Money Coach vs. Financial Advisor: What’s The Difference?

Money Coach vs. Financial Advisor: What’s The Difference?

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Picture this. You want to start taking your money seriously and don’t know where to start so you decide to hire someone to help. In this situation you have two options; hire a money coach or hire a financial advisor. I suppose you could ask that distant, eccentric uncle who stashes their money under the mattress as well but we’ll ignore that option for now. Of those two, which one is right for you and what’s the difference? Let’s dive in.

What is a money coach?

A money coach is an individual who helps other people or families make financial decisions. A money coach needs to identify their customer’s wants and needs for the future, understand where they stand financially right now, and help build a successful financial plan they can put into action in the future. It requires no license, so people that do hire money coaches hire them because of their expertise. Money coaches are paid on a retainer basis as you’ll see later on in this article.

What is a financial advisor?

A financial advisor is somewhat similar to a money coach but their main focus is on building an investment portfolio for their client. Financial advisors are licensed which means they can tell you what specific items to invest in. This is different from a money coach because they can line out your options but can’t make recommendations. An advisor’s job is to manage that portfolio for the life of it and they usually get paid based on a percentage of how much money they are managing for you.

In simple terms, a money coach is focused on helping individuals develop the basic skills of managing their money, educate their client and answer any questions they may have. An advisor keeps an eye on how their money is invested and ensures they are building wealth.

Should You Hire A Money Coach Or Financial Advisor?

For the majority of people, they want to skip the basics of understanding their finances and jump right to the part where they can retire. As you know, this isn’t how the world works. If you have been around YD&NB for a while now, you know that I believe that most people are smart enough to set up their investments on their own (the main focus of a financial advisor).

The issue is that there is still a gap that needs to be filled. You wouldn’t jump into the deep end without learning how to swim first. That gap, learning the basics, is something that I think a money coach can fill.

Coaches Are Cheap, Advisors Are Not

I told you in the introduction that coaches work on a retainer fee. What this means is that you pay them before your meeting and that’s it. The actual price is going to depend on who you are talking to and their experience, but don’t be surprised to see a price tag of a couple of hundred dollars.

On the other hand, financial advisors work on a fee basis. This fee is usually expressed as a percentage and will again differ depending on the advisor. Some charge an upfront annual fee of 1% of all assets under management while others may do .5% upfront and then 10% of any gains your portfolio makes. The price you pay differs with each advisor. If you have a financial advisor that can’t tell you exactly how much you pay in fees per year and what those fees go to exactly, then you are being taken advantage of.

This is one of my main issues with financial advisors.

To illustrate this, let’s put some math behind it. Let’s say you hire a coach and use him three times and each call or meeting cost you $200. That means you paid $600 in total. Pretty simple right?

Now let’s say you use an advisor that charges a 1% upfront fee annually. If your account started at $10,000 then you’d pay $100 in the first year ($10,000*.01). Not so bad, right? But what happens when you keep using that advisor for 20, 30, 40 years? Remember, you are paying that 1% fee every single year.

Well if your investment account never grew (which won’t happen. It will start to grow due to compounding interest) then in 20 years you would have paid over $2,000 in fees ( $100*20). What if your retirement account grew to be $100,000? That means that you would be paying $1,000 just to be using that advisor each year.

For some, this may be worth it but for most, it isn’t.

Advisors Have Expertise, Coaches May Not

Advisors are licensed which means they have taken a series of tests that ensure they have specific knowledge about the products they are recommending to their clients. Overall, this is obviously a great thing because you don’t want someone who has no idea what they are doing helping you manage your assets.

On the other hand coaches, especially good coaches, have experience. Are there money coaches who have no idea what they are doing? Absolutely. There are people in every industry that probably shouldn’t be there.

Money coaches who have been around for a while have two important characteristics that you want in a money coach. The first is they have experience. They have seen many different finance scenarios so most likely, your situation won’t be unique and they will know how to advise you. The second is that they must provide obvious value to their clients if they are still being hired.

If they were a bad money coach or financial advisor for that matter, they wouldn’t be around because they wouldn’t have any customers!

Who Has Your Best Intentions In Mind?

