How to Hire a Financial Planner (or Not)

A plant growing out of a coin jar to symbolize the growth of money

Millions rely on financial professionals to do their investing for them but not everyone knows how to hire a financial planner the right way — or when to say no to one.

On the surface, the rationale for hiring a financial planner or advisor seems valid. People feel intimidated by the whole investing thing. It seems like a jungle out there and, to boot, most people know someone who lost it all with bad investments. Others believe they just don't have enough time to learn about investing or to maintain their investments on an ongoing basis.

It's so common, we don't even recognize it as a mindset: Instead of changing our own car's oil, cleaning our pools or windows, mowing our lawns, doing our own taxes or our own nails, we get someone else to do it, someone who specializes in that particular endeavor. We tell ourselves we don't like doing that thing and, besides, they do a better job, so why not get an expert to do it? After all, we can afford it.

So what are the reasons for saying that hiring a financial advisor might be a mistake?

Related >> Questions to Ask Any Financial Advisor

1. Competing interests

Like it or not, investing will be your ultimate career. Whether you are an engineer, administrative assistant or plumber, there will come a day when you no longer make the majority of your money from that career, i.e., your labor. When that day comes, you'll derive most of your income from your investments, i.e., your capital.

Many times people hire others to do services like mow the lawn, fix a car, or do their nails. And it may make sense to outsource these services if you aren't particularly good at them or you don't have much time to devote to them.

But the fact that it makes sense to hire people for those activities does not necessarily mean it makes sense to hire someone for your very income … because that is what you do when you hire a financial advisor. And the fact is that an advisor may have very different goals for your money than you do.

2. Exorbitant expense

In a service economy, everyone performing a service gets paid for that service. You pay the person doing your nails, your taxes, or your lawn, etc. You also have to pay your financial advisor (whether it be out in the open or in the form of hidden commissions or kickbacks).

Related >> Your Retirement Account Survival Guide

 

When you consider that, on average, your investments will earn around 8 percent per year, if you are lucky, and an advisor takes 2 percent (or something close to that) off the top, that is huge!

That is a steep price to pay someone for something you can easily do yourself.

And you can.

3. It's not that hard

Investing is not rocket science. The financial management industry spends billions every year in advertising and other forms of marketing, all geared to create the illusion that this investing business is a vicious dragon, shrouded in mystery, just waiting to pounce on you if you just dare to venture within a mile.

Nonsense.

I've already written about my neighbors:

  • Jim, making an average income, started out hiring an advisor, whom he fired after only a few years because Jim said he can figure out a few simple investments to see him through. They did.
  • Mario, my other neighbor, has a small neighborhood auto shop. He is good with people and working with his hands. He doesn't want to pay someone to invest in stuff he doesn't understand, so he and his wife are building up a portfolio of homes they rent out.
  • I have another old friend from California who became a millionaire with both real estate and individual stocks. I once asked him if he would consider hiring a paid professional. He wasn't scornful or anything; but he said there is nobody out there who cares as much about his portfolio as he, so why pay someone to do something he can learn to do himself?

Investing is neither hard, nor all that time-consuming. In my opinion, it certainly is a lot easier than changing my car's oil. Why pay someone to do what you can do yourself — especially when that cost constitutes a significant chunk of your income?

Investing can be as simple as buying two or three index funds. Boom, you're done. Why pay someone to do that for you?

Their argument might be that they can bring their professional expertise to bear and make you more money. Here is not an opinion, but a fact: The vast majority of money managers fail to beat an S&P 500 index fund. Again, that is a fact, not an opinion.

That fact leads to the question: Why pay someone to do worse than I can do by investing in the market? And doing that is easy: Simply buy two or three index funds and you are set to beat 70 to 80 of the paid professionals out there … for but a fraction of the cost.

4. Increased risk

All those stories about people losing their money in scams and bad investments? The vast majority of those scams involve financial advisors. You might argue your advisor is different; he is trustworthy. Their clients believed that about each and every one of the scammers. Just saying.

You might think adding a professional advisor in your personal finance equation will reduce your risk, but the truth may very well be the opposite. Actually, you are adding one more layer of things that can go wrong. The less you know about investing, the more vulnerable you are to incompetence at best, or fraud at worst.

Your best defense is simply doing simple, cautious investing yourself.

