Financial coaches are special… in more ways than one.
See what I mean here.
Transcript:
A financial coach, advisor, and planner are all professionals that help you manage your money but in very different ways. These differences are really important to understand so that you can find the right person to help you.
When I think of an advisor, I think of someone who’s focused on retirement, investments, taxes, and insurance. They’re the ones who are often trading stocks on your behalf and charging you a percentage fee each year of the money they are managing for you. Yikes. But I’ll calm myself down and come back to that in a minute.
A financial planner is a little more similar, but still distinct, from a financial coach. A planner helps you analyze your money and, as the title suggests, plan what to do with your money. Like a financial advisor, the focus is largely on retirement.
A financial coach does help you plan but they offer so much more. First a financial coach will help you come up with a personalized plan for both long and short term goals, like building up an emergency fund and saving for a down payment on a house. A good financial coach will also teach you whatever skills you are lacking that will help you realize those goals. A coach will show you how to get organized, get on top of your money, pay down debt, as well as track your spending and cash flow. All the basic personal finance skills you should have. Taking it a step further, a great financial coach will help you uncover and transform any limiting thoughts and beliefs that keep you from being good with your money. They work with you on your money mindset so that creating habits out of these new skills is easy and natural. The best thing a financial coach can do for you is help improve your relationship with money so that you enjoy it and feel good about your finances. The way I see it, a financial coach gets more into the weeds with you and helps you become great with money on a day to day basis.
Alright, so back to the topic that got me all fired up. The issue of how financial advisors and financial planners get paid versus how a financial coach is paid. Any time you’re speaking to one of these professionals, no matter how nice, honest, or helpful they seem, always ask them how they get paid before you decide to work with them. The compensation plan that is most upsetting to me are the advisors who charge a fee based on “Assets Under Management” or AUM. Even if the percentage seems small, like 1% or even half a percent, I feel that you are being ripped off. The debate over whether having your investment account ‘actively managed’ or not is a passionate one with some studies showing that it is not worth it to have an actively managed account, and that you’re better off with low cost index funds. There are other studies, personally I think ones that come from within the financial services industry, that show your account growth with an active manager more than covers the fee. I don’t buy it. If you calculate just how much money you end up paying to them in fees, when that money could have stayed in your account and grown with compounding interest, well, it’s enough to take your breath away or maybe even make you sick to your stomach.
There are advisors that are fee-only and these ones, I feel much better about. I know it’s not as convenient to pay out of pocket for a financial advisor’s advice or time but you are much, much smarter to go that route. Also both financial advisors and planners can earn money through commissions. Because of this, you want to make sure that any financial advisor or financial planner you are working with is a fiduciary, meaning that they owe you a duty of care that puts your interest in front of their own. If an advisor or planner is not a fiduciary, you don’t know if they’re recommending an investment or insurance plan that you actually need and would serve you the best, or if it’s the one that pays them the highest commission.
A financial coach is paid for by you, out of pocket, for the time they spend with you or the goals that they help you accomplish. No assets under management, no commissions. Full disclosure, I am both a financial coach and a mortgage loan officer and a real estate agent, so if I help a client as their financial coach, they will pay me a set amount that we agree to, but if I then go on to help them find a house and/or get them a home loan, then I will earn a commission from the sellers of the home or the mortgage lender that we get the loan from.
Also, with an advisor or planner, you might pay them over years and decades. With a coach, you pay them for a period of months. I require a three month commitment from individuals and couples, and a six month commitment from small business owners. From there we will check in monthly for another 3 months and either that can be it or we move to quarterly sessions. It’s not generally something that goes on for years.
If coaching is what you’re looking for, and you vibe with me, schedule a free call so we can see if I’m the right financial coach for you. Link’s in the description. Talk soon!
