How to Break Up with Your Financial Advisor (and What to Do Next)

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We’ve all been there, roped into working with our uncle’s best friend’s financial advisor who charges a 1.5% fee for some inscrutable but seemingly important service. What do you do when you think it might be time to sever ties? And how do you reconstruct your financial life after breaking up?

Reminder: We are not licensed financial professionals, and this is not financial advice. Please do your own due diligence.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is President of Morning Brew content and additional fact checking comes from Scott Wilson.

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Mentioned in the Episode

• “When It’s Time to Work with a Financial Professional” episode

• Top reasons people choose to move on from their financial advisor, per Moneywise

• “Break up email” template from Stash Wealth

• “How to Best Invest in ETFs” episode

• Should you keep or cancel your life insurance policies, from the White Coat Investor

• “The Easiest Way to Build Wealth, with JL Collins” episode

• “Asset allocation vs. location and your personal financial system” episode

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Katie:

Welcome to The Money with Katie Show, Rich Girls and Boys, where today you’ll be subjected to an untold amount of time wherein I’m going to be the only person talking to you, so I know, why do bad things happen to good people? I’m your host Katie Gatti Tassin, and I wanted to do an episode about one of the more uncomfortable crossroads you might face on your financial journey: breaking up with a well-meaning, but ultimately bad fit financial advisor.

I’ve counseled people all over the financial spectrum through such a change, from a retired relative who is paying more than 1% per year in fees for very little professional intervention on millions of dollars, to friends who saddled up the first financial advisor who smiled in their direction post-grad and now wonder what the hell their whole life insurance policy and $8,000 Roth IRA is really doing for them.

In the former example, the reason for a clean break was pretty obvious, because thanks to the 1% annual fee, they were paying around $1,700 per month in fees to their advisor—someone who urged them to wait to invest in the market during the end of the 2022 bear market warning them, hey, it’s still got a lot farther to fall. You guys should sit on the sidelines and not get back in…only to cause them to miss out on the historic rebound of 2023. Since they were retired and they were relying on their investments to support their lifestyle, I pointed out to them that the fees they were paying were also directly eating into their 4% Rule withdrawals, which meant that they could only afford to use 3%… because the other 1% had to go to pay the advisor.

In the latter cases, there was no real wrongdoing or mismanagement. It was just generally poor financial directives from someone who was incentivized to sell them life insurance and receive a hefty commission for doing so and invest their Roth IRA in high-fee overpriced assets. It probably goes without saying, but if you’ve only got $8,000 to your name, your financial situation likely does not require sophisticated professional help just yet.

So if you’re on the fence about your situation, maybe you’re unsure whether or not you’re getting a good value from your advisor, check out our prior episode about the role of a good advisor and how to find one. We’re going to link it in the show notes. There’s going to be a lot of previous episodes linked in this episode I think, but if you’re already pretty sure that you’re ready to move on and you might be trying to better understand what would need to happen in order to manage things yourself, this episode is going to lay out how you can best approach that.

So first, a few reasons why you might be choosing to move on.

According to a 2015 poll, there are a few “most popular” reasons that people choose to move on from their financial pro, and the first is sporadic or bad communication. So maybe you don’t feel as though the quarterly fees you’re paying are justified by the cadence of communication or the level of help and education that you’re receiving.

This is related to the second reason, which is a lack of transparency around how you’re paying them and how much. Anecdotally speaking, I find that people often don’t realize how much they’re paying because of the popular assets under management or “AUM” fee structure that we highlighted in our first financial advisor episode. When you’re paying a percentage of your net worth every quarter every year and the fees are being netted out from investment accounts as they are growing, it can be really easy to miss. It is a fundamentally different experience from receiving a bill in the mail every month for, I don’t know, a thousand dollars and this stuff can get pretty out of hand. It’s not always limited to an overall management fee, which is what I’m referring to when I say 1% per year. Sometimes there are front load fees in which you pay a portion of every single contribution you make. There are fees on the funds themselves and more.

