I hate to be the bearer of bad news often. The smartest person in the room is often the absolute worst with money. This is a story of a College Professor vs. the Fiduciary Independent Financial Planner. We can guess who has the higher IQ, but we quickly find out who has the highest FIQ (Financial Intelligence Quotient). Would you believe sometimes the smartest person in the room is the worst with Investing?

Sometimes, the smartest thing you can do about your money is to admit that you don’t know everything. Even geniuses can be not-so-smart about money issues. Procrastination can derail even the best and most well-researched investment portfolio. Is it possible to be too smart to invest well? I don’t think so- but again, I’m not a College Professor. I just help smart people make smarter financial decisions.

The investor’s chief problem—and his worst enemy—is likely to be himself.” ~Benjamin Graham

I just had an interesting first (and probably last) meeting with a well-respected college professor from a major university. (The name has been changed because in my profession, everything said with even a potential client is confidential). I met with him at the urging of his colleague, who I have been my LA Financial Advisor client for years. Let’s call him Professor Toosmart.

Like many people, Professor Toosmart didn’t really know what to expect when meeting with a Financial Planner like myself. Nor did he really understand what a fiduciary financial advisor actually does to help his clients and their investments. Whereas most people seem to think a financial advisor is just in the investment-picking business. What I actually do is more akin to behavior modification . . . all in the service of setting financial goals and, more importantly, action steps to make your life dreams a reality. Building portfolios and managing investments is part of that process but by no means the only part.

(Our comprehensive financial planning process also includes tax planning, estate planning, retirement planning, as well as investment management to help you reach your financial goals faster and easier.)

How to Think About Investing Wisely

Think of it this way: do you go to buy the best carburetor wrapped in a BMW? No, you buy your ultimate driving machine that happens to come loaded with a carburetor, enabling it to drive like a charm. In other words, the carburetor is a built-in benefit, not a reason in and of itself. Similarly, no one sets up a financial plan just so they can log in on a computer to see that they own a bunch of stocks, bonds, ETFs, mutual funds or whatever. Yes, that’s a benefit, but it’s not the point. Rather, they develop a financial road map to help them meet a goal, whether this means sending the kids to college, retiring well, buying a house, getting that BMW or some marvelous combination thereof. Not to mention help keep you on track for your most important financial goals when life happens, or say, when a pandemic throws a wrench in even the best laid financial plans.

Some people work with a fabulous financial planner to just have more peace of mind at the end of the day. Or perhaps to have someone to make sure they are on the right path to live their happiest, healthiest, and wealthiest life.

Smartest Person in the Rooms Theory:

Professor Toosmart – an expert in his field, which is not business, finance or even economics btw – had a theory that if you hire (pay) a professional fiduciary financial planner, you will end up with less money than if he didn’t hire said financial planner, all other things being equal. To prove his theory, he had written a 100-page thesis in his free time over the past three or so years.

I don’t technically disagree with his theory as he stated it: If you have two people who do everything exactly the same as far as investing behaviors, investment choices and timing contributions, they should end up with the same end result. But if one pays for advice from a financial advisor and the other one doesn’t, the person who doesn’t pay should end up with more money. While this might make sense in a theoretical vacuum laboratory environment using identical twins, it doesn’t begin to account for messy real-life realities. Nor does it take into consideration a person’s Financial Intelligence Quotient (which is actually a thing; you can look it up). I personally believe a person getting great investment advice will make smarter choices than a person left to invest alone at the mercy of the stock market roller coaster.

While we can debate the total value that a fun financial planner can bring to your life, the top financial advisors strive to bring massive value to their clients.  Over time, this value of a financial planner can be many multiples of the cost of getting expert financial guidance.

Warren Buffett appears to agree that being too smart can hurt your investing prowess. Here is a quote from the Oracle of Omaha:

You don’t need a lot of brains in this business.  I’ve always said if you got an IQ of 160, give away 30 points to somebody else, because you don’t need it in investments.

Procrastination Is Detrimental To Your Financial Health:

Beyond procrastination, the UCLA professor is making the common mistake of getting bogged down in minute details. I need to point out that he didn’t start working towards his various financial goals during the three years he put together his thesis paper. That means three years less he has saved for his bottom line, and worse, three fewer years his savings have to compound.  Three more years of increase without any proactive tax planning. The right investment allocation and whether to choose a financial planner or not are debatable topics. However, compounding interest and saving lost opportunities for three years is not.

