Finding the Right Financial Advisor
- What should I look for when choosing a financial advisor?
- When choosing a financial advisor, look for someone who is a fiduciary (legally required to act in your best interest), uses a fee-only compensation structure, and has experience working with clients in similar situations to yours. Ask about their investment philosophy, how they communicate with clients, and request references from current clients.
- What's the difference between a fiduciary and a non-fiduciary advisor?
- A fiduciary advisor is legally required to act in your best interest at all times, while non-fiduciary advisors only need to recommend products that are "suitable" for you. This means fiduciary advisors cannot recommend investments that benefit them more than you. Always ask if your advisor is a fiduciary and get it in writing.
- How much does a financial advisor cost?
- Financial advisor fees typically range from 0.5% to 2% of assets under management annually. Fee-only advisors are generally the most transparent option. For example, a 1% annual fee on a $500,000 portfolio would cost $5,000 per year. Some advisors also offer hourly rates ($200-$500) or project-based fees ($1,000-$5,000) for specific financial planning needs.
- Do I need a financial advisor if I'm just starting my business?
- Yes, especially as a small business owner. You'll face unique challenges like irregular income, tax complexity, retirement planning without employer benefits, and separating business and personal finances. A financial advisor experienced with entrepreneurs can help you navigate these challenges and set up systems for long-term success.
Flat-Fee Financial Planning
- What's the difference between flat-fee and asset-based fee advisors?
- Flat-fee advisors charge a fixed annual or quarterly fee regardless of how much money you have invested, while asset-based advisors charge a percentage of your investments (typically 1-2% annually). For example, a flat-fee advisor might charge $3,000 per year whether you have $100,000 or $1 million invested, while an asset-based advisor would charge $1,000 on $100,000 but $10,000 on $1 million.
- Why should I consider hiring a flat-fee financial advisor?
- Flat-fee advisors offer several key advantages: fewer conflicts of interest (they're not incentivized to manage your money a certain way), complete transparency in pricing, ability to help clients at any asset level, and often better value for higher-net-worth clients. You'll receive objective advice focused on your goals, not on growing assets under management.
- What conflicts of interest do asset-based advisors have that flat-fee advisors don't?
- Asset-based advisors are financially incentivized to encourage you to invest more money with them and keep money invested (even when paying off debt might be better). They may discourage you from using your investments to start a business, buy real estate, or pay down high-interest debt because it reduces their fees. Flat-fee advisors have no financial incentive to influence these decisions.
- Can flat-fee advisors help me even if I don't have a lot of money to invest?
- Absolutely. This is one of the biggest advantages of flat-fee planning. Many asset-based advisors require $250,000 to $1 million minimums, leaving out younger professionals and new business owners. Flat-fee advisors can profitably work with clients who are just starting their financial journey, focusing on building wealth rather than only managing existing wealth.
- Is flat-fee planning more transparent than percentage-based fees?
- Yes, flat-fee planning offers complete transparency. You know exactly what you're paying upfront, regardless of market performance or account values. With asset-based fees, your costs fluctuate with your account balance, and the dollar amount you pay increases as your wealth grows, even though the advisor's work may not proportionally increase.
- When does flat-fee planning make more sense than asset-based fees?
- Flat-fee planning typically makes more sense when you have complex financial planning needs, when you prefer to implement investment strategies yourself, when you have significant assets outside of investment accounts (like business equity or real estate), or when you want ongoing financial guidance without paying escalating fees as your wealth grows.
- What services do flat-fee advisors typically provide?
- Flat-fee advisors typically provide comprehensive financial planning including retirement planning, tax strategies, insurance analysis, estate planning guidance, business financial planning, debt management strategies, and investment recommendations. They can also manage your investments directly, which is included in our $10,000/yr fee.
- How do I know if a flat-fee advisor is worth the cost?
- Calculate the value you receive versus the fee paid. A good flat-fee advisor should save or make you more than their annual fee through tax strategies, insurance optimization, investment guidance, and helping you avoid costly financial mistakes. Many clients find that proper tax planning alone saves more than the advisor's annual fee.
Investment and Portfolio Management
- What's a reasonable return to expect on my investments?
- Historically, the stock market has returned about 10% annually before inflation, or roughly 7% after inflation. However, returns vary significantly year to year. A diversified portfolio might target 6-8% annual returns over the long term, but it's important to focus on your personal goals rather than beating market averages.
- Should I invest in individual stocks or mutual funds?
