Why (almost) every teacher needs a financial advisor

Firstly, this is a bias article for me to write as I am a financial advisor. However, when I talk to teachers at various points in their career about their financial concerns, the one response I seem to hear is “I wish I had one of you earlier”.

To clarify one thing in the title, there is a difference between a “financial advisor” and a “403(b) salesman”. I get pretty vocal about this in other posts, but when you hire an advisor, they need to be working in your best interest and not concerned with selling you a product from their company.

Couple and agent

 

So to answer the main question:

 

Why does (almost) every teacher need a financial advisor?

 

Mistakes cost money

I recently came across a situation where a teacher needed money for an unexpected expense for her child. She didn’t have anyone to discuss the situation with, so she took money out of her IRA to pay for the situation. She thought her situation made her eligible for “hardship withdrawal”.

It didn’t.

Not only did this withdrawal incur a 10% penalty as she was under age 59½, but the total amount was added to her annual income and subject to income tax.

If she had someone to discuss the situation with, and lay out all of her options, she would have realized that there were a number of other options available.

 

Uneducated choices cost money

I tell (almost) every new teacher to avoid 403(b)’s when saving for retirement. Not only are they expensive, have limited investment options, but they are tied to your employment with the district.

For most new teachers, a Roth IRA is more appropriate. It is not tied to your employment (and the restrictions that come with this), you can choose almost any investment that is available, and the fees to hold this account are almost non-existent – saving you thousands of dollars over your career.

For teachers realizing this, and now wanting to move their 403(b) to another vendor (from an insurance company to an investment company), the fees to do so are VERY high. For a newer teacher who’s 403(b) balance is in the low five figures, the cost to transfer their account can be over $1,000! I educate people on which account to choose for save for retirement, and it costs $200-$400. An educated choice can be cheaper than fixing a mistake.

 

Conflicts-of-interest can make you unsure of your decisions

Have you ever been shopping for an big-ticket item where you know the person helping you will get a commission if you buy the product? Did their approach feel a little icky? Did you wonder if they were showing you the best product for you, or for their commission?

Well, unfortunately, that’s how a large portion of the financial services industry works. The majority of 403(b) agent’s work on commission, so they get paid when you open a 403(b) and start putting money into the account.

So how can you be sure that the product is the best one for you, and not the one they get paid the most for having someone open? You have to know what questions to ask and how to compare it another product. Or, you don’t ask and trust them. That’s the risk you take when you work with someone who works on commission.

You should probably look for someone who gets paid for his or her expertise, time and ability to find you the best option. (Hint: that’s how I get paid). By doing it that way, you’ll know that the product they’re suggesting is the best one for your situation.

 

No one wants to look back and think “What If?”

When my wife and I bought our house, we pondered if we should buy a move-in ready townhome and move out when our family grew, or if we should buy a bigger house and do some work. We didn’t really ask people’s opinion who had been there before us and we bought the townhome.

After we bought, the housing market took a downturn and our sizable down payment (now in the form of equity) disappeared, meaning we were stuck for a while. Sometimes we look back and wish we had bought a different house. What if we had spoken to a young family or realtor to get their opinion before buying?

Before you make any initial moves, or changes, to your financial endeavors – have you asked anyone’s opinion? Have you asked a teacher who’s been in your situation recently, or a financial advisor (not sales-person)?

I would suggest you do, so you don’t look back in a couple of years, and think “What if?”

 

I could fix my toilet, but I don’t have a weekend available to do it

Some teachers I come across are knowledgeable about financial topics. They understand pension eligibility and what accounts work well with a pension in retirement. They understand insurance, and the basic estate planning documents they need in place, and the list of other financial things that occur in their lives.

But first and foremost, they’re teachers. They are experts at educating children, providing differentiation of content to various students, and explaining complex situations with ease. While they could manage their financial lives adequately, should they be?

How much time would it take, and how accurate would it be?

I think the same thing when any type of outlet or pipe breaks in my house. I can do some things in the house, but when it comes to anything plumbing or electrical, I know enough to hurt myself and spend hours getting to that point. It makes sense to pay a professional who can do it in 25% of the time, fix the problem completely, and keep me from harm. I’m happy to pay them for their expertise.

 

That’s what a good financial advisor does.

 

They know lots of options when it comes to products, approaches to investmenting, insurance and income tax management; study these topics to remain up-to-date, can design a comprehensive plan that can change your future, and know the danger areas to look out for. Yes it costs them money to do so, but as we discussed before, how much would a mistake cost you versus paying the bill of a professional?

As I said at the start, this is a bias article for me to write as I earn my living as a financial advisor. But I do it without product sales; I work with teachers and help them maximize their lives; makes things easy to understand and provide you the flexibility to enjoy your free time as you wish.

(You can set an appointment using the green button at the top of the page if you want to find out more.)