5. Personality conflicts

When you buy a house, do you call up a real estate agent and tell her what you want, then tell her to call you when she has bought the house and you can move in?

No, of course not. You want to see all the houses which meet your criteria, and you want to be the one making the final decision.

It's the same with a job: You want to meet your boss and see the place before you resign your current position to take that new one. You won't simply take someone else's word that that new job will be the perfect one for you (especially if that person takes 20 to 30 percent of your paycheck each and every month until you die).

Like a house or job, your investments should reflect your tastes and skills. If you are a handyman or a good people person (like Mario), then building a portfolio of rental properties might make more sense for you. On the other hand, if you're an introvert like Jim, you may feel more comfortable investing in marketable securities which you can research. Any normal person is much less intimidated and much more involved in things toward which they feel a natural affinity. Financial advisors also gravitate to the things they know and the things they make money from, like annuities.

Investing, like I said, is not rocket science, just like finding a job or buying a house isn't rocket science. Furthermore, just like a job and a house, investing is a vital part of your future. Just like a smart person takes ownership of their own home or their own career, they will take ownership of their investing as well … which is, after all, their final career.

Lifetime cost/benefit analysis

Many things in life boil down to a cost/benefit analysis. I paid Mario $140 today to change our Jeep's sway bar links (so I can continue to drive on all those rough roads I love to explore). I also paid Jaime $350 last week to remove a 20-year old red maple tree which fell victim to old age and bugs. There is no way I could have done either. The benefit of what they did for me outweighed the cost by a handsome margin. And those were one-time expenditures.

Investing, however, is not nearly that difficult. Why give away a big chunk of my income every month for buying two or three index funds?

As stated above, this is nothing more than an opinion. Respectfully, what do you think?

Do you agree with this reasoning? If you outsource your investment decisions, are you interested to take a bigger role in your future income? If you make your own investment decisions, what advice would you give others to help them be successful?

More about...Investing, Retirement

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Sebastion
Sebastion
4 years ago

I agree completely!! I think that it has been a concerted effort by the financial services industry to confuse and intimidate the small investors and 401K/403B account holders into just handing them the reins and stepping back. The 2007/2008 implosion is the most recent and glaring example of how letting others manage your retirement is a bad idea. You can guarantee that the managers and advisors pulled their money first and then ‘got around to’ notifying their clients that there might be a problem and they should do something. I waited a bit longer than I should have but I… Read more »

Beth
Beth
4 years ago

Actually, the earth isn’t round. But I digress. This article is timely for me because I’m thinking of enlisting a financial planner and am weighing the pros and cons. However, I don’t find these arguments particularly compelling. “Simply buy two or three index funds and you are set to beat 70 to 80 of the paid professionals out there”. Fantastic. And how do I know which of the two or three index funds to buy out of the hundreds of choices? I already know to get out mutual funds and look at index funds and ETFs — but what do… Read more »

Angela
Angela
4 years ago
Reply to  Beth

What if, instead of hiring a financial adviser to manage your investments, you meet with a fee-based adviser to provide some advice on choosing index funds and what mix you would like to achieve. That way you’re getting the advice you would like by paying an upfront cost instead of paying ongoing costs in perpetuity.

Beth
Beth
4 years ago
Reply to  Angela

Thanks for your response! This sounds like a good solution. The idea of turning my finances over to someone I barely know is NOT going to happen. On the other hand, I’ve had a self-directed investment account for over a year and haven’t done anything with it because I’ve been too bogged down in the research and too indecisive.

Guess whose new year’s goal is to change all that? 😉

uclalien
uclalien
4 years ago
Reply to  Beth

It may seem counter-intuitive, but the more you research, the worse your investments may do. “Why?” you ask. It tends lead to being more active with your investment portfolio, which increases the likelihood of making a mistake. Follow Jeannine’s advice below and you will beat the vast majority of professional fund managers and financial advisors. The part you should focus on is your asset allocation, which is primarily a function of you age and risk tolerance. If you are fairly risk adverse, the percentage of your portfolio invested in Vanguard’s Total Bond Market Index Fund should be roughly equal to… Read more »

