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by A line in a post on LendingClub.com, quoting The Millionaire Next Door, mentions the tendency of most millionaires to use financial advisers and tax consultants. This stuck out to me because I do my own taxes and make my own investing decisions. It's not without help, of course, the help is just free - or at least much cheaper than paying a professional.
I use TurboTax, for example. I perform my due diligence and take advantage of as many deductions as I can locate (case in point). I overhear accountants I know recommend in casual conversation various expenses to be sure and deduct, and my first thought is invariably, "TurboTax covers that." Is paying a professional really going to save me enough in tax obligation above my current method to make it worth the expense?
My issue with financial advisers is the same. Once again, I perform my due diligence in determining the best place to stick my money (e.g., here, here, here or here. Or, here. Or, here and here. Oh, and here. Whew...). I have prioritized my savings into Roth IRAs, a 401k, and high yield checking and savings accounts. I've aligned the investment plans of the former two with my long-term goals. Is there really that much more out there for a financial adviser to do? Once again, he needs to make me more money than he charges - up and above what I already make now - and still stay aligned to my investment goals.
So, call me cheap, but I'm skeptical. Does anyone have some personal experiences to prove me wrong?
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I don't have enough money to make it worth hiring a financial adviser. I manage my 401k and my small portfolio myself and have made a decent return.
I do use an accountant. I am an engineer so it wouldn't be hard to do my taxes myself, especially with turbo tax. However, I own a rental condo and have some other extra things to consider. It would take me a lot of time to make sure I get the best refund. I have a two-year old and a job so it is worth it for me to pay someone. The time it would take is worth more to me than the $300 fee.
Also, every year the accountant has managed to save me more money than I pay him by pointing out things that I didn't know about or forgot about. I might have found those things on my own, but it would have taken a lot of my time.
I think having a financial adviser is an educated decision. People can deal with most financial decision (i.e. what car to buy, whether or not to sell their house...) but more complicated decisions require a professional and critical look...An allegory is that you can handle most health problems on your own but it takes a doctor to perform surgery...
Many millionaires are small business owners. This makes their financial management and taxes much more complicated. I imagine that influenced their study.
In addition, if you are making north of $100K/year and managing investments totaling over $1 million you are likely paying a hefty amount in taxes. It would be very easy for a tax consultant to provide you a positive ROI given our complex tax code.
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It Depends by Anonymous :: NR0 :: on 28 November 2007
Your choice to use a financial adviser depends on a variety of factors. First, how savey are you with money matters. Many people are clueless and would therefore benefit from help. In your case you obvioulsy have the ability to look things up and can navigate through the more basic tasks without assistance. If this is all you want to do, you most likely don't need assistance. However, the more complex you get the more difficult it will be. For example, I am a CPA and worked as a tax consultant for Ernst & Young for several years. This past year is the first time I did not do my own tax return. I went to a CPA who does this for a living. He charged me $500 on a tax return that was over a 100 pages in length and would have taken me at least 10 hours in research and another 4-5 hours to compile the data to complete myself. To me it was money well spent. Secondly, you appear to have your money in fairly safe places such as high-yield checking and savings account. I'm guessing you are probably earning approximately 4 to 5% interest on this. I've given the majority of my money to money managers who have earned me this year between 16% and 40% depending on the fund. The point I am trying to make is that you can get good advice that will more than pay for its costs, but much research should be done to find the correct adviser. What is their track record, etc. I once thought as you did and have been successful on doing a lot of things myself, but when the numbers started getting bigger it has helped a lot to have someone more well versed in the subject matter to consult me.
RE: It Depends by VnutZ :: NR8 :: on 29 November 2007
He charged me $500 on a tax return that was over a 100 pages in length ...
Would you happen to know what typical fees may be for more simplistic tax returns? I did the TurboTax trick myself last year which was tricky only in that it did the work for federal and three states and I needed four states. Then it botched up the NJ part of the taxes already paid to NY, etc requiring me to file an amendment that took the NJ criminals ... I mean government ... (same thing?) seven months to refund. So I thought if the prices were reasonable - maybe it was time to dump all the multi-state nightmares into the lap of professionals.