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Stop Paying a Premium for Terrible Investment Management and Start Paying a Premium for Planning that Delivers Massive Value

Writer's picture: Billy AmbergBilly Amberg

Updated: 2 days ago






Are you ready to take control of your finances and maximize your after-tax income? If so, you're in the right place. I'm Billy Amberg, founder of Bloomwood, and today, we're going to explore a financial case study that affects everyone—whether you're just starting out on your wealth-building journey or you're a seasoned investor with substantial assets.


The 1% Financial Advisor Fee: Is It Worth It?

The financial advisory and wealth management industry invests massive marketing dollars to convince you that paying a 1% portfolio management fee is worthwhile. But is it really? Let’s break it down.


For those with financial advisors who provide significant value through tax planning, estate planning, and comprehensive financial strategies, paying 1% can be justified. If you have a complex trust or unique investment needs, that fee might also make sense.


However, if your advisor is merely managing your portfolio, responding to your questions reactively, and failing to offer proactive financial planning, then you are overpaying. Many advisors hold periodic meetings about investments, but that alone doesn’t justify the 1% fee.


Why Paying 1% for Just Investment Management Is Too Much


To understand why paying 1% for basic investment management isn’t worth it, we must first explore key investment principles. One of the best ways to structure your investments is by using the Three Buckets Approach:


  1. Cash Reserve Bucket: This is your safety net, typically covering 6 to 12 months of living expenses in case of an emergency. It also provides liquidity for investment opportunities, such as purchasing real estate.

  2. Fixed Income Bucket: If you need stable income to support your lifestyle, especially in retirement, this bucket consists of low-risk investments like bonds, ensuring steady cash flow.

  3. Long-Term Growth Bucket: Everything else belongs here. This is where equities and growth-focused investments come into play, aligning with long-term wealth accumulation.


Understanding Risk Tolerance and Why It Matters Less Than You Think


Many investors are familiar with risk tolerance questionnaires used by financial advisors or platforms like Vanguard. While these assessments provide insight into your comfort level with risk, they are not the ultimate determinant of investment strategy.


For example, a young professional with limited financial resources who fears market volatility might lean toward ultra-conservative investments. However, avoiding equity exposure could mean they never accumulate enough wealth to retire. An advisor’s role should be to educate and coach clients through investment realities rather than just accommodating risk aversion.


Why Beating the Market Is Nearly Impossible


Many financial advisors attempt to justify their fees by claiming they can outperform the market. However, history shows that even professional fund managers struggle to consistently beat benchmark indices like the S&P 500.


Consider this:


  • The NASDAQ (Technology Index) has significantly outperformed the S&P 500 in recent years.


  • The S&P 500 itself remains a difficult benchmark to beat even for top-tier investment professionals.


  • The only funds consistently outperforming the market are quantitative hedge funds like D.E. Shaw, Citadel, and Two Sigma—which charge exorbitant fees and require massive investment minimums.


If professional fund managers can't consistently beat the market, how can an individual financial advisor do so? The answer is simple: they can’t.


The True Cost of Active Management vs. Index Funds


Rather than paying a financial advisor 1% to actively manage investments, many investors can achieve better results with low-cost index funds. Vanguard, for instance, offers index funds with fees as low as 0.05% per year. Additionally, for just 0.30%, you can get a Certified Financial Planner (CFP) through Vanguard, which is more than a third cheaper than the typical advisor fee.


How to Determine If Your Advisor Provides Real Value


Before you continue paying a 1% management fee, ask yourself:


  • Is my advisor providing value beyond just investment management?

  • Am I receiving proactive tax planning, estate planning, and financial strategy sessions?

  • Can my advisor point to tangible financial benefits I’ve received beyond portfolio returns?


If your advisor’s only contribution is managing your portfolio, you are likely paying for underperformance. Paying 1% for an actively managed fund that fails to beat the market is counterproductive when low-cost index funds offer superior long-term results.


The Bottom Line: Are You Getting a Fair Deal?


If you're paying 1% for asset management, it should come with significant added value, including tax planning, estate planning, and personalized financial strategy. At Bloomwood, we focus on delivering real, tangible benefits beyond just managing investments.


If you want to learn more about investing and getting massive value through financial planning, check out our other content:







Disclosures


Bloomwood does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.


We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.


For additional information about Bloomwood, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.


The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.  


The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.   


All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.


Bloomwood is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Bloomwood and its representatives are properly licensed or exempt from licensure. 730 Starlight Lane, Atlanta, GA 30342.


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