips here and there. But for the most part, we haven't had a prolonged downturn. But let me get back to the CPA point, from a CPA standpoint, if you're doing really well as a DIYer on the accumulation, have you thought about the tax advantages or disadvantages that you're just not aware of? Especially as you get closer to retirement, pulling your money out from what income sources and what that does to your income, and maybe that triggers IRMA, that's another one that people don't think about often. So there's all these little nuances that we're just not normally aware of.

 

Tony Mauro:

Yes, that's true. And I think another big one that we hear a lot of clients talking to us about is they think that they are doing themselves a great favor by, they hear something on TV or the internet and they'll start pulling money out of their IRA and transferring it to a Roth or their 401(k) into the Roth conversion, but what they don't realize is it's much more tax efficient to just fill up your current tax bracket bucket and then postpone the rest until the next year, because you're needlessly costing yourself taxes when you could spread this out a little bit, and sometimes that can add up to large amounts of money.

 

Speaker 1:

Oh, yeah. And we've talked about Roth conversions here, and I think we think they're a good idea, I don't want to speak for you again. But you've got to Roth it correctly, not just wholesale Rothing, but Rothing over time, for example.

 

Tony Mauro:

Over time, yeah. Because I think a lot of people miss, and certainly outside the tax community, the tax efficiencies or inefficiencies that you can do in investing. Now, is it going to kill you? No. But why leave money on the table, so to speak, and give it to the government, when legally you may not have to?

 

Speaker 1:

Yeah, for sure. All right, Bob, so here's another thought process for you to go through, to work on. Is this what you want to do in retirement? I think that would be another piece. Or even let me go one more, what about Mrs. Bob? Is this what she wants you to do in retirement, or does she have plans? So I think that's the other thing about the DIY side of things. It's great, we can do a lot of wealth accumulation a lot easier, Tony, than we used to could. But when it gets to the preservation phase, which is retirement, A, it's more complicated, B, do you want to spend your time doing that, or do you want to be with your grandkids and your spouse and fishing and golfing and whatever it is that's on your list?

 

Tony Mauro:

And if you don't like it, and I mean really like it, you're going to end up putting it off, and then you're going to miss some things, both in the accumulation stage and definitely in the distribution stage. That's where, like you said before, it does get tricky, especially as you age. And then, you've got to think about long-term planning and some things there, and of course taking an income and distributing properly. And so, I always say it's two stages in life, like you said, it's accumulation, distribution, and each are vastly different.

 

Speaker 1:

Yeah, for sure, totally different animals. And boy, the first time you miss your RMD, you're going to be real mad about that.

 

Tony Mauro:

Real mad about that, and you're going to have to beg the IRS to forgive the penalty.

 

Speaker 1:

Right. One of the other questions that we posed in the earlier podcast this month when we were talking about the business side was the succession plan. So I'll ask Bob, and people like Bob, the same question here, Tony, what is your succession plan? Now, by that, you say, "Well, what do you mean? I don't need a succession plan, I'm my own advisor." Yeah, but you're going to die, we're all going to die, and if you pass away first, which statistically is the case, and again, Mrs. Bob, she might not want to do any of this, she might not have any interest whatsoever, so what is your succession plan for having her taken care of, or vice versa, whatever?

 

Tony Mauro:

Yeah, vice versa. And even if you have this all laid out, whether it's on the computer or a life book, she may not have the same enthusiasm that you do with this and it's going to be difficult for her. I've had clients with this, the husband dies, the husband did it all. Most of the cases, the wife has no idea, not what's going on, but how to manage it and whatnot, nor do they want to. And so, I think that's where an advisor could certainly lend a lot of value in that case as well, and you want to start that relationship before something happens to you preferably, not after.

 

Speaker 1:

Yeah. When you're grieving, it makes it easy to know, hey, when I'm gone, reach out to Tony and his team, they're going to help you.

 

Tony Mauro:

Yeah.

 

Speaker 1:

That kind of thing. Or whoever it might be, but that's the idea. So I'll wrap it up with this. So look, you started off by saying if you're just picking items in your portfolio. And it's still funny, because the term advisor is so loose now across different kinds of fields, many investors believe advisors do just that, Tony, that the only thing that they do is help them pick stocks. And so, what would you say to folks who think, well, I'm going to do it myself because I can pick my own stocks? Because as we've touched on, there's so much more to what you do than just that. But what's your final thoughts?

 

Tony Mauro:

I think my final thoughts there is that I would challenge anybody out there to try to not only match but beat the S&P 500 over long periods of time, and/or match what professional advisors can do. Now, that term is loose,, yes, I'm an advisor, but I'm not an investment advisor out sitting in a mutual fund researching individual stocks and bonds all day.

 

Speaker 1:

Right, not run a broker, right, yeah. And you're not day trading, right?

 

Tony Mauro:

No, we're not doing that. I would challenge you though to see if you can match those things year in, year out, when they're sitting there, who have much more knowledge and access to information than we do as Joe Public. And so, I would say that I don't think you could do it, I really don't, I haven't met anybody yet that can do it over long periods of time. And so, the idea for having someone like us is to keep you on track and get you where you want to go outside of the investment portion of it. If you want to go choose your own investments, again, that's great, but I think you need somebody that deals with the planning portion, day in and day out, to keep you on track.

 

Speaker 1:

Yeah. And think about a company like Vanguard, which is a very low-cost option for people who want to buy and do their own thing, they even talk about the value that advisors bring, they rounded about 3% annually. And they also talk about, from the behavioral analysis side, one of the big pieces that they even talk about that advisors bring to the table with working with folks is that behavioral modification, because we are our own worst enemy.

