The Pros and Cons of Hiring a Financial Advisor: Is it Worth it? (2024)

FAQs

The Pros and Cons of Hiring a Financial Advisor: Is it Worth it? ›

If you have less than $50,000 of liquid assets, then you may also want to consider going at it on your own, as the fees might not be worth it. With that said, financial advisors can bring a wealth of information and experience to the table that can make a huge difference in your potential return.

A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.

Potential negatives of working with a Financial Advisor include costs/fees, quality, and potential abandonment. This can easily be a positive as much as it can be a negative. The key is to make sure you get what your pay for.

Limited availability: Financial advisors may not be available at all times, which can be a problem if you need urgent advice or assistance. Risk of scams: unfortunately, there is a risk of financial scams in the industry, and it's important to be aware of this risk when working with a financial advisor.

By getting to know you, your family, and your feelings about investing and your future, an advisor can better plan for your specific needs and help you adjust, amend, or extend your plan to keep it relevant as your circ*mstances change.

But, if you're already working with an advisor, the simplest way to determine whether a 1% fee is reasonable may be to look at what they've helped you accomplish. For example, if they've consistently helped you to earn a 12% return in your portfolio for five years running, then 1% may be a bargain.

Most of my research has shown people saying about 1% is normal. Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.

They don't get caught in analysis paralysis and are good about making decisions for themselves. If you have a handle on your financial life, feel confident in navigating the material available to you, and enjoy doing it yourself, there is no point in hiring a financial advisor. You already have it well under control!

Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.

Significant loss threats include advisor death or disability, key person loss, an unexpected disaster (natural or otherwise), lawsuits, and failure to plan for business succession.

What financial advisors don't want you to know? ›

Lack of perceived need. Many consumers share the perception that they simply don't need a financial planner. They may receive financial advice from a family member or friend; in some cases, they feel they've already achieved their goals and thus don't require advice.

Many, but not all, registered investment advisors use an independent firm as their custodian. This means they don't take actual possession of your money. The investment manager may have the discretion to buy or sell securities and in what quantity for your account, but the custodian holds the assets.

Life events. Graduating college, getting married, expanding your family and starting a business are some major life events that might cause you to reevaluate your financial situation. A financial advisor can help you manage these life events while making sure you get or stay on track.

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

If, however, you have some money you want to invest, maybe you run a business, or you come into an inheritance, a financial advisor is a good idea to help you navigate financial decisions. Their time might seem expensive, but consider the time you would need to spend to learn as much as they know.

Estimates on the return on investment from having a financial advisor vary. In a 2019 whitepaper, Vanguard assessed an “Advisor's Alpha,” or the value that a financial advisor adds to a client's portfolio, to be about a 3% net return per year, depending on a client's circ*mstances and investments.

What Percentage of Financial Advisors are Successful? 80-90% of financial advisors fail and close their firm within the first three years of business. This means only 10-20% of financial advisors are ultimately successful.

Whether you should consider working with more than one advisor can depend on your overall goals and financial situation. If you're fairly new to investing and you haven't built up a sizable net worth yet, for instance then one advisor may be sufficient to meet your needs.

Key Points. Less than 10% of active large-cap fund managers have outperformed the S&P 500 over the last 15 years. The biggest drag on investment returns is unavoidable, but you can minimize it if you're smart. Here's what to look for when choosing a simple investment that can beat the Wall Street pros.