On this episode of "On the Money" Ruedi Wealth advisors and Dr. Fred Giertz discuss why many financial advisors require a minimum amount of assets and what globally diversified stock investors should expect from their portfolios.
9:23 – Listener text about asset minimums: “I recently sent an email to your company asking about what it takes for someone to get some financial planning help. To make it short, I was told if I didn’t have $500,000 in assets, your company wasn’t interested in being my advisor. Can I ask why? $500,000 is a very high level for people to qualify.”
“If you want to be a profitable financial planning and investment advisory firm, you’re going to have to have some type of threshold – otherwise you’ll end up trying to serve so many people that you’ll serve nobody.”
Paul A. Ruedi
“This is something we wrestled with internally and was not something we wanted to do but ultimately had to do, as we only have so much bandwidth. It was a real pull at our heart strings to think we were somehow separating ourselves from people who need help, but it was really just a business decision. We can still help people out along the way for free even if they don’t meet our minimums.”
Ryan Repko
“We can only add so much value to a person’s life, and we want to make sure for our minimum fee that those people are going to get a fair deal.”
Paul A. Ruedi
“We’ll spend a half hour on the phone with somebody, discussing their situation, and giving them an approach. We always go out of our way to really try and give people help, even if it takes an hour out of our day (pro-bono) to get those people pointed in the right direction.”
Paul A. Ruedi
“There is a cost to running a business, and you have to have a certain amount of revenue for each client just to offset the cost of taking on that client and make sure that you are profitable. Because if you don’t do that, you’ll eventually go out of business and you’ll help no one.”
David Ruedi, CFP®, RICP®
“I like to think this show is our way of saying – look, not everybody has the financial wherewithal to hire a financial planner that may have a minimum. What we’ve tried to do for almost 30 years on the show is give people the right questions to ask, or give them ideas of where they might go to seek help. So I like to think this is our way of serving everyone who needs help not just people with less than $500,000.”
Paul A. Ruedi
“A lot of times people with lower asset levels are younger and they have very simple needs. If they are just looking for investment advice, I tell them you probably shouldn’t be paying a financial advisor 1% of your assets just to build an investment portfolio for you anyways. You can go to Vanguard and just buy 1 fund, the Total World Stock Market ETF, and just call it a day. The reason I recommend that young people is because it is free to trade if you have an account at Vanguard. So option 1 is just to do it yourself because things can be really simple when you’re young.”
David Ruedi, CFP®, RICP®
“If you have a good number of clients that are paying you large fee amounts, you can afford to take on smaller clients that are, frankly, not profitable – you’re taking a loss on those but you have enough revenue to offset it. The question to me is, is that really fair? If we spend time on a smaller account it takes away from people who are paying us a higher fee – we need to make sure we are not disserving those clients who already pay us a handsome fee.”
David Ruedi, CFP®, RICP®
“There are options out there for people who don’t meet the minimums for some advisors. There are financial planners who just charge hourly fees. There are firms that charge and income-based fee. There is also group of financial advisors called the XY Planning network, and the rules of the group are that they have to offer a monthly retainer option. The last one is Vanguard advisor services that has a $50,000 minimum.”
David Ruedi, CFP®, RICP®
38:50 – What to Expect When You're Investing
“I think people understand that there will be big declines, but I don’t think they understand the magnitude of those declines, and the normal frequency of them.
A correction, which is defined as a stock market decline of 10% or more, happen on average once a year. The average intra-year decline is somewhere around 14%. So if you’re going to be a stock investor, you’re going to need to be prepared to see your money drop 10, 14% every single year. That’s not saying it will happen, but typically it happens about once per year.
What causes more problems than those corrections are what people call “bear markets” – defined as a decline of 20% or more, but they average about 30%. If you look historically, they’ve happened on average every 5 years or so. That’s a pretty high frequency to see 1/3 of your portfolio seemingly disappear.”
David Ruedi, CFP®, RICP®
“There can be long periods where you are essentially earning no return on your stock portfolio.”
David Ruedi, CFP®, RICP®
“Any time you’re a diversified stock investor, your performance is going to differ from what you see on TV. When people want to know what “the market” did today, they will turn on CNBC and see the Dow Jones Industrial Average, 30 of the largest companies in the US, and the Standard and Poor’s 500 Index, which is essentially the 500 biggest companies in the US – that’s just 1 asset class. If you’re diversified, there are going to be periods where your performance is different.”
David Ruedi, CFP®, RICP®
“From 1970 to 2017 the S&P 500 did better than a global portfolio 19 times and worse 29 times.”
Paul A. Ruedi
Disclaimer: Past performance is not an indication of future results. You should not make any investment decisions without first consulting your own financial advisor and conducting your own research and due diligence.