 

So Bob might be doing a great job, but what if, all of a sudden, he's been reading a while about some new tech thing or some new cyber coin or whatever, and all of a sudden, you want to risk too much? Having that sounding board is a great idea, not only for Bob, but for Mrs. Bob as well, because it could be like, hey, we're on two different pages when it comes to leaving money to the kids. Bob wants to balance his last check so that him and the Mrs. can spend it all and have a great time, but she wants to leave a bunch to the kids or whatever, or the grandkids. So it's all those other pieces that, I think, having that... Well, Tony, basically that sounding board, sometimes you're like a counselor as well as an advisor.

 

Tony Mauro:

We are, and I can't mention how many times... I like to mention it to the clients who will call up and say, during the good times, "Well, we don't feel like we got as much return as we needed in the previous year," or something. Or the best one is a client or a prospect will say, "Well, I'm going to divide up my between you and another advisor, we're going to see who does the best." And I'd say, "We're not in that game." Not that we're not focused on returns, we are, but I like to tell clients, "Our job is to keep you grounded, especially when the bad news comes out." Because clients, it's inevitable, bad news starts coming out, the markets go down a little bit, they're calling, "Maybe we should go all to cash." And I said, "Based on what? Who said that? And then, when do we get back in? Who's going to tell us, the news?"

 

And so, just keeping them from blowing themselves up, which they don't really ever see, but I like to sit in the background and say, like you said, "The last, what, 15, 16 years, we kept you in the markets, when many times..." Pick the subject that came out, COVID was the big one, we've got to get out, the markets going to hell and we've got to go all to cash. And it's proven that that didn't need to be the case. We did take a little blip, but they're so far ahead of that now that it's crazy.

 

Speaker 1:

Well, and look at the turmoil that we're in right now too. So we've got a new administration, they're doing things that have never been done before, whatever the side of the aisle you find yourself on, there's a lot... We're $6 trillion in a deficit, that's annual, so we're $35 trillion in debt, but we operate at a $6 trillion annual deficit. You can't run your house that way. If you were running your house, Tony, that every year, you were losing $60,000, let's say, you wouldn't survive real long, unless you're mega, mega rich. And the government's been operating like it's mega, mega rich, and it's not.

 

However, I digress, point being is that there's a lot of things happening, and the market is reacting fast. There's all this AI stuff, there's this new DeepSeek version of AI from China that says they can do it cheaper and less energy and so on and so forth. Then you've got the fact that tech markets are massively overweighted, and they have been for a number of years. It feels very much like there's a bubble, similar to '08/09 with the housing bubble, and we've got all this stuff happening, and to your point about the markets, people can be edgy and they can be like, "Well, I'm going to panic and jump out." Well, okay, well, if you're 40 years old, that's insane.

 

Tony Mauro:

Yeah, that's absolutely insane.

 

Speaker 1:

Because you've still got plenty of time. And maybe even if you're 55 years old, it's insane. But how do you know if you don't have a plan?

 

Tony Mauro:

Yeah, you don't. I just had a client, he's 55, for example, we've done well, and basically, he watches too much TV. I always get the little hairs on the back of my neck stand up when he's calling, because he's calling now saying, "You know what? I want to be more aggressive. I really think that the markets are going to be booming." I'm like, "What? You're starting to get where I'm thinking maybe we should go a little bit of the opposite, not all, but as you get a little closer to retirement, let's give up some of that risk for more steady returns." And so, it's weird, because when people want to get in, generally, if you ever read anything about it, of course, that's the time to be a little bit spooked. And then, when everybody's euphoria or when the market is tumbling and the blood's in the water, that's obviously when you want to be going like gangbusters and putting money in. But that's short-term stuff. Really, the plan is to stay long-term-focused.

 

Speaker 1:

Yeah, and that's a great point. The market's about the longevity in it, not jumping in and out and so on and so forth. And I get that it's been booming for a while and that's very enticing, so all that stuff we talked about, comes back to having that ear to lean into, "Hey, Tony, what do you think about this? Is this a good idea, bad idea? And could my portfolio handle this, or could it handle that?" And so on and so forth. "And what does that do to my retirement?" And so on and so forth. And then, we didn't even touch on long-term care, so that's another whole piece there, Bob.

 

So again, you may be doing a great job, but it also may be worthwhile to sit down with an advisor and have an hour conversation and say, "Hey, what are some things that could be missing?" To Tony's point, they can walk you through those steps. They can put you through a questionnaire and just see where you're at. You may be doing a great job, in which case, they're going to pat you on the back, shake your hand and send you on your way. But you may be shown some areas where there could be some improvement, or maybe you just, at some point, decide you just don't want to deal with all of it anymore.

 

Either way, if you've got some questions, you need some help, hopefully you enjoyed the content this week, we certainly appreciate it, reach out to Tony and his team at yourplanningpros.com. That's yourplanningpros.com. You can find all the information in the show links below of the episode, and you can find us on Apple or Spotify or whatever platform you like using. Just subscribe, the Plan With The Tax Man, with Tony Mauro, from Tax Doctor, Inc. Tony, thanks for hanging out and breaking it down, my friend.

 

Tony Mauro:

All right. We'll see you next time.

 

Speaker 1:

Always appreciate you. We'll catch you guys a little bit later on in the next month. We'll be back in March for more with Tony Mauro.

 

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.