I don’t have a personal vendetta against financial advisors. But I do have a deep, intense dislike for financial advisors that take advantage of people and are not transparent with how their clients investing is going and the fees they are paying. I have seen it over and over again and every time the customer has no clue it is even happening.

If you currently use a financial advisor, you need to run this experiment today. Call or email them and ask them to tell you exactly how much you paid in fees last year, how fees are paid out, and what your return was on your investments. It’s a simple ask of them and should be no problem. Yet most of the time, advisors dance around these questions.

When I wrote about if you need a financial advisor if you are under 25 I included this graphic:

These are the three most common ways a financial advisor is paid; fee-only, fee-based, and commission-based. What most advisors won’t tell you is that they earn commission from selling you a specific product. Even if that product isn’t the right answer for you. You see this happen all too often in the form of life insurance.

On the other hand, a money coach most likely won’t have these incentives to push a certain product on you. I say most likely because there is always a way for people to make money, especially in the world of affiliate marketing.

For instance, I always recommend people use Tiller Money to help manage their money and when someone does sign up using my link, I get a small kickback. The difference is that I actually use and enjoy the product. It’s how I manage my money and I’m not doing it because I’m earning hundreds by telling you to use it.

What I would suggest, is you go into everything with an open mind and ask as many questions as possible before using any coach or advisor. You need to make sure that person has your best interest in mind and isn’t just trying to stuff their wallet.

Young, Dumb, and NOT Broke?! Money Coaching

Did you know that Young, Dumb, and NOT Broke?! offers money coaching? Well if you didn’t, you do now. We’ve helped people do simple things like navigating their bank’s website and exporting data to more complex things like explaining how their 401k’s are invested.

This article’s main purpose was to educate you on the difference between a money coach and a financial advisor but I would be doing a disservice by not mentioning that we do offer money coaching as a service.

If you are interested, keep reading as I answer the most common questions we get about our one-on-one money coaching.

1) Why hire a money coach instead of just consuming free content?

The internet is full of amazing free content. On the YD&NB YouTube channel and website alone there are over 200 different topics covered. If there is this much free content, then why should you pay someone to coach you?

As I’ve said dozens of times on this site, your plan with your finances needs to be personalized because we are all different. Being able to speak to a physical person, walk them through your situation and ask specific questions is going to bring you so much more value than hours of YouTube videos.

That’s just the honest truth.

2) How much does YD&NB money coaching cost?

A one-hour consultation costs $150. Does this seem expensive? Upfront it probably does, and I realize that. I would encourage you to think of this as an investment in yourself and the future. In that one hour, I guarantee we will find some opportunities and action items that you can change that day. Immediately getting your money’s worth.

After that, we will talk about the future and what you can do to plan accordingly.

Remember, you can always reach out to us via the Contact Us tab if you ever have questions about money. Money coaching takes this to the next level. Giving you direct access to ask anything and everything you want in our allotted time.

3) Why Use YD&NB As A Money Coach?

I have been around this industry for 10 years now (it’s scary typing that). What started out as a simple fascination in trading stocks, quickly turned into a passion for understanding money. I realized that money and managing it was one of the main stressors in people’s lives and I want to help relieve that stress.

I often get the comment that I’m too young but I think this is a huge advantage. We as a society have access to the most complex technology this world has ever seen and this technology has made it easier than ever to better manage your finances. I understand how to automate every step of your finances so you can sit back, relax, and be ensured that you are building wealth.

The Bottom Line

If you feel like you are spinning your wheels when it comes to money, then something needs to change. What I would suggest is to reach out to someone (????‍♂️) and start asking questions.

No one is going to hold your hand through life, especially when it comes to your finances so you need to take control. Ask your parents, friends, or mentors what they do or who helps them. You’ll be surprised how many people use some form of a money coach or financial advisor.

Lastly, reflect on what the potential cost could be of inaction. In the long-run, is paying a coach a few hundred dollars now truly going to be detrimental to your finances or does it have the potential to improve your situation in a drastic way?

Do what you want with this information, you’re in charge. I just hope that you consider your options and prioritize your long term goals with those decisions.

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