The cost of NOT working with a financial advisor

People often talk about the cost of working with a financial advisor, but rarely think about the cost of NOT working with one. 

There is a quote that says, “Cost is only an issue in the absence of value” While financial advisors do cost money, that cost is in exchange for something of value. 

You can go see a little league baseball game or pee wee football game for free. So why would anyone choose to pay to see a MLB or NFL game?  Because they are getting more perceived value at the professional level. The cheapest option is not always the best value. Of course, different people perceive value differently. You can simply choose not to go to any professional sports events and it doesn’t cost anything and at the same time, you don’t really lose anything.

But when it comes to your finances, choosing NOT to work with an advisor CAN still be costly. Here are some real-life examples of ways that delaying working with an advisor ended up being costly.

  • An individual with a $100,000 salary was contributing 3% of their income to their employer-sponsored retirement plan. This was what the employer automatically set up for them and the client did not make any changes. When we analyzed the plan’s rules, we showed them that the employer would have matched up to 6% of the employee’s salary.  They didn’t realize this and were missing out on $3000 per year of employer contribution. 
  • A young couple, both started working for the federal government in 2013. The default investment option at that time for the Thrift Savings Plan was the G fund and they did not make any changes. All of their contributions for 10 years went into the G fund, which has earned 2.12% for the past ten years. They were both in their early 20s with 40 years to retirement and an aggressive risk tolerance. If they had invested in the L2050 fund over the same period of time, it would have earned 8.53%. Of course, past performance does not guarantee future results. This difference in returns over 10 years with $400 biweekly contributions (both employee and match) amounted to almost $50,000 of missed investment growth from 2013 to 2023.
  • An individual was contributing $1,000 monthly to an investment account while only making the minimum payments on a credit card with $12,000 balance and 24% interest rate. Paying only the minimum payments would have taken 31 years to pay off and accumulated $23,332 in interest. The recommendation was to shift from the investment contributions to instead paying off the credit card debt. In doing so, they were able to pay it off in 14 months and save over $20,000 in interest costs.
  • A couple, who is saving for a down-payment to buy a new home, was saving $50,000 in their checking account with an interest rate of 0.01%. The recommendation is to establish a high-yield savings account with an interest rate of 3.5%. They will now earn $1,750 this year in interest instead of $5.
  • A terminally ill client was planning to add their daughters’ names to the deed of her house so that when she died, it would make it easier to transfer the house to her sons without going through probate. She had bought the house in 1979 for $38,500 and the current value was worth about $500,000. The sons planned to sell the house after she died. We advised her to seek the advise of a tax advisor and legal advisor first since her sons would lose the stepped-up cost basis upon her death if she added them to the deed. Instead, we recommended a Transfer on Death Deed that would allow her sons to avoid probate but still benefit from the stepped up cost basis. This saved them approximately $70,000 in capital gains taxes.

That’s just few real-life examples. There are much more costly decisions that we helped our clients to adjust and utilize the options that fit their financial situation better. We can help uncover opportunities and align your money with your financial goals through financial planning. Ultimately, this is why the cost of not working with a financial advisor can end up a lot more than the cost of working with one.

Adrianna Environmental B&W

Adrianna Rocha

Client Relations Representative

240-379-6929 V
240-439-6889 VP
512-379-6909 FAX

Adrianna Rocha joined Kramer Wealth Managers in 2021.

Adrianna is responsible for client experiences and service. As part of the customer service team, she strives to help and provide top-notch service to our clients. As part of her role, she communicates with clients through videophone, schedules client meetings, prepares and processes forms, and gathers information for our advisors.

Adrianna Rocha graduated with a Bachelor of Arts in Communication Studies from Gallaudet University in 2017. Before she joined our team, she worked in the customer service industry for nearly a decade. She excels in human-to-human relations and takes pride in not only her own accomplishments, but her clients’ as well. Adrianna enjoys chatting about her slight obsession with dogs, houseplants, essential oils, and food: especially Mexican food! She is also a proud fur-mama to her beautiful Aussie-mixed pup, Ziva.

Adrianna is not registered with Osaic Wealth.