Sam
Sam
4 years ago
Reply to  Beth

I’m replying to Beth, because she’s actively considering hiring an advisor. However, this response is aimed more broadly at the article as a whole. I am a financial planner, and I was honestly surprised to find that Mr. Cowie’s opinion was actually “financial advisors are never worth it.” I feel a little obliged to defend my profession here, so I will offer a few comments of my own. First, comparing all financial advisors to hedge fund managers is really a misclassification. Hedge funds are financial products, in the same way that mutual funds and ETFs are products. A hedge fund… Read more »

Ross Williams
Ross Williams
4 years ago
Reply to  Sam

“not everyone has the emotional resources to watch their portfolio drop by 30% in a market downturn without doing anything.” Which an advisor can’t really fix. The easiest way to avoid that financial roller coaster is to realize that when you are buying, market crashes are a good thing. They are an opportunity to buy low. The only time a crash matters is if you are selling. Financial advisors just exacerbate the problem by focusing people on their portfolio’s current value when that is pretty much meaningless for someone who is not going to start selling for another 20 years.… Read more »

Beth
Beth
4 years ago
Reply to  Sam

Thank you for taking the time to respond to my comment! I appreciate hearing another point of view.

I haven’t decided what to do yet, but have asked some friends and colleagues for recommendations for potential advisors. There are a lot of things I don’t need an advisor for, so that’s helping me eliminate candidates.

Ross Williams
Ross Williams
4 years ago
Reply to  Beth

“we can learn to use tools in a way that minimizes our risk as much as possible.” I think the point was that financial advisers are not that kind of tool. The process of using one brings increased risk. One risk is that they will fail to provide good advice. Another risk is that they will have conflicts of interest. Another risk is that their fees will cost more than any value gained from their advice. And, in fact, there is a lot of evidence that those risks are more likely to materialize than not. By contrast, buying index funds… Read more »

Beth
Beth
4 years ago
Reply to  Ross Williams

I read an interesting post today that commented that if you’re look for an advisor just to help you pick a few index funds then you’re a fool. (Gulp). The main argument of the article was that financial advisors are so much more than that — but those were services I don’t need (like getting out of debt, setting a budget, etc.)

I just want my investments to work harder. (Doesn’t everyone?)

Jeannine
Jeannine
4 years ago
Reply to  Beth

I would suggest Vanguard for your purchase of index funds – Total Stock Market Index, Total Bond Market Index, and Total International Stock Market Index. These three would give you a well diversified, low cost, and simple portfolio. Another suggestion for a retirement account would be one of the Vanguard Target Date Retirement Funds. I would also second an earlier comment regarding visiting and reading the Bogleheads.org website where you can learn much about doing it yourself and indexing. The people who post on that site are very generous with their time and expertise as it relates to investing, managing… Read more »

My Factoring Network
My Factoring Network
4 years ago

Just blindly handling your finances to somebody might be a bad idea for your finance either personal or business finance. There are n number of advisers in USA who can provide this service. The main thing is to know the basics of finance. Many of us might not have time to go through the basics and gain knowledge to handle our finance but practice makes a man perfect. Little knowledge of yours and the tricks by financial advisers together can act well for your money.

Ross Williams
Ross Williams
4 years ago

Choosing an a portfolio of index funds is way easier and more certain than choosing an investment adviser. So the basic message here is correct. Where you go off track is with this, “If you are a handyman or a good people person (like Mario), then building a portfolio of rental properties might make more sense for you.” A “portfolio of rental properties” is not an investment, its a business. You recognize this when you talk about Mario’s qualifications for the job as a handyman and people person. There is nothing wrong with using your money to start a business,… Read more »

Emily @ JohnJaneDoe
Emily @ JohnJaneDoe
4 years ago

Hiring an advisor to me does not mean outsourcing my decisions. I work with an advisor, but he gives suggestions and I take or don’t take them based on my own research. Some of his suggestions are good and things I never would have thought of myself. Some of them are not. What I do like: He made sure that my inherited IRA got rolled over correctly and that I take the distributions for them on time; he keeps me abreast of muni bond opportunities (which can be hard to sort through unless you want to go with funds); he… Read more »

Kalie @ Pretend to Be Poor
Kalie @ Pretend to Be Poor
4 years ago

Great points to consider. We have never hired a financial adviser for these reasons. I prefer to do my own research and maintain more control, and avoid paying fees. I’m sure adviser’s have their place, and our finances aren’t that complicated at this point, but I also prefer to “DIY” as much as I can.