And finally, the third most popular reason, an overall difference in goals or beliefs. Sometimes this is inherent in the incentive structure, like an advisor may be incentivized to sell you certain products while your concern might be the best financial outcome possible. I’ve also heard from listeners, young women in particular who found that their older male financial advisor just didn’t really seem to get it. They didn’t understand their goals, like maybe they wanted to take a gap year in France rather than buy a house right now, or they felt as though they were being subtly disrespected or underestimated.

The TLDR is that, as we covered in our December episode on advisors, the financial services industry is like a sketchy playground. It’s easy to be taken advantage of there, and by the nature of how compensation structures typically work, it can be difficult to get your money’s worth or even know what you are paying for.

We’ll be right back.

So before we go any further in breaking down the steps, I called up my friend and my CFP Katy Song of Domain Money to ask her, “Hey, if I wanted to break up with you, how should I do it? What should I know?” And as a disclaimer, Katy is the lead CFP at Domain Money and Domain Money is a sponsor of The Money with Katie Show.

Katy, you just got back from a secret society meeting with other financial advisors, so can you tell me a little bit more about that?

Katy Song, Domain Money:

So I’m a member of this Secret Society of Real Financial Planners for about seven years, and this is the first time we’ve ever met together and it was a kind of curated group of 12 people, and all but three of us are AUM model.

So I thought it was very interesting to learn that all of them want to get rid of some clients, they want to break up with some clients and they feel badly and they don’t know how to do it. So I thought it was really interesting that you and I were going to talk about how do people break up with their money manager or their financial advisor when it’s happening on the other side too and they don’t know what to do and they feel badly about it and they feel guilty and they feel like they need to be there to serve even maybe when the match isn’t made in heaven.

Katie:

So interesting. I think that that is going to make some people feel better if they are on the fence, particularly if it’s not to your point, a very good match to begin with. And obviously you have just stated you don’t charge AUM fees the way that the advisory models that we’re discussing today for the most part do. But still, let’s say that for argument’s sake that I wanted to cut ties with you. What should I, as someone who hopes to disentangle themselves from a professional money manager in this hypothetical, what should I know?

Katy Song, Domain Money:

I think that one of the most important things to internalize and know before you even go into the conversation is you may have to practice it and you may have to really believe it, but that the reason that you want to do this is because you want to learn to do this on your own. You weren’t want to learn to swim without a kickboard, and part of that discovery process is being responsible for your investments or for your cashflow or whatever all components of your finance might be. So to really know that that’s your pathway and if you believe it, whoever you’re going to talk to is going to have to believe it too.

Katie:

Yeah, and I mean maybe someone who’s listening to this isn’t sure whether or not they’re prepared for that or maybe they’re not sure whether they should be working with a professional in this capacity, so they’re feeling a little bit unconfident about that next step. Who would you say probably doesn’t need to be paying for an advisor’s help? Can you paint us a picture?

Katy Song, Domain Money:

Yeah, I mean I think that in general, I’m just speaking from experience with my clients and I have over 800 clients and I think that in general the people who don’t need an advisor or people who have less than a million dollars in taxable brokerage accounts, I mean most people if you have tons of money like that, it’s in a 401(k) or it could be in IRAs.

So that seems to be the emotional threshold for people being like, Ooh, maybe it’s even more than a million, maybe I would say most of my clients it’s closer to $5 million, about $5 million mark. People are like, oh, I really think I need somebody looking at this.

The irony is that depending on your money manager or your financial advisor, they may not be looking at it that often. You may be in an intelligent portfolio, you may be in a bunch of low cost ETFs that you could do on your own. So of course this is the model that I’ve believed in since 2008 is that a lot of your money is set it and forget it. It’s not like active day trading.

And if that’s the case, why pay somebody throughout the year just to be the market when you can be the market and then once a year pay somebody on a project basis and say, hey, I want to spend some time with you. I want to review my investments, be it taxable brokerage accounts or retirement accounts and see if any changes need to be made.

Katie:

Are there any red flags that someone should be looking out for if they’re on the fence, things that maybe they wouldn’t know are red flags, but perhaps these are things that would seem innocuous if you are not someone that is really financially fluent, but in your mind you’d go, it’s kind of a red flag like that, you might want to rethink that.

Katy Song, Domain Money:

So a red flag, meaning they already have an asset manager who’s charging them AUM and okay… So to me here there are a couple of red flags. So the first one is different types of accounts should have different types of investments. So a taxable brokerage, a rollover IRA and a Roth IRA are three different types of accounts. They should not have the same exact blend and mix of investments period. So if you look at your accounts and you look at all three and they have exactly the same portfolio, red flag number one.

Katie:

And why is that? Why shouldn’t they have the same investments?

Katy Song, Domain Money:

So let’s think about them from a tax perspective because that’s really the differentiator. So the first one being a taxable brokerage account, at the end of every year you get a 1099 whether or not you’re reinvesting your capital gains and dividends, the IRS sees any money generated from the account as taxable. You are obligated to report it on your tax return and pay taxes if that’s the case in that account. If you’re making good money and you’re not using that investment account to subsidize your lifestyle, I wouldn’t expect to see a whole bunch of bonds in your taxable brokerage account.

Alright, so that would be kind of that red flag there, not unless to shift all the way over to the Roth IRA that grows tax free for life. We love Roth IRAs, there’s no required minimum distribution. You can take out your contributions at any time.

I could keep going on and on and on. Those accounts to me are like a dumbbell. So on one side we want as much growth as humanly possible and on the other side we want as much income as humanly possible and we don’t want all the stuff in the middle of the dumbbell. We don’t want the value stuff we don’t want, that’s all garbage that can go into your regular rollover IRA or your 401(k).

So in this Roth IRA, we want super high growth or super high income. So super high income has been kind of hard to get in the interest environment that we’ve been in. So I would, depending on your age, mostly focus on growth tax-free growth tax-free growth tax-free growth.

So we’ve already said, okay, one’s a taxable account, one’s tax-free, they would have different types of investments and then the one in the middle is the one that’s going to be everything that gets taken out at some point is all income tax. So you can have everything in there, but that would be the account where I would expect to see if you have bonds, that’s where the bonds would be. And so I get really perturbed when a client comes to me with an asset manager charging 1%, so they’re spending $11,500 a year for a million dollar account and they’ve got exactly the same investments across all three different types of accounts.

Katie:

Follow up. So I’m glad that we’re talking about asset location. I always was under the impression that with high growth stocks that are not paying dividends, that those are great to have in taxable accounts too, correct? Yes. Is that okay? I just wanted to verify that. I know we made the point about the Roth IRA and how we want to maximize our tax free growth, but I wanted to confirm that the assumption and my operating position about high growth in taxable is still correct.

Katy Song, Domain Money:

Yes, a hundred percent.

Katie:

That’s a great tip for if you’re looking in your different accounts and they all kind of match one another, that is perhaps an indication that there hasn’t been a lot of thought that has gone into the way that your portfolio has been structured. Any other red flags or green flags?

Katy Song, Domain Money:

I mean, so for example, if you see a bunch of cash sitting around in your accounts, it’s just uninvested, I would question why are they making money off of it in the money market account? What’s their strategy? Is it because earning 5% in your money market account right now is better than bonds that are earning three?

As long as they can explain why they’re doing what they’re doing, I can understand that. I do find sometimes with clients who have made contributions through a Backdoor Roth or that the money’s sitting there in cash and that money manager just hasn’t gotten around to investing it. And if I were paying somebody to be on top of it, that would make me a little upset.

Katie:

What about once they’re already undergoing the breakup process, is there anything important that you think someone should know or maybe common pitfalls to avoid that they’ve made the decision, they’re initiating the conversation and now what would you say this is probably going to happen? You should probably aware of this.

Katy Song, Domain Money:

Yeah, I mean the beauty of the way that the financial services sector is set up right now is that you don’t even really have to break up with them. The most important first step is opening up the new account. You have to have a vessel to receive the funds that you’re transferring over. So once you have those account numbers, whatever place that you pick to open your accounts is going to prompt you and say, Katie, how do you want to fund this account? And you’re going to click on the button that says transfer an account from another financial institution. All you need to affect that transfer is the account number that you’re moving the rough balance of how much you’re moving over. And you have to answer a question which is this is what trips a lot of people up: Do you want to transfer this in kind or do you want to liquidate?

So if you don’t want any tax consequence in the brokerage account, you say in kind and they literally just move all the assets of the investments from one account to the other. For the other ones, like if it’s crappy investments and that’s why you’re moving, it just hit liquidate. There’s no tax consequence in the Roth or the rollover to liquidate the funds, move the cash over, then all of a sudden you can buy whatever Vanguard funds you want.

I’m pretty sure that there’s some notification that will go through to the departing people, but a lot of times there’s no communication. And like I said in the beginning of this conversation, there are a lot of asset managers that aren’t going to mind that you break up with them.

Katie:

You technically don’t have to say anything if you’re so conflict averse and you barely know this person and the only way that you’re going to do this is if you can just press the button and shut your eyes and be done with it. Fair. We are providing a little script in this episode for like do you need someone to kind of like, here’s what you say, either call ’em up, either send them an email, you say this, you give them that courteous heads up and then you move on.

But I think it’s worth doubling down on this idea that if for some reason, God forbid, you get a really snarky response or they try to intimate that they’re going to stop you from doing it or that it’s not something that they can do for you what have you, that the control is actually still in your hands. You don’t need their permission, you don’t need them to do anything on your behalf. You retain the control and you have the ability to do this without their quote approval.

Katy Song, Domain Money:

Yeah, I think that most people will feel better if they have acknowledged this kind of transfer and be like, hey, it’s nothing personal. I don’t know the script that you’re providing or I wouldn’t even say it’s nothing personal. I would always make it be about me, which is I am taking the step in my financial education, I really want to manage my money myself and I really don’t want to pay a fee anymore to do it.

Katie:

We’ll be right back.

Still, even once you’re pretty sure that your reasoning is sound approaching the situation can be awkward, especially if you’re going to be moving from having someone else manage your assets for you to managing things yourself or if this is a family friend, you might not be sure how to ask this person to transfer control of your assets back to you for you to manage.

Now you could always send them one of those TikTok dances where the person looks really sad and does the renegade puts the bad news and text on a screen, but consider a few truths before you go that route…

The first is that small clients often aren’t worth the time of asset managers if they get paid on a percentage of assets basis, that AUM compensation structure, which means that if you’re someone who has say $90,000 invested, they’re going to make a whopping $900 per year on you. And to be clear that that’s not nothing, and to you it’ll certainly compound, but when they have dozens if not hundreds of clients, you are worth about 75 bucks a month to them. You taking your money elsewhere is not going to break their business model. And on that note, if you find that the service you receive is lackluster, this might explain why this might actually be a relief to them. As sometimes firms encourage advisors to shed the bottom tier of their book of business. Stash Wealth notes on this front that the verbiage you might hear from an advisor if you are being shoveled to someone else for this very reason, probably is going to go something like this:

They’re going to send you an email that says, hey, we are transitioning your accounts to a team that can better suit your unique needs. The translation is that you don’t have enough money to be worth Big Dog’s time anymore.

On the flip side, if you have a metric dick ton of money, hopefully you feel like you deserve to take your business somewhere else or handle your money yourself because that means you’re also likely paying a boatload and fees for a service that it sounds like if you’re listening to this episode you’re not super happy with.