- For most small business owners, diversified mutual funds or ETFs are better than individual stocks because they spread risk across many companies. Index funds are particularly attractive because they have low fees (often under 0.1%) and consistently outperform most actively managed funds over time.
- How much should I have in an emergency fund?
- Small business owners should maintain 6-12 months of expenses in an emergency fund, which is higher than the typical 3-6 months recommended for employees. This extra cushion accounts for the unpredictable nature of business income and potential business emergencies.
- When should I start investing for retirement?
- Start immediately, even if it's just $100 per month. As a business owner, you have access to powerful retirement accounts like SEP-IRAs and Solo 401(k)s that allow much higher contribution limits than traditional employees. The earlier you start, the more time compound interest has to work in your favor.
Small Business Financial Planning
- What retirement options do I have as a small business owner?
- Small business owners have several excellent retirement options: SEP-IRA (contribute up to 25% of compensation), Solo 401(k) (contribute up to $69,000 in 2024), SIMPLE IRA (good for businesses with employees), and defined benefit plans (for high earners wanting maximum contributions). The best choice depends on your income, number of employees, and retirement goals.
- How should I separate my business and personal finances?
- Open separate business bank accounts and credit cards immediately. Pay yourself a regular salary from the business account to your personal account. Keep detailed records of all business expenses. Consider working with a CPA for tax planning and a financial advisor for personal wealth building strategies.
- What insurance do I need as a small business owner?
- Essential insurance includes general liability, professional liability, business property insurance, and disability insurance to protect your income. If you have employees, you'll need workers' compensation and likely health insurance. Life insurance becomes crucial if others depend on your business income.
- How much should I pay myself from my business?
- A good rule of thumb is to pay yourself a reasonable salary, then take additional profits as distributions (if you're an S-Corp) or owner draws. Aim to reinvest 10-20% of profits back into the business for growth while building personal wealth outside the business.
Tax Planning and Strategies
- What tax deductions can I take as a business owner?
- Common business deductions include home office expenses, business meals (50% deductible), professional development, business travel, equipment purchases, professional services (legal, accounting), business insurance, and vehicle expenses. Keep detailed records and work with a CPA to maximize legitimate deductions.
- Should I incorporate my business for tax purposes?
- It depends on your income and situation. LLCs offer flexibility and simplicity, while S-Corps can save on self-employment taxes if you're profitable. C-Corps might make sense for very high earners. Consult with both a CPA and attorney to understand the legal and tax implications of each structure.
- How can I reduce my tax burden legally?
- Maximize retirement contributions, take advantage of business deductions, consider tax-loss harvesting in investment accounts, bunch charitable deductions in certain years, and explore strategies like defined benefit plans for high earners. Tax planning should be year-round, not just at tax time.
Estate Planning and Risk Management
- Do I need estate planning if I'm young and healthy?
- Yes, especially as a business owner. You need a will, power of attorney, healthcare directives, and possibly a trust. Your business needs a succession plan in case something happens to you. Even young business owners should have life insurance to protect family members and business partners.
- What happens to my business if I become disabled?
- This is why disability insurance is crucial for business owners. You should also have a business continuity plan, possibly including buy-sell agreements with partners and key person insurance. Consider both short-term and long-term disability coverage for your personal income.
- How much life insurance do I need?
- A common rule is 10 times your annual income, but business owners may need more to cover business debts, buyout agreements, and family needs. Term life insurance is usually the most cost-effective option for most people under 50.
Working with Our Firm
- What makes your firm different from other financial advisors?
- We specialize in working with small business owners and understand the unique financial challenges entrepreneurs face. As fee-only fiduciaries with 17 years of investing experience, we're legally required to act in your best interest. We provide comprehensive planning that integrates your business and personal financial goals.
- How often will we meet and communicate?
- We typically meet quarterly for comprehensive reviews, with additional check-ins as needed during major business or life changes. We're available via phone or email for questions between meetings and provide regular market updates and planning insights throughout the year.
- What should I bring to our first meeting?
- Bring recent business financial statements, personal tax returns (last 2 years), information about current investments and retirement accounts, insurance policies, and a list of your financial goals and concerns. Don't worry if you don't have everything organized – that's part of what we help with.
- How do you get paid for your services?
- We use a flat-fee structure, which means we're only paid by our clients, never by investment companies or insurance providers. Our fees are $10,000 per year, paid either monthly or quarterly. There is no minimum contract length. This ensures our advice is always in your best interest, not influenced by commissions.