Joaquin
Joaquin
4 years ago

I think a financial planner like a good mechanic are worthwhile but also not for everyone. As you mentioned everything is an investment of capital (time, money, labor, etc…) many of us have the money but not the time or the inclination to spend out time researching investments. My wife loves excel and does a fantastic job of running our household budget but the only thing that loses her interest faster than car parts is researching financial investments. For this kind of person they can in vest their capital doing things that generate money and the investment advisor (a good… Read more »

Beth
Beth
4 years ago
Reply to  Joaquin

I could go for that approach!

JaM
JaM
4 years ago

Good points here.

I think some people may get intimidated thinking investing involves math calculations and financial equations. There might be others that do not want to take responsibility in case there was a bad decision – can point fingers even if you got fleeced.

For those interested in learning easy basics to advanced topics and need advice from people that have done it themselves please check out the Bogleheads forums. Forum threads cover portfolio allocation, review of your portfolio if you need, insurance questions, inheritance, almost anything you may want to find from an Investment professional. Link:

https://bogleheads.org/forum/index.php

Craig
Craig
4 years ago

I have given a lot of financial advise to friends/family over the years and I have never advised someone to see a financial adviser. The primary reasons for this are as follows: 1. Many the people who come to me for financial advise are older individuals with little or no income/savings. They are not so much is a position to invest and their horizon is too short to make it worth their effort. 2. They have other, more pressing issues that they really need to get a hold of first. Unnecessary bills, no written budget, expensive debt and no sense… Read more »

Steve
Steve
4 years ago

A few years ago, on the advise of a trusted friend, I contacted her financial advisor who promptly charged me over $3,000 to go over our financial life. He did a very thorough check on our real estate investments and mutual funds and made some interesting points for us to consider. Although we had told him we wanted to stay with Vanguard, he went all out to sell us on his company and did an extensive presentation on the merits of doing that. We told him we had to think about it and never contacted him again. I always felt… Read more »

Joanna
Joanna
4 years ago

I agree with all your points – it’s tempting to fall into the financial adviser narrative – especially once you reach the 7 figure net worth. Being that I started investing in my 20’s and have kept control of it all over the years – it would be silly for me to hand over my money to someone and let them siphon it off a bit at a time. I invest in Vanguard funds – because they are the lowest cost, just a few indexes to convince myself that I am diversified. But don’t take my word for it –… Read more »

Linda Gross
Linda Gross
4 years ago

I would check with your credit union. Our financial advisor is free, however, if you buy any of their products you will have to pay some. It doesn’t hurt to’ check it out. Check with Charles Schwab. Something that would be nice to do is to buy a mutual fund and put 50 dollars a month in it or more if you can. Then when you die pass it down to your kids with the advise to live off dividends and never sell the stock or mutual fund. It is a passed down legacy from my Dad to me,my Daughter… Read more »

Think Positive
Think Positive
4 years ago

Hiring a financial advisor may not be for everyone. Neither is putting all your money in index or bond funds sound advice for all. I have a background in the financial industry and advocate financial planning services. I was never a financial rep, but did hold my Series 7, 9/10, 24, and 66 licenses required to fulfill my compliance responsibilities. I started in the Flash Crash of 2010, and stayed through the Dow surge (over 18,000). I’m no longer on the investment side. For those who are fee-conscious, you may be surprised what transaction/annual fees you are paying to discount… Read more »

uclalien
uclalien
4 years ago
Reply to  Think Positive

I don’t disagree with your basic premise…that it is more efficient and cost-effective to outsource certain activities. But I do want to comment on a couple of your statements. “There are products out there that charge as little as 1% a year on your total assets despite performance.” “Despite performance” is a key part of this statement. FAs get paid even if you lose money. Granted, it isn’t the best approach for maintaining one’s client base. And in my opinion, 1% is still too high. The average expense ratio for the funds I hold is less than 0.1%. If a… Read more »

John
John
4 years ago

Understanding efficient investing principals requires a minimal amount of reading of great books like “Four Pillars”, for example. The savings over the long term is tremendous!

If necessary, hire – at an hourly rate – a fiduciary CFP to review your plans.

John Kane
John Kane
4 years ago

I agree with your 5 points.