And finally, this is a business. You are paying for a service. This is not charity work. Even if you were introduced via friends or family, it’s important to remember that this relationship is a professional one and you are a client who is paying them.

It often feels like we have to have a really good reason to end a relationship like this one that if they’re doing a good enough job, you owe them your loyalty or if you have longstanding family ties, you owe them your loyalty. But drum roll please.

Simply knowing how to do it yourself is a good enough reason to manage your own money. If the only thing that’s changed is that you are now educated and confident in your financial ability, their performance does not have to be relevant to the decision at all. If you knew how to change your own oil, would you feel guilty about not taking your car to the mechanic anymore? No. Your knowledge is not a commentary on their competency and you don’t owe a mechanic your business simply because you used to need their specialty.

Still, there are good ways and not so good ways to approach this, right? Technically you don’t even need to tell them anything. You could theoretically go to a brokerage firm and initiate transfers without so much as a heads up to them, but it is very courteous to let them know. Stash Wealth, which I mentioned a moment ago, they had a great script that I found online that you can send to an advisor if you have a specific person assigned to your account, but obviously feel free to tweak if you’ve been with yours for a long time or you have a close relationship with them.

This might be a phone conversation, but depending on how you usually communicate with them and how often this can be a starting point, it goes something like this:

Hi <Advisor Name>.

Thank you so much for your advice and guidance over the years. I wanted to address the next steps in my financial journey because at this time I have decided to move in a different direction and will be moving my accounts under my own management (or if you’re moving them somewhere else, you can note that too), as this is a better fit for me going forward. I just wanted to reach out and notify you as you’ll begin receiving transfer requests shortly. Thanks again.

Sincerely,

<Your Name>

So notice how short and sweet we’re keeping it. It might be tempting to get into the data about the fees or start talking about performance, but just be conscious that if you do that you are opening the door for this person to go into salesperson mode and try to win you back.

If you’ve already made the decision and you are certain that it’s time to go, it is probably best to keep it high level friendly and final. Now, the stash script didn’t mention this, but sometimes your advisor might have something that’s known as limited power of attorney or LPOA. If you recall signing over these privileges to your advisor, this is also the time to raise the conversation about revoking them.

Alright, now that Katy’s weighed in, you’ve got a script in hand. Let’s talk about the steps that you are probably going to take. So for the purposes of our breakup conversation, we’re assuming that you are leaving because you have decided that it is your single gal era. You are going to be self-managing your accounts. If you were switching to another firm or money manager, you could actually have them initiate all these transfers for you. But generally we encourage people who are financially fluent to be in the first chair of the relationship with their money. Even if you’re hiring people for selective help like accountants or fee only CFPs like Katy is.

So step one, the first thing you’ll need to do is open up new accounts in the brokerage firm of your choice. So for example, if you have a Roth IRA, a rollover IRA, and a taxable brokerage account with your advisor, you would need to open those same accounts in your new firm of choice. So maybe you want to move forward with like our partner Betterment so that you can self-manage your strategy, but get a little bit of help with your asset allocation. You would open all three accounts with betterment so your funds have somewhere to land. Now note that if you don’t have all three types of accounts, that is you don’t have a Roth, a pre-tax or tax deferred, and a taxable, you don’t have to open all three.

You just want to make sure that you are paralleling the accounts that you have with your advisor to the extent that you can. This also might be an opportunity to consolidate and to simplify. So maybe you had multiple pre-tax, that is traditional tax deferred, all these words mean the same thing. You had multiple pre-tax accounts, you have multiple Roth accounts, multiple taxable accounts with this advisor and you want to pare down. You want to start combining funds by tax status. You can’t combine a Roth and traditional IRA into one account without converting the traditional dollars to Roth. But if you had multiple Roth IRAs for example, you can combine those all into one for simplicity of management and then reassess what holdings within that you want to keep versus sell.

Step two is that you’re going to have to give your old advisor that courtesy “merci, au revoir” notification that you are going to be transferring your assets out, right? They’re going to start receiving transfer requests. And remember you’re going to be kind but firm in your communication and this is also the time that you’re going to inquire about those limited power of attorney privileges if applicable.

There may be transfer fees, sometimes it’s $100 or $200 an account, which is going to suck but will be ultimately worthwhile. So just prepare yourself for that. Know that you might be paying some fees. If you have a digital copy of your contract with the advisor, you can command+F the word “fees” to look for the words transfer or termination fees that might apply to your relationship. You could also encounter the word ACATS, A-C-A-T-S. It’s an acronym that’s a fee that stands for “automated customer account transfer service.” So again, those words are transfer fees, termination fees, ACATS fee that you can selectively search your contract for if you want to kind of get ahead of it and know what to expect.

And finally, step three, you’ll initiate transfer requests of your money from your advisor’s institution to their new home, the home that you’re probably going to be using moving forward. So depending on what they’ve invested your money in and where you are moving the funds to, some of your holdings may need to be sold before the money can be transferred. So if you’re transferring taxable brokerage account assets, this might mean you are realizing capital gains in order to do so, which will impact your tax bill during the following tax season. Keep in mind you don’t have to worry about that for IRAs and other tax sheltered accounts because they are, as the name would suggest, tax sheltered buying and selling within them is not going to realize capital gains. If you’re having trouble at any point in this process or you hit a roadblock at any point, you can involve the customer service of your new brokerage firm and they should be able to walk you through this transfer process.

So if possible, you’re going to want to do something called in-kind transfers, which will transfer everything as is. So that basically means in layperson’s terms, you’re not buying and selling in order to transfer.

In my experience, there are two common reasons why you might not be able to transfer assets in kind. The first pertains to something that we’ve already briefly touched on, which is roboadvisors like Betterment, Wealthfront, M1 Finance, right? These firms only allow you to hold ETFs. So if you were invested in index funds, you’ll need to swap them out for ETFs that the new brokerage firm can support. And again, this is less of an issue with older institutions like Vanguard, Fidelity, what have you. But that said, the benefit of using the roboadvisors is in the expert built portfolio. So you might not mind making these shifts as little short-term pain of having to sell things and reallocate if part of the reason that you’re moving your money in the first place is because you want to divest from whatever your old advisor invested you in on your behalf.

The second reason is more specific to the advisor side of the equation. So oftentimes advisors work for larger asset managers that have their own mutual funds, so they’ll invest in those mutual funds in lieu of the more common indices. You might be moving your money from one institution’s fund to another firm that doesn’t or can’t offer you the same thing. And again, in this case you probably don’t mind since these mutual funds are typically more expensive than their vanilla index fund counterparts. As a sidebar, if you want to a deeper dive on this specifically you want to learn more about mutual funds and how they compare to index funds or ETFs, we will link our deep dive episode on that topic in the show notes. So all that to say, the money itself might be tied up in assets that you’ll need to sell as you change institutions.

And while this can be a headache, it’s often a necessary but short-lived part of the transfer process at least until next year’s tax season when you may receive forms if you realize capital gains in a taxable account.

Now when everything’s wrapped up, hang on to any documentation or transaction history that this process generates because you might need it in the future, whether come tax season or I don’t know if you’re buying a house or some other large purchase where they want to see a zillion years of your asset history.

But now that the assets are within your control, the fun can begin, huzzah, let’s get rich.

My guess is that you want to control your own money because you have faith in your ability to manage it. But for my own peace of mind, let’s talk through how you can restructure and rebuild your financial life in the aftermath of an advisor breakup.

The first thing you’ll probably want to do is assess what you own already. And if you want to continue to own it, particularly if you’re in one of these situations where everything actually can be transferred in kind, you’d be surprised how many times I’ve heard from people who found out that they were in wildly inappropriate asset classes for their age and risk tolerance and timeline. Like the woman who I met who was retiring within a year who was in 100% S&P 500 index funds when we were looking at her material. That’s right, she was paying 2% per year of her $900,000 portfolio to be invested 100% in an S&P 500 index fund at 60 years old.

