While most people don't seek the help of a financial advisor until they've accumulated a significant amount of money, wealth manager Russell Bailyn says everyone, no matter how much money they have, could benefit from the help of a professional.
Many people initially come to advisors to earn a higher return on their cash, but they soon learn they need guidance in other areas including insurance coverage and estate planning.
"I'd say anydiv who isn't completely comfortable handling their personal finance decisions on their own should seek professional advice by their mid to late 20s," He says. "Putting a simple plan into action can really help one to reach financial goals faster and more efficiently."
Russell, who works with Premier Wealth Advisors LLC and is also a registered representative with First Allied Securities Inc, recently shared his insight on everything from choosing a financial adviser to why we don't need to worry about every financial headline that comes across our screens. Here's what he had to say:
Tell us about your personal finance background.
I've been working at the same firm for 10 years and have the pleasure of interacting daily with many seasoned financial planners. I picked up much of what I know from them, combined with a strong interest in personal finance theory. In 2007 I was approached to write a book Navigating the Financial Blogosphere based on the financial planning blog that I created in 2005 to address common personal finance questions. I still operate the blog and regularly contribute to industry publications.
Why are you so passionate about wealth management?
I've always been interested in personal finance, but I really wanted to interact one-on-one with my clients rather than work a standard desk job. The wealth management business allows me to do that. It's a rapidly evolving profession that includes many different specialty areas. Sometimes I think my decision to practice wealth management stemmed from having parents with two very different viewpoints about money. That created an early interest for me in people's attitudes and beliefs surrounding spending, saving and investing their money.
What questions should you ask before hiring an advisor?
I would suggest asking about the services offered by the firm and the experience of the advisor. I might then inquire about how the advisor is compensated (fees vs. commissions). You may also want to ask about any disciplinary actions to ensure that you're not dealing with an advisor who acts unethically. Disciplinary actions must be disclosed to potential clients.
What are some red flags that an advisor doesn't have your best interest in mind and/or doesn't have enough experience?
When you meet with a financial advisor for the first time, you should be able to feel out whether you mesh well with that person. If you get the wrong vibe, just move on - it's too important of a relationship to work with someone you don't like. That first meeting should be the start of the discovery process including information gathering and getting to know one's attitudes and beliefs about money. A good financial advisor will listen carefully and try to get a good sense of the tangibles and intangibles.
If you find that advisor is pushing financial products (perhaps complex insurance or annuity products), that may be (but isn't necessarily) a red flag. Other red flags would include excessive lawsuits disclosed on the adviser's public record. You can usually read a summary of what the violations are for and determine on your own if the issues look serious or not.
On the experience front, a young advisor doesn't necessarily mean a less talented advisor. I'm 31 but have 10 years of solid planning experience. I often find advisors in their 30s and 40s may even work out better because they are more on the cutting edge of information and technology. Plus, they won't retire on you so fast!
What are the most common questions or concerns your clients come to you with?
I get a lot of questions about investing. It's a complex area and is highly subjective. I try to address those questions as best I can while keeping in mind who is doing the asking. I also get a lot of questions about real estate because people love to buy property, both as a primary residence and for investment. It's another complex and highly subjective area. Finally, I'd say life insurance. I get a lot of questions about term vs. something more permanent and buying for need vs. buying for investment.
How do you advise them about these?
Financial issues are highly subjective. When it comes to stock and bond investing, what's good for one person may be wrong for the next. In general, the more risk one takes on, the higher the potential reward will be, and vice versa. I really emphasize that when people express that they want to make money without taking on too much risk. If only it were that simple, we would all do it!
When it comes to real estate, we do a full analysis of that client's total portfolio to determine if they have the proper resources, liquidity, time horizon, etc., to place the investment. We also go over as many what-if scenarios as possible because real estate investments are often illiquid and it's good to understand the consequences of that.
On life insurance, we use financial planning ratios to determine what a person's risk exposures are and back that into how much life insurance they may need. One type of insurance isn't better than another - some people love the low cost of term and some people enjoy the permanence of whole life. Others like a hybrid product which blends the benefits of term and whole. It's all about getting to know that person's full financial situation and making the best recommendations possible.
How often should we be assessing our finances? What should we be looking at?
We do financial planning meetings with our clients either two or four times per year.
Most people start out doing quarterly meetings but find that twice a year is sufficient to track progress. We always update the net worth statement to make sure it's going up and if not figure out what is wrong. We also go over the investment portfolio to make sure the investments still work within the context of the client's time horizon and risk tolerance.
It also helps to look at some financial planning ratios and rules of thumb to see if you have a healthy financial life. Start with your Emergency Fund, which should equal three to six months of your household income. Also, take your current ratio, which is your total assets divided by your total liabilities. One to two is average and three to five is excellent. If you're under one, you're probably operating with too much debt. You can also look at your monthly housing costs to see if they are one-third or less of your total income. Closer to 25 percent is healthy and over 40 percent is usually too much money being allocated to one spending category.
What are the smartest things everyone should be doing to manage their money better?
The old expression "pay yourself first" is a good one. Make saving money a priority in your budget. That might include having a few hundred (or a few thousand) dollars automatically moved each month from your checking to savings or from your checking to an investment account which you don't touch.
The financial practices that I think everydiv should be utilizing include maintaining a net worth worksheet which is updated quarterly. I also think having an accurate budget really helps to track spending, even if you earn a few hundred thousand dollars and think you don't need one. You will learn a lot about your spending habits from your budget.
Finally, save more at a younger age. I can't emphasize enough the importance of the time value of money. Open an IRA when you're 21 and put some money in there every month, even if only $50 or $100. Making savings a habit will really reduce your stress down the road.
What are the biggest financial/economy headlines we should all be paying attention to right now?
First, I should say that most people don't need to focus so strongly on financial headlines. The financial media thrives when we worry, so they often convey many different risks which most people don't need to concern themselves with. That includes my biggest economic concern right now, which is whether or not our economy can grow at a healthy enough pace to handle the debt load which our country has taken on to get through the financial obstacles of the past few years.
Cheap money is great for inflating asset prices including stocks and real estate, but if we eventually experience inflation and are forced to raise interest rates, our markets will be put to a tough test. Related to that, I worry long term about the government's debt load and how important government programs like Social Security and Medicare will remain solvent for my generation.