I just can’t seem to stomach handing my money over to someone else. I will always prefer to do it on my own, even if I have to make mistakes and learn on the way.

Amy B
Amy B
4 years ago

This article is upsetting. One of the most disappointing reads recently. It is all about scaring people. Just like with any profession, priests, teachers, policemen, etc, there are people that fail miserably at their job or intentionally abuse others. That is not to say that all do or even the majority. The truth is the same for “money professionals”. Also, fees are more transparent than ever. For years people have thought there were no fees or charges associated with 401k investments… Wrong. But again transparency is very common in 2015. Look and you will find. Plus there should be some… Read more »

Think Positive
Think Positive
4 years ago
Reply to  Amy B

It’s easy to lambast financial service reps in hindsight of the crash. People need an enemy. That’s why this article garnered so many ‘clicks’ and comments.

In spite of the crash, financial service careers continue to grow because more people are saving for their future in the wake of diminishing pensions.

Think Positive
Think Positive
4 years ago
Reply to  Amy B

I forgot to say I agree with your comments, Amy B.

Ross Williams
Ross Williams
4 years ago
Reply to  Amy B

” Fair compensation is due.” I think you missed the point. The compensation you are “due” is based on the value of your services. The point was that a financial advisor’s services are not very valuable. They are as likely to lose you money as they are to make you money. Of course most financial advisers are not crooks. Neither are most car salesman. But they are a business and they need to be compensated. That money has to come out of your pocket somehow. You wouldn’t trust the car salesman to get you the best deal on your car… Read more »

Katelyn
Katelyn
4 years ago
Reply to  Amy B

“Many advisors in 2015 charge a fee not a commission therefore the client and advisor share the same interest. If the account value increases then that’s good for both. If the account declines neither are happy. Win win. Lose lose. No hidden agenda or interest.” This statement doesn’t make sense Amy. Once the fee is charged, the financial advisor has nothing more to win by increasing the account value. Commission-based services have a bad rap, but that’s actually a sure fire way to make sure your advisor is constantly fighting for you to make the most money from your investments.… Read more »

Ross Williams
Ross Williams
4 years ago
Reply to  Katelyn

Just to be clear, commissions are based on the amount in the portfolio, not on the returns on that investment. There is some skin in the game for the advisor on a commission, but not much. Their commission goes up if your savings go up, whether that money is new savings or returns.

I suspect that no matter how they are compensated, relationships are the cornerstone of a financial adviser’s success. That is why they define your “risk tolerance” as determined by your emotional state rather than your financial situation.

Walter Hackett
Walter Hackett
4 years ago
Reply to  Amy B

I completely disagree. Unlike doctors, attorneys or CPAs, there are no meaningful, uniform licensing requirements for “financial advisers” or their ilk. The fact they may owe you a fiduciary duty means nothing, Madoff owed his clients a fiduciary duty, attorneys who steal from their clients breach their fiduciary duties. If you have no way to insure yourself against the theft of your funds the answer IS simple, manage them yourself. Worst case a lot of regulated AND insured entities DO offer real protection against embezzlement and without that you may as well play craps in Vegas.

Danielle
Danielle
4 years ago
Reply to  Walter Hackett

Madoff was a broker, and therefore not a fiduciary–he was legally obligated to recommend appropriate investments, but not fiduciary (act in best interest of the client). This article is making no distinction between commission motivated so-called advisors, or the bogus fee-based (commission plus charge you a fee) and fee-ONLY advisors, who are paid by the hour or by a percentage of assets managed, depending on their business model. And there IS at least a base-line standard–the CFP designation, which requires passing a rigorous 10 hour exam (and half flunk) and maintaining yearly continuing education. I’ve known several CPAs and attorneys… Read more »

Ross Williams
Ross Williams
4 years ago
Reply to  Danielle

Maddoff was a crook. It didn’t matter whether he had “fiduciary responsibility” or not. Again, the key to understanding this issue is that however your investment adviser is compensated, they are unlikely to pay for themselves. You are going to end up with less money and increased risk.

financialbuff
financialbuff
4 years ago
Reply to  Amy B

I think the real issue here is three fold 1. Not all advisers are fiduciaries (aka required by law to put the clients interests ahead of their own or their company), 2. Does your adviser recommend index funds versus actively managed funds? If a portion or all of their money is from commission as opposed to upfront hourly fee’s then they likely advise clients to have actively managed funds which typically have worse returns over the long haul than index funds. Why are the returns less than low cost index funds?: in a nut shell its because fee’s and taxes… Read more »