If you are a regular Money with Katie listener, you understand why that is abhorrent. But depending on who you’re working with and if they’re in the business of insurance sales or not, it’s possible that they’ve sold you expensive insurance products that almost always won’t make financial sense for the average person like whole life insurance or annuities. Now I do want to say these do play a role in the estates of very, very wealthy people or those who are planning to retire abroad or might have some other sort of extenuating circumstance, but otherwise it is usually a cash grab for the advisor, not you.

You may need to pay surrender fees to get out of these policies. And if you’re unsure about how to approach this particular situation and what’s best for you, if you already hold a policy like this, I’m going to link a post from the Whitecoat Investor in the show notes that goes through all of the considerations for whether you should keep it or ditch it.

Insurance product considerations aside, there are a few major areas that you’re going to want to review, and the first is your overall asset allocation.

So what percentage of equities versus bonds versus cash do you own? As a general rule, financial planning encourages heavier equity ownership. So that is to say stocks and index funds that are made of stocks for young people, and a heavier weighting of bonds are sometimes called fixed income for people closer to their retirement. So for example, I’m 29 years old, my allocation is like 95% equities and 5% bonds while my parents who are already retired, they’re in their sixties, are closer to 60% equities and like 40% bonds. Now if you’re not using a roboadvisor, you’ll also want to consider how you own these things. So you might have a 90/10 split that you’re happy with, but if your 90% equities is all Tesla stock, you are not diversified, or you might be in a growthy mutual fund that’s technically risk appropriate for you but has a really high expense ratio that you just don’t need, you might choose to swap that out for a simple total stock market index fund instead.

JL Collins joined us on the show back in February and mention that he foresees the Total World Stock Index Fund from Vanguard ticker V-T-W-A-X. And the ETF for that by the way, is VT. He said that that’s about as diversified as you can possibly get for equity ownership and very, very cheaply too. So we’ll link to that episode in the show notes as well.

Your next consideration is asset location. So if you’re like, wait, isn’t that what you just said? It’s asset allocation (al) versus asset location, which is slightly more in the weeds, but in other words, it’s basically you just kind of taking a look at where do you own the assets that are producing taxable interest. This is, I would say less of a concern for most people, but it’s kind of a nod toward tax efficiency and ensuring that you’re not spinning off a ton of interest and dividends that you’re not even really using right now in a taxable account that’s going to generate a tax bill every single year.

The same goes from mutual funds and taxable accounts that are doing a lot of buying and selling. You’re going to be incurring taxable events and taxable events will be happening if these things are in a taxable account. So generally speaking, it’s considered efficient to hold bonds in tax sheltered accounts like IRAs and to hold high growth stocks in taxable accounts. And if you want to know more about asset allocation and asset location, we do have an episode about that too. So like I said, add it to the long list of show notes for this one.

And finally, we should have just called this episode fees because here we are talking about fees again at this point, triple check what kind of fees you are paying on your existing holdings. Typically, you’re going to be looking for the phrase expense ratio. What is the expense ratio of the ETF or the index funds that you own? You can buy index funds that have a fee between 0% and 0.05%. So if you have high expense ratios, which I would classify as anything north of like 0.25% at the most, it might make sense to sell that holding and invest in something that is less expensive. Again, because these things compound over time.

And on the note of the 0.25% fee, most roboadvisors like a Betterment or a Wealthfront, they charge a 0.25% fee for managing your money for having that roboadvisor expert portfolio experience. And so any fees that you’re looking at as expense ratios of the holdings themselves are on top of that management fee, which is just good to be aware of.

Your advisor likely told you that the fee that you were paying them if it was 1% or more that it netted out because the fund is going to outperform a classic total stock market index fund by at least how much the fee has cost you and then some. But this is a kind of hard to prove at the aggregate and B, I would say relatively rare over the long term.

So you might be ready to ditch the always on financial advisor, but you might want to engage financial professionals in a more surgical way. That is to say you might want to work with them to solve specific problems or to do specific projects for you. That’s the great thing about all of the different ways that you can get help with your money. You don’t have to work with a traditional advisor that has an AUM model in order to access a professional when you need it. So this might mean you’re going to hire a CPA for tax season, or you’re going to work with a project-based CFP, who you can pay a one-time fee to make a long-term financial plan for you. This is why we, being the Money with Katie team, likes to work with partners like Domain Money who charge a one-time project fee and then an hourly rate after that for financial advice versus taking an ongoing amount based on your net worth.

But as you get set up on your own, you may decide to kick off the process with a different kind of financial professional. You might not be swearing off of them entirely, or you might decide, Hey, you know what? I’ve done enough bingeing of The Money with Katie Show. I have listened to this woman’s voice for far too long, and you know what? It’s time that I get something out of it and you are just ready to go full throttle on your own.

Something I would probably do in this situation as I reconstruct my financial life on my own terms is to decide what can be automated and further what is the foundation on which I want to build my new strategy.

So for example, if you formerly had someone managing your money for you, it’s possible that they were rebalancing your portfolio for you or investing the new money that you were adding to your accounts. And if that’s on you now, you’ll need to think about how involved in that process you want to be. As in, hey, maybe you want to set a date on the calendar where you’re going to manually go in and spend 15 minutes doing these things every month in a brokerage like Vanguard, or maybe it’s, I’d rather pay the 0.25% to a roboadvisor for portfolio management that’s going to automatically invest in rebalance for me. Now, on a personal note, that is my preference and in my opinion, the sweet spot.

But again, this is completely personal preference. The good news is that a really robust financial life is actually quite simple. That’s kind of the surprise and delight aspect of this, and I would break it down as follows.

So you’re building a simple but effective financial routine in your reconstruction single girl era. There are just a couple things that I think you have to get straight and you can nail all of this down in a single afternoon if given strong enough espresso and wi-fi.

So first, calculate what you’re bringing in every month after taxes. Then you’re going to want to check if you are saving and investing in a tax efficient manner. Now, most people are not, and the easiest way to fix this is to check whether you’re making good use of the tax advantaged accounts that you have available to you. So more on that in a moment.

Then you want to make a plan for your short, medium, and long-term savings, which basically means what savings are you storing in a high yield savings account? What are you saving in investing in a brokerage account that can be accessed at any time? And what are you saving and investing for retirement for the long term? That last one, the retirement assets are the ones that will enable you to be tax efficient, so don’t skip them.

Then finally, you’re going to automate your chosen contributions to those places you make sure the cash is being invested in the holdings of your choice. So buy orders, buy order is what it’s called when you are putting money in and then using it to buy an asset; those can be automated. So whether you’re using a product like Betterment or you’re using a more traditional brokerage firm like a Vanguard or a Fidelity, you can set that up to happen automatically. And if you’re comfortable with it, I would also just throw out there signing up for auto pay on debt payments, credit cards, things like that. So you never miss a payment. You want to simplify it as much as possible for yourself.

Now that little overview—if you check these boxes and you’re going to be fine. That is of course an oversimplification. You can go far, far deeper, and we have before on this very show hashtag see also the long list of links in the show notes. But these four steps are where 80% of your results are going to come from and they really only need to be set up the one time. As always, part of the benefit of automating your savings and investment contributions is that whatever is left over in the checking account is free to be spent, which can really take the guesswork and the guilt out of budgeting, which is something that I know I personally really need.

And that is all for this week. I feel like I’ve just given you tons of homework and many more hours of listening, but I will see you in two weeks, same time, same place on The Money with Katie Show. Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin with our audio engineering and sound design from Nick Torres. Devin Emery is our chief content officer, and additional fact checking comes from Kate Brandt.