I know what you’re thinking, what could fitness and finance have in common? They don’t even seem closely related. Fitness is all about diets, dumbbells, cardio, CrossFit, and cholesterol levels. While finance refers to capital markets, credit scores, income, interest, and IRAs. Big box gyms are like cathedrals to those seeking chiseled abs, toned arms, and two inches off their waistline while wealth managers and RIAs are the impenetrable stronghold meant to protect our assets and provide a plan for retirement. So, what does fitness and finance have in common? Well, for starters, Americans as a whole fail miserably at both.
According to the CDC over one-third of Americans are obese and about one in five school children, a number three times lager since the 1970s. In 2008, the CDC reported that the medical costs of obesity in the United States to be $147 billion.
So, America is overweight and it’s costing us hundreds of billions of dollars. Perhaps even more astounding is a recent FINRA Study that surveyed thousands of citizens and found nearly two-thirds of Americans lack a deep understanding of their financial options. Click here to see if you how you score, it’s a quick six questions.
How did you do?
If you performed well, awesome! If not, don't worry you're not alone. You can take solace in the fact that our government has trouble figuring out their finances as well. Today, the total federal government debt is estimated at over $20.4 trillion with about $8 trillion of that being acquired in the last eight years. It is clear that Americans struggle in both of these areas - fitness and finance.
So what does that mean?
Well, in accordance with the capitalistic principles that have always defined our great nation, this gap in knowledge and know-how creates a goldmine of opportunity. The global fitness and health club industry rakes in more than $83 billion U.S. dollars per year according to statista.com. A seemingly large number that is absolutely dwarfed by our cavaliers in financial services scooping up a cool $1.4 trillion or 7.3% of the gross domestic product in 2016.
Basic economics, the law of supply and demand, is why your web browser and inbox are flooded with advertisements from financial advisors and insurance agencies promising you a ‘piece of mind’ and a ‘roadmap for retirement.’ It's also the reason why there is a big box gym, yoga studio, or CrossFit just around the street corner. Not to mention the plethora of fitness "experts" that have infiltrated Instagram tempting you with eat-what-you-want meal plans and 30-day body transformations. ALPHAs its important to remember, we vote with our wallets and we have elected an endless supply of options in each category.
Alright Jeremy, that’s great, but what’s your point?
My goal isn't to knock fitness trainers or financial advisors. I have worked with incredible people in both professions and believe they both play an integral role in our fitness and financial health.
However, I caution you.
It’s important to recognize that the fabric of these industries are woven directly into the most personal areas of our lives. Fitness and finance discussions can be uncomfortable because they cause people to be vulnerable. These discussions focus on our appearance, health, social status, and wealth. Plus, this may open the door for those with ill intentions to commit fraud, extortion, and oversight among other things.
My point is this, don’t be fooled. Do your own research. Nothing unhinges me more than an unsuspecting person being taken advantage of. Evaluate, educate, and invest in yourself wisely. Chances are that nobody is going to do the research for you, at least not for free. You need to own this - no one knows you better than you know yourself.
In fitness and finance, consumers dish out wads of cash for both trainers and advisors. Although this article is primarily focused on finance, I encourage you to check out Brandon's article titled, Nutritional Supplements: More Than Just Hype! for related information.
With my graduate and professional background in finance I frequently have clients ask the following questions, “how should I invest my money?” or “how do I select a good financial advisor?”
First, lets be clear. I am not providing any financial advice. However, I would like to empower you with some questions to use as the basis for evaluating your own situation should you choose to hire a financial advisor or if you are currently working with one. Under any circumstance, an advisor should be able to answer these questions directly, coherently, and back it up with documentation.
1. Are you a fiduciary?
As your advisor, they are legally obligated to always act in your best interest. They may not recommend or sell any investment vehicle that is unsuitable for your financial situation. Unfortunately, this is still a problem as many advisors are paid bonuses or kickbacks for selling or pushing specific equity funds, even if they are not in their clients best interest. It’s important to confirm that the advisor adheres to the fiduciary standard.
2. How exactly is my money being managed?
Most people assume their advisor is managing their money. In reality, your ‘advisor’ may just be the sales guy. Lots of RIAs and wealth managers operate this way - the actual money management is sourced to another team or advisor. Confirm that your advisor has discretion over your account and is handling all transactions.
3. How have you performed historically?
No surprises here, ask them for historical risk-adjusted performance records. This will show you the return of an investment relative to the amount of risk the investment took on over a given time period. Was the reward worth the risk?
4. How are you paid?
Make sure you are extremely clear on this. Confirm that your financial advisor is being compensated directly from their clients. Be wary of any extra bonuses, incentives or kickbacks that they receive for pushing specific funds, insurance policies or annuities. They are obligated to disclose this information. You may be surprised to learn that a high expense managed fund that they sold you scored them an all-expense-paid trip to Aruba.
5. Most importantly, how are you being charged?
Firms may have outrageous, convoluted fee structures that double-bill on positions and mislead clients. Generally, you can expect advisors to charge anywhere from 1% - 2% assets under management. So, you’d be paying in the ballpark of $5,000 to $10,000 if you have $500,000 managed. But wait, chances are that your advisor has you in some managed funds, (i.e. BlackRock, L&G, Halifax, etc.) these funds have expense ratios of their own that typically range from 0.5% to 2.5%. Find out if you are charged an hourly rate for meeting each time you schedule an appointment with your advisor. Is estate, tax, or college planning charged separately? Are there additional fees on transactions?
You can see from these questions how quickly financial advising services can add up and why the highest net-worth clients are often the most valued. When choosing an advisor, be sure to ask questions and get all this information documented. An advisor should always be able to give you a clear and concise breakdown of their charges and fees.
As always, please shoot us a message if you have any follow-up questions or would like to connect directly. If you’re a podcast listener and interested in more intriguing discussion on personal finance, check out the Freakonomics Radio episode titled, 'Everything You Always Wanted to know About Money (But Were Afraid to Ask)'
Until Next Time,
Evaluate, Educate, and Invest!
Co-Founder and CFO, RAM