Financial Planning for the DIY Investor

I’ve always felt the financial planning industry has missed a big opportunity by not showcasing a service model that works for do-it-yourself investors.

Consider these recent reports.

An article published on June 6, 2021, in the Wall Street Journal mentioned: "Boomers, who are now between the ages of 57 and 75, own more than half the estimated $50 trillion in total U.S. household financial assets, according to Cerulli Associates. Of that $26 trillion, roughly a quarter, or $6.5 trillion, is invested on a do-it-yourself basis, Cerulli analyst Scott Smith says. A big majority of that DIY total resides at Vanguard, Fidelity and Schwab."

And according to an eMoney survey released on February 10, 2022, DIY investing continues to build steam, with over a third (34%) of Americans revealing that they manage all of their own investments. Meanwhile, 38% of U.S. adults surveyed rely on their financial advisor to manage all of their investments, while 23% use an advisor and manage some of their investments themselves.

Don’t DIY investors need financial planning?

?Many advisors do offer financial planning for a fee without requiring a client to agree to have their investments managed. For example, financial advisor Sheryl Garrett is known for creating a network of advisors who only charge on an hourly basis. Other advisors also offer services by the hour, or for a flat fee or on retainer. Newer subscription planning services generally charge flat monthly fees and often appeal to younger clients.

But many advisory firms still consider financial planning to be a loss leader that gets clients in the door for investment management. They haven’t figured out how (or don’t see a need to figure out how) to offer financial planning and get paid fairly for it.

The result is that many DIY investors, particularly wealthy ones, have avoided financial advisors. A lot of them are sophisticated enough to know that most advisors want to manage their investments — a service they don’t want and at a price they think is too high anyway.

Advice-Only Planning

Enter Cody Garrett (no relation to Sheryl). He is one of a small but growing group of advisors who are “advice-only.” His firm, Measure Twice Financial, a registered investment advisor, ?provides financial planning advice to DIY investors.

?Although the assets-under-management fee model has grown tremendously over the last couple of decades, Garrett says he can see why DIY investors don’t like it. “The reason they don't think they need a financial advisor is because the AUM compensation model specifically tells clients that the value of financial planning is positively correlated with the stock market. And when you're paid based on what the stock market does, or how much money somebody puts in or picks out, clients think that the only value of working with a financial advisor is them picking stocks and bonds for you,” Garrett maintained.

To Garrett, if an advisor is going to provide investment management, a flat fee makes a lot more sense, especially in how people perceive the value of financial planning.

However, Garrett says “advice-only” doesn’t include investment management, and he is adamant about what it means. “It’s fee-only financial planning without the expectation, obligation or even the option to manage investments. If you have investment management in your ADV, whether you are flat fee or AUM, you're not an advice-only planner. You cannot manage any investments for any clients to be advice-only,” he told me recently.

?Garrett agrees that he has become something of an evangelist for advice-only financial planning. On his website, he includes a list of a dozen?other advice-only planners. He doesn’t receive any compensation for referrals. Garrett strongly believes in education and transparency, plus he says he gets so many inquiries for advice-only planning that he now is referring away more than $6 million in annualized revenue.

Older Clients Like DIY, Too

Garrett, 33, is a former professional musician with a degree in music theory from the University of Houston and one in contemporary music from the Berklee College of Music in Boston. He began his planning career about four years ago. Although he made a good living as a musician, he had become very interested in financial planning along the way. He decided that he wanted a career that allowed him to eat dinner with his wife every night, got his CFP license and made the switch.

Although many advice-only advisors focus on millennials, Garrett says most of his clients are between 50 and 55 years old and have a net worth of between $2 million and $5 million. And they want the financial independence to retire early; every client he works with plans to retire before 59 ?.

Garrett recommends low-cost, passive ETFs to achieve financial goals. He doesn’t recommend individual stocks but he will provide advice on them if they are part of a client’s holdings.

Besides wanting to know if they have enough money to retire, his clients are concerned about having a tax-efficient retirement distribution strategy. They may have many investment accounts and may want to know how they should be invested to achieve that goal. Garrett says they also ask how withdrawals will affect their cost of healthcare, before and after Medicare. They ask questions about Social Security, required minimum distributions and much more.

He’s built numerous templates in Excel that analyze asset allocation, taxes, pay statements, education savings, retirement savings needs, mortgage flexibility, Social Security, etc. He generally reviews between 40 and 50 documents per client and covers 25 topics as part of their plan.

Why not use financial planning software? “It doesn't analyze tax returns. It doesn't look at employee benefits. It doesn't look at summary plan descriptions. It doesn't look at pay statements. It doesn't look at estate documents. So you can see all the things that it's missing. And what I find is that it's actually not just more effective, but more efficient for me to create all my own templates for all these,” said Garrett.

The Cost

Garrett makes no secret of what he charges — $6,400 for a financial plan that he puts together over three months, meeting with the client three times, or once a month. He limits himself to two engagements a month and dedicates 10 hours a week to financial planning work. He works 11 months of the year (he takes one month off) so he grosses about $140,000 annually from those engagements. He also spends time on his two other businesses: Measure Twice Money publishes educational resources for DIY investors and Measure Twice Planners teaches other advisors had to create comprehensive financial plans.??For a lot more detail on how Garrett runs his business, read his article?published in December 2021 on Kitces.com.

Garrett says a big misconception is that his approach leads to one-time financial plans, noting many of his clients want to come back annually or even sooner. In his opinion, the sustainability of financial planning has nothing to do with the business model or compensation. “But with advice-only planning, the most sustainable part about it is you're leading with education,” he said. “When you lead with an educational process, that just naturally develops really strong, collaborative relationships.”?

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