Ep 19 | Avoid These 3 Red Flags With "Financial Advisors"
In this episode of The F. Word, Priya Malani pulls back the curtain on what actually counts as valuable financial advice and how to spot the red flags that too many high earners ignore.
From hidden fees to outdated investment strategies to insurance salespeople disguised as “wealth managers,” Priya breaks down what you should expect from a real financial partner—and why just managing your investments is the bare minimum.
If you're paying top dollar for a basic login and some jargon, it's time to rethink that relationship.
Tune Into This Episode to Hear:
The 3 biggest red flags to watch out for when working with a financial advisor
Why “investment management” is the easiest part of the job—and shouldn’t cost 1%
How to know if your advisor is actually helping you build wealth (or just playing pretend)
The red-flag phrase that should make you run: “We can beat the market”
Follow Priya Malani:
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THE STUFF OUR LAWYERS WANT US TO SAY: Stash Wealth is a Registered Investment Advisor. Content presented is for informational and educational purposes only and is not intended to make an offer or solicitation for any specific securities product, service, or strategy. Consult with a qualified investment adviser (that's us) before implementing any strategy. Investing involves risk, including the loss of principal. Past performance does not guarantee future results. There…we said it.
Transcription
If your financial advisor is getting into the dirt with you and helping you figure out your student loans and make sure you're living a lifestyle you can afford, and setting you up so that you can take the trips that you wanna take and buy the things that you wanna buy, and experience the things that you wanna experience...
If your advisor is actually helping put a plan in place so that your income is gonna do more for you over time, in addition to managing your investments, 📍 that's a different story.
I feel like this one's gonna get me in trouble.
Hey guys, welcome back to The F. Word. In today's episode, I'm pulling the curtain back on financial advisors—what they cost, what they do and don't do, and how to really know if you're getting your money's worth. If you've ever wondered, this one's for you.
Let's get into it.
So the typical financial advisor-client relationship goes something like this: You find a guy you trust or get a referral from a friend who's got a guy. You meet with them, they tell you all about their credentials and how long they've been in the business, and you decide, okay, they seem trustworthy. So you give them your money.
For most people who don't have enough money for the advisor to really wanna pay attention to them, once you've handed your money over to a financial advisor for them to invest it for you, you kind of never hear from them ever again. And they like it that way. They do. They don't want you to bother them. They'll ping you from time to time. They'll send you a random article. Maybe their marketing department has some content that you get emailed every week just to make sure you know they're thinking about it. They're thinking about you. They're thinking about your money.
Not so much.
That sounds like bullshit. If they're a one-step-above-average financial advisor, they might even build you a financial plan, and it'll look something like this: What's your risk tolerance? When do you wanna retire? Won't talk about anything else that you might care about. Make sure you're not overspending. And then they'll send you on your way.
It's usually intimidating. They use a bunch of jargon. They'll use fancy terms like alpha and Sharpe ratio. You don't understand half of what they say, but you pretend like you do. The meetings are long. They're drawn out. They involve tons of paperwork.
No one's really clear on what the goal is because most financial advisors aren't out there to help you accomplish your goals.
I'm gonna tell one story, and I hope she doesn't mind me telling it. But we had a client whose job was more heavily regulated, and so she had to actually leave Stash Wealth because we weren't a like approved investment manager for her firm. So she ended up going to another broker dealer, who I will not say their name, but you all know them. And your 401k is likely with them.
As soon as she switched jobs, she immediately tried to find out if we were on an approved list, and we were, and she came back. Not because the financial advisors at said broker dealer are bad, but most often, the relationship tends to feel a little generic. You just feel like you're one of a million of their clients, and they don't really know you. They don't really care about you or not taking the time to truly understand who you are, what your priorities are, what your values are, what your goals are. They're really out there just to help you make sure that you're invested in line with your risk tolerance. That's really what they're doing.
They give you a risk tolerance survey. They find out you're conservative or moderate or aggressive, and then they invest you accordingly. They are definitely not proactive. They are definitely not answering questions that you don't even know to ask.
So what are you really paying for?
Well, in theory, you're paying for a professional to manage your investments. What does that mean? You're paying for someone to pick the right investments. Hopefully they're doing some sort of rebalancing. Rebalancing is like a fancy way to say recalibrated. Like you get your tires recalibrated on your car when you drive, your tires go out of alignment, you have to realign them. That's all rebalancing is for a portfolio. Like as the markets move up and down, your portfolio will shift a little bit. You might be a little too high in US equities and a little too low in international equities, and so rebalancing is just selling some and buying some to get it back to the right mix.
Hopefully they're doing some tax loss harvesting, which essentially means balancing your winners and your losers so that they neutralize each other and you're left with hopefully a much smaller tax burden.
I would say that because money is such a critical aspect of so many decisions we make on a day-to-day, week-to-week, month-to-month basis, if your financial advisor hasn't built a relationship with you where you think of them as a resource for these important moments—big or small—in life, might not be the right advisor for you.
It all goes back to trust.
Money touches everything. So a good financial advisor is gonna be accessible to you when things are happening. When you are in a relationship with a financial advisor, are they giving you the time of day? They should be involved in all the aspects—even things that feel unrelated like you're having a baby or you get a promotion at work. Like, do you think about your financial advisor as a resource to help support that moment in your life, to bring ideas to you, to help you navigate decisions that might feel like small financial decisions, like maybe you're deciding between buying or leasing a car?
