Costs and benefits
If something has some value
It will have a price

The conversation around “price” in financial services generally focuses on fees. Finding articles criticizing financial professionals for charging fees is about as easy as falling out of bed.

But “cost” can take many forms, and a fee for advice or asset management is only way that costs may manifest.

Other forms of cost can be restrictions on liquidity, or the looming specter of penalties. CDs are generally free but will penalize you if you remove your money before the CD matures. Savings accounts are free and more liquid than CDs. But even “high yield” savings accounts are paying less than 1% interest as of this writing and many have a minimum balance requirement.

Similarly, Series I Savings Bonds, arguably the best investment in America right now, will dock you three months interest if you redeem them within five years of purchase. Additionally, the bonds have a one year minimum holding period before you are allowed to redeem them, and a $10,000 purchase limit.

Another way costs can creep up on you is in the form of taxes.

A person I met with recently, let’s call her Susan, had done an excellent job as a do-it-yourself investor over many years. She had read about Roth Conversions and in 2020 decided to convert $100,000 of her IRA into her Roth IRA.

What Susan didn’t know was that by doing so, she would bump herself into a new tax bracket, by many thousands of dollars. Furthermore, she exposed herself to Net Investment Income Tax, IRMAA Surcharges on her Medicare Premiums, Additional Medicare Tax, and also had to pay state taxes on nearly $70,000 of the conversion.

The worst part was that Roth Conversions are permanent. You can’t undo them once they are done. She was stuck with a much bigger bill than she expected.

None of the taxes that Susan paid are necessarily a bad thing.

It might simply be more important for Susan to get as much money as she wants into her Roth IRA, no matter what. If that’s the most important thing to her, and she knows the costs, then why not charge ahead and just pay the taxes?

The problem was that she didn’t know the costs. And those costs did not, as it turned out, align with her values about what she wants to do with her money.

In the end, the problem is rarely how much something costs, it’s whether or not the cost is worth the benefit the person is getting for that cost.

Paying for financial advice isn’t for everyone, in the way that owning a Tesla Model X isn’t for everyone. It’s neither good nor bad. It’s simply helpful, appropriate, or valuable for a given person, or not.

Understand what you’re paying for the instruments in your portfolio, the taxes those instruments are incurring, and the restrictions and penalties those instruments may carry.

Pay with open eyes for any advice you receive along the way and decide whether or not all of the costs are worth it to you. Only you know the answer to that question.