To put dollars and sense into this. Based on the professor’s own assumption, missing those three years will cost him about half a million dollars in lost retirement savings*. That translated into about $25,000 per year in retirement income. That number would be much larger if we used the actual stock market returns of the past three years. I prefer not to dwell on the past or rub salt further into the Professor’s wounds. Saving money by not paying for expert financial advice is turning into a huge and costly mistake.

If you max out your 401(k) with the current limits of $19,500 assuming a 10% return, you have:

After 37 Years:  approximately $6,435,000.  That is a nice number.

After 40 years, approximately $8,630,000, An even better number.

Procrastinating for just three years could mean millions of dollars less in net worth in retirement.  In this scenario- the difference was nearly $2.2 million. The same amount saved, same investment options, just more time for compounding interest to work.

Every smart person wants to be corrected, not admired.

Marvin Minsky, computer scientist

Real World Wake Up Call (from the independent financial planner)

Do you think it’s reasonable to assume that you would make better financial decisions (investments, insurance, taxes, etc.) and exhibit smart, strategic investing behavior (same contributions, withdrawal, not freak out when the next market crisis happens) over the next 30 years if you didn’t actually work with a highly-trained, professional fiduciary financial planner like myself?

Professor Toosmart hypothesis assumes that a financial planner adds absolutely no value to your chances of reaching financial independence. For him, it just represents an expense that eats into the nest egg over time. I get it, but he’s assuming the financial adviser would only help him pick investments, charge a fee and, therefore, lower his net returns on those investments. In fact, I’m all about the comprehensive financial plan, not about the individual investment you pick.

I didn’t want to discourage Professor Toosmart too much. He’s used to being right, and in his area of expertise, he often is. But I’d like to leave you with two thoughts:

Vanguard, which is well known for being the land of do-it-yourself investing – and certainly not known for promoting the use of independent financial advisors ­– recently issued a report stating a financial advisor may boost a client’s portfolio by as much as 3.76%. That’s 3.76% from a lowly financial adviser, who often is just helping you with your investments. Now a real deal, big gun Fiduciary Independent Financial Planner may be able to add even more to that by helping you develop and stick to a financial road map tailored specifically to you and your financial goals. (Full disclosure: If that LA Fiduciary Financial Planner happens to be me, ahem, I also make all this potentially dreary stuff as enjoyable as humanly possible, just a nice BONUS).  I even like to be called the Fun Financial Planner.

Real Life Investor Results:

Lastly, every year DALBAR produces a study (Quantitative Analysis of Investor Behavior (QAIB) comparing the average returns of the stock market over the past 30 years versus the average investor’s return over the same time frame. The results hover around someone like you getting just 1/3 of the stock market’s return over the long term. The exact percentage varies over each 30-year period, but the critical point remains the same: people continue to make investing mistakes whether the market is going up or down. The takeaway from this is that investing success is not simply a function of picking the “best investments” but rather handling whatever investment you end up using to fund your financial plan. If an advisor can help you avoid just a few of those mistakes that drag down people’s returns, even just some of the time, you could potentially increase the returns on your investments.

Who do you think is Investing Smart – Certified Financial Planner or the College Professor?

While I salute Professor Toosmarts’s DIY spirit, sometimes it pays to trust a qualified independent financial planner professional. (I’ll cover some points on how to find the right, trustworthy fit for you in a future post.) Put it this way, if I have a toothache, I suppose I could pull it out with a pair of pliers, but why would I want to when there are qualified dentists around who have done it thousands of times and know how to do it relatively painlessly? So, I suppose you could try and manage your money by yourself, but why would you want to when there are experienced fee-based independent financial planners around who have done it thousands of times and know how to do it relatively painlessly, too? Doesn’t take a college professor to give you the correct answer to this question.

Your money matters. If you want some help taking the pain out of your financial planning, reach out for an initial consultation with me or another independent financial planner on my team. We will do our best to make it way more fun than a typical trip to the dentist. Why stress about stock market volatility when we can do it for you?

Click here to see who gains the most value from becoming a client of the Fun Financial Planner. 

Live For Today, Plan for Tomorrow. Start Investing, for goodness sake.

DAVID RAE, CFP®, AIF® is a Los Angeles Independent Financial Planner with DRM Wealth Management. He has been helping friends of the LGBT community reach their financial goals for over a decade. As a regular contributor to Forbes.com, The Advocate Magazine and  Huff Po blogger, he is an in-demand guest for TV, radio, and podcast news shows. Follow him on Facebook or via his website www.davidraefp.com

The opinions voiced in this article are for general information only. If you could add three more years of 11.26% growth on $ 1.5 million you would have roughly $ 2 million. Discuss investment options with your independent financial planner. Stock Market volatility is normal. There is no such thing as the perfect investment.

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