Only 35% of Americans work with a financial advisor, and honestly we get why. High minimum account requirements, high fees, and limited local options leaves 65% of Americans behind the financial eight-ball. If you are even lucky enough to get taken on by a financial advisor it is likely you will find yourself paying between 1%-1.5% AUM for a smaller account, and 0.5%-1% for a large account in the millions. As an example, on a managed account charging 1% of $500k, you would be paying $5,000 per year for financial advice. For the average Joe with basic planning, investing, and tax considerations, this fee is not justifiable and can cost hundreds of thousands in compounded opportunity costs. Something is clearly broken.

The Traditional System is Built for the Wealthy:

Financial advising firms are like any other business, they aim to make more than they spend, pay out their employees, and have a little left over for their executives at the end of the year. This has worked tremendously well over the past few decades largely in part to the AUM fee payment structure which over 92% of firms use when determining client fees.

As an illustration of this fee structure, imagine 2 accounts, one with $400k and one with $200k, both assuming a 1% AUM fee. Even if both clients have the same amount of time, effort, and planning, the larger account will pay double the fees of the smaller account. This incentivizes experienced advisors to only take on the largest accounts, leaving the rest to inexperienced advisors if they can even justify the lost prospecting time associated with servicing a small account.

Ultimately, this model overlooks an entire generation of young professionals and mass affluent individuals during peak earnings points in their careers. Time spent with an advisor during these key years can easily set them and their families up for success through a strategic approach to saving, investing, tax, and insurance planning. Unfortunately, with limited access to financial advice, the majority of members in this group end up playing catch up as they age and approach retirement. They are forced to stack away more cash than they would have liked, forced to cut back on travel, and decrease retirement income projections. The current model is not built for the average American, but rather the wealthiest. In a model that incentivizes large accounts, those in the middle tend to get left behind.

High Fees, Bad Advice:

The wealth management industry is dominated by career advisors who have made a living off the excessive fee structures Begin by establishing your financial objectives. Are you investing for retirement, buying a home, or funding your child's education? Different goals may require different investment strategies, time horizons, and risk tolerance levels.

The Communication Black Hole:

One Size Does Not Fit All:

Knowledge is your most potent tool in the stock market. Take the time to educate yourself about investing concepts, key financial metrics, and the factors that influence stock prices. Numerous books, online resources, and investment courses are available for beginners.

Those Left Behind:

Assessing your risk tolerance is crucial. How comfortable are you with the possibility of losing some or all of your investment? Risk and reward are interlinked in investing, so finding the right balance is vital. Diversification, which means spreading your investments across various assets and industries, can help manage risk.

A New Way Forward:

Investing doesn't require vast sums of money. Begin with a budget that fits your financial situation. Many brokerage firms now offer fractional shares, allowing you to invest in partial shares of expensive stocks, making it more accessible to start investing with even a small amount.

Conclusion:

Selecting the right brokerage account is crucial for a smooth investing experience. Look for a platform that aligns with your investment goals, offers a user-friendly interface, has low fees, and provides reliable customer support.