Do you call your financial advisor?
If you don't, then what are you actually paying for?
Because investment performance, guys, that's the easy part. You heard it here first. Investment management is by far the easiest part of a financial advisor's job, especially in today's day and age when there is so much automation happening and so much sophistication in how financial portfolios or models are actually put together. Quite frankly, that is the easy part.
We should also talk about the term financial advisor. 'Cause in the industry it's actually a pretty loose term. I often find clients get burned when they had a financial advisor come to find out they didn't have a financial advisor. They had an insurance salesperson.
I can't tell you how many times I've talked to people whose uncle sold them a life insurance policy they did not need. We see way too many clients come to us with life insurance. And the thing is, life insurance is an easy one because as a high earner, you are prey to the insurance industry. They call themselves financial advisors under the guise of the seemingly helpful title. They just sell you coverage because they know you can afford it.
Do you want someone to professionally manage your money?
Do you want someone to help you articulate your goals and put a plan together to pay down your student debt, to buy a home, to buy a vacation home, to start planning a family, to make sure you're on track for retirement, to help you through RSUs and stock options, to decide how to set up your HSA at work, and like how you should navigate healthcare?
So it might take a little bit more digging to figure out who is the right financial advisor for you. All goes back to trust.
Two, they're charging 1% or more just for investment management. If you're just getting started, you can probably expect to pay a traditional financial advisor north of 1.5%. They usually charge, I would say the industry standard is around 1%, but when you have low net worth—high earner, but low net worth—you're probably gonna get charged a little bit more because they have to quote, make it worth their while. Because most financial advisors charge based on your assets. When you don't have that much, they have to increase their fee so that they make enough to make it worth their time.
So it kind of makes sense. But as your assets grow, that fee should come down. And typically if you have over $500,000, you shouldn't be paying more than 1%—assets under management, AUM.
Now that 1% that I'm talking about, or one and a half percent that you might be starting off with, that's per year. Okay? That's on an annual basis. Some advisors might wanna bill on that monthly. And so you would take 1.5% divided by 12. Say you have a hundred thousand dollars. So you might be paying that advisor $125 a month for them to professionally manage your money. That might be worth your time. You might think that's fine. To take that off my plate, it makes sense for me. That's a personal decision.
We had a client who came to us and she had been paying 1% to a financial advisor. And we said, okay, cool. What is he doing for you? And she was like, yeah, he was just managing my money, managing my investments, and she had about $300,000 in investable assets. I was like, what else? What else is he doing besides managing your investments? She's like, no, what else is there?
So you were just paying 1% for him to manage your money? The part that I said is the easiest. Yikes. That's a red flag.
Now, if your financial advisor is getting into the dirt with you and helping you figure out your student loans and make sure you're living a lifestyle you can afford and setting you up so that you can take the trips that you wanna take and buy the things that you wanna buy, and experience the things that you wanna experience...
If your advisor is actually helping put a plan in place so that your income is gonna do more for you over time, in addition to managing your investments, that's a different story.
But if your advisor is—and I think Ramit Sethi says this—if your advisor is charging 1% just to manage your money, that is way too expensive and old school. Especially now that technology makes the investment management part easier than ever. So I totally agree with you, Ramit. 1% is crazy. Absolutely bogus.
No one should be paying a financial advisor 1% just to manage their investments.
Another big red flag to look out for is a financial advisor who tells you that they can outperform the market. Not to say that outperformance is impossible, but fun stat—90% of professional money managers cannot consistently outperform the market.
What I mean when I say market is a diversified portfolio. So if they're in there trying to pick the right stock or run an algorithm and they have all their quants, all their smartest people trying to figure out how to beat the market, 90% of the time they don't. That is a headline you'll almost never see.
These are people who get paid a sh*t ton of money to do their job, and they actually don't do it very well at all.
So if an advisor is telling you that, oh, I'm really good, I can outperform the market—it's BS. Run the other way.
Your advisor's, oh yeah, we do all these clever things. Cut the crap.
What that advisor is selling, "outperformance," means they're gonna take more risk to try to get you more return. But what if you don't need to take on more risk in order to accomplish the things you care about?
Right?
Because the point of investing is to get you on track to grow your money so you can do the things you want, right? Like, yes, retire. We all wanna retire someday. But investing serves a lot bigger purpose than just retirement. It also gets you on track for the things that are gonna happen before retirement—like putting your kids in college, maybe buying a vacation home someday, giving you the freedom and flexibility to quit your job sooner and maybe pursue a side project or start your own business.
Investing is a vehicle to grow your wealth over time, not overnight. And if used properly, it can unlock tons of opportunity for you.
So let's recap. These are three red flags to look out for when either you're working with a financial advisor or you're thinking about working with a financial advisor:
One, trust seems to be an issue. Something feels off, and you don't feel like you can trust this person. Go with your gut.
Two, they're charging 1% or more just for investment management.
And three, and probably my favorite one, they tell you they can outperform the market. 90% can't, and you don't even need to take on high risk to be on track for your goals when you're getting started in your thirties. And that's what they should be telling you.
If this episode made you rethink how you're getting financial advice or made you realize your advisor is just your uncle with a Schwab login, share it with a friend who's paying too much for too little. And please, as always, hit follow so you don't miss what's next on The F. Word.
Alright, see you next time.
