Financial advisor Alexandra Horwood (BA '10) explains the truth behind financial services and fees
If there's one thing that Alexandra Horwood doesn't like, it's the f-word: fees.
In recent years, financial fees have acquired a negative reputation. Financial influencers, robo-advisors and do-it-yourself trading platforms encourage us to believe that higher fees will always eat into our returns, leaving us with significantly less wealth in the end. But is that really true? If you want to stay with your financial advisor, will the fees keep you from achieving your wealth and retirement goals?
This is why we reached out to Alexandra, a financial advisor with Richardson Wealth. She joins us to break down the truth behind fees. Plus, we talk about meme investing, and how to find the right financial services to build your wealth.
The word "fees" has a very negative connotation. It implies that you're being penalized for something, and Alexandra doesn't believe that it should be associated with services that add value to your financial well-being. She prefers the word "cost" when speaking about services — whether those services come from a restaurant, a lawyer or a financial expert. "Cost" makes it clear that financial advisors, robo-advisors and other financial platforms are simply different service offerings. You can go with a low-cost service and like many other services, that means you have to do some of the work yourself. Or you can go with something that will be more hands-off, at a higher price point. (1:30)
There's no one-size-fits-all in the finance world. For example, if you're someone who enjoys reading analyst reports, keeping up with the market and doing your own financial research, Alexandra confirms that you might want to look after your own investments. However, she cautions that to make informed decisions, you also need to put in the time. Studies show that do-it-yourself investing can take 40-50 hours per year. (3:40) You also need to keep your emotions at bay. To manage your own investments properly, you will need to focus on logical decisions during emotional times — like when the markets crashed in response to the pandemic in February 2020. Can you see through the media headlines and follow Warren Buffett's advice to be "greedy when others are fearful and fearful when others are greedy"?(4:45)
Alexandra knows people who look after their own finances, and who are very good at it. It's possible. But many people are simply too busy to commit enough time and effort to be successful. For those people, financial advisors can be a great source of information and help. Advisors can also offer holistic wealth management that includes investment advice, tax filing, insurance, charitable giving, estate planning and more. In these cases, clients can tap into a team of professionals and experts to grow their wealth and reach their goals. (5:40) It's really up to the client to decide how involved they want to be and which services add value for them. (7:30)
Alexandra believes that the best way to find an advisor is a referral. Make a list of friends and family member who you trust and who have reached financial milestones you aspire to. Ask them if they have a financial advisor who might be a good fit for you. If they say yes, ask for an introduction. Once you've received a few introductions, Alexandra suggests that you book a conversation with all these advisors and treat those meetings like interviews. When choosing an advisor, consider how well their personality fits with yours, whether they actively listened to you, and if they offered a transparent explanation of their services and costs. (8:25)
In the last two years, there's been a lot of talk about investing in meme stocks — when the shares of a company gain a cult-like following or go viral on online platforms. Alexandra considers meme stocks like Gamestop to be more like gambling or a social activity, not investments. (12:36) She compares buying a meme stock to following a group of lemmings off a cliff. It's important to remember that we hear from the winners in these situations, and people don't like to share when they lose. Alexandra believes that investors should think about their market investments as if they were buying a business. If you're going to buy a business, you want to make sure that it has a great product or service offering, good margins and revenue, with a healthy cash flow, etc. (14:10)
The best thing that young investors can do is to stay focused on long-term investing and compounding their wealth. Save your money, pay down your debt, live within your means. (16:25)