Karthigan Srinivasan @ StretchADime
Karthigan Srinivasan @ StretchADime
4 years ago

I am a DIY investor and have been pretty good at it over the past 10 years. Investing is my passion and I really love it. I know a few CFP / CFA folks that I trust and I chat with them every once in a while to get their opinion. My conversations with them have been very fruitful. Here is the key take away – you are the captain of your investments – whether you do it yourself or hire a financial adviser. The adviser is there to advice and you are the one to call the shots. Yes,… Read more »

Danielle
Danielle
4 years ago

I agree that a person can DIY their investments, and I see a lot of people by-the-hour who plan to do just that. However, I also see them the next year, and a significant proportion have either not implemented, implemented only part of the investment recommendations. or got tired or scared. A good asset allocation plan has a lot of interlocking parts, and if you don’t carry out the whole plan you paid for (or didn’t understand why you should)you’ve thrown at least some of your money away. No roboadvisor is going to be able to help you implement, or… Read more »

Ross Williams
Ross Williams
4 years ago
Reply to  Danielle

How is a lot of people wasting money on advice they don’t use is an argument in favor of spending money on more advice. They would have been better off spending the time setting up a Vanguard account and creating a mix. Of course a financial adviser is going to have a hard time staying in business just setting people up with a Vanguard account and showing them how to use it to manage their own investments. They NEED it to be more complicated than that.

Sam
Sam
4 years ago
Reply to  Ross Williams

Ross, you’re missing the point. Many of your responses have been along the lines of “it’s easy so everyone should do it.” What Danielle and I are trying to say is that even though it may be “simple” conceptually, most people _don’t actually follow through_. It’s easy to pick an asset allocation. Is it easy to rebalance diligently for the next 20 years? Is it easy to buy on the way down? Is it easy not to chase recent winners? Behavioral finance research (and our experience) says again and again: NO! I applaud your ability to do those things, but… Read more »

Karthigan Srinivasan @ StretchADime
Karthigan Srinivasan @ StretchADime
4 years ago
Reply to  Danielle

I have been a 100% DIY for the past 10 years and have been pretty good at it. Betterment is part of my portfolio and it has performed very well at an extremely low cost. I have a 5 year history with Betterment and have been very pleased with their customer service. Like I said, I have a lot of CFA / CFP friends and I respect them a lot. I consult them when I have a question and they are more than glad to share their thoughts / advice. My main point is this: At the end of the… Read more »

RAnn
RAnn
4 years ago

I hired a financial adviser because I wanted someone to take an overall look at our finances; tell us if we were on-track for retirement and advise how to set up our finances to take care of our handicapped son. We were in mutual funds that were the latest and greatest 20 years ago and I knew it was time to replace them. I had inherited a good chunk of money wanted to make good choices with it. I was out of the loop about investments. What I got was a portfolio of mutual funds (and to the adviser and… Read more »

Perez
Perez
4 years ago

Although we had told him we wanted to stay with Vanguard, he went all out to sell us on his company and did an extensive presentation on the merits of doing that. We told him we had to think about it and never contacted him again. I always felt that the money we paid him for his initial analysis was probably a savings in the long run.

dollar lover
dollar lover
4 years ago

For me, the main reason to let someone else invest for me is to take off the responsibility from myself. It’s much better to let someone else lose your dollars… You feel less guilty

Alex
Alex
4 years ago

I don’t prefer to do my own research. We have hired a financial adviser for these reasons. .

Simon
Simon
4 years ago

Dear oh dear. You need to get out more. Your profile of a typical financial advisor is no longer the only option. Google : fee-only, CFP and fiduciary advisors, read some Michael Kitces. Stop living in Mad Men world.

Ross Williams
Ross Williams
4 years ago
Reply to  Simon

Your typical financial advisor was never the only option but it is still typical. To avoid that “typical” advisor you need to do a lot of research. And even then, you need to evaluate the actual value of the advice compared to the cost. If you are a typical investor, your money should be in low cost index funds. Paying an advisor to tell you that just an added expense that reduces your return. Remember the “miracle of compounