Blog · Financial Planning
Do Young Lawyers Need Financial Planning?
L.J. Jones, CPA & CFP® · October 29, 2021
Young lawyers don't think they need financial planning because they don't have enough money or assets to need financial advice. While money and assets used to be a prerequisite for financial advice, that is no longer the case. Financial advice is more than managing money, it's about making better financial decisions. Lawyers know not to represent themselves in court, yet many believe they can represent themselves with their personal finances.
"I don't have enough money to need financial advice" is the most common phrase I hear from young lawyers who do not work with a financial advisor.
Two Broadridge studies found that 31% of millennials have or are already working with a financial advisor, and of those who do not, 44% of all investors and 65% of millennial investors say they are likely to begin working with an advisor within two years. The Census Bureau reports the average income for a professional between the ages of 25-44 is around $80,000. If you are a young lawyer making over $80,000 without a financial advisor, you likely have the money for financial advice from a professional.
Vanguard believes working with a financial advisor may add 3% in returns to clients; Russell believes it may add up to 4.83%. Figuring out personal finance on your own is like a non-lawyer representing themselves in court — lacking both subject matter expertise and objectivity, which likely results in less than ideal outcomes.
Expertise matters
Technical knowledge is the bare minimum. A valuable differentiator is a financial planner who specializes in working with people just like you — if you're a young law professional, work with a financial planner whose firm offers financial planning for young lawyers.
Notable designations: The CFA is the global designation for investment analysts and portfolio management, requiring an education requirement and three exams averaging 300 hours of study each. The CFP signals comprehensive financial planning ability and a fiduciary standard, requiring an education requirement, 2-3 years of work experience, and an exam averaging 200-250 hours of study. The CPA is a state-issued license requiring an education requirement, work experience, and passing all four CPA exams, averaging 300-400 hours of studying.
What does a financial planner do?
A financial planner collects and organizes all of your financial information, learns what's important to you, and creates a plan given your current financial status to achieve the things you truly want in your life — while helping you adapt as life inevitably changes. Solutions include analyzing how to save, spend, and invest; identifying goals; deciding on employer benefits; determining insurance needs; tax planning; and student loan and partnership planning.
Should a lawyer manage their finances?
To obtain comparable financial knowledge to a personal finance professional, a lawyer would possibly need to go back to school and study to pass numerous exams. Almost any high-performing lawyer does not have the time or interest to do this. You know it's a bad idea for someone without legal experience to represent themselves in court — the same logic applies to handling your finances without professional guidance.
Financial advice can make a huge difference over your lifetime
Over 30 years, earning 3% more a year would result in a 110%-143% larger portfolio due to compounding growth. An annual additional 4.4% return would result in a 195%-264% larger portfolio. Be aware that Vanguard and Russell Investments both have an inherent conflict of interest in publishing these figures, but the consensus that working with a financial advisor improves your chances of financial success still holds.
When does a lawyer need to seek out financial advice?
As soon as possible. It used to be hard for young lawyers to find advisors who would work with them until they had a certain level of assets, but the growing prominence of fee-only financial planners has changed that. Two 25-year-old lawyers both invest $10,000 growing at 8% annually, but one waits 5 years to start. At age 55, the lawyer who invested for all 30 years will have roughly 47% more money. Making smart financial decisions as early as possible makes a huge difference in your life.
The best time to start making better financial decisions was yesterday. The second best time is today. So just get started!
Have questions of your own?
I’m not taking new ongoing clients right now, but I’m still glad to offer a free 30-minute Meet & Confer — to answer your questions, add you to the waitlist, or point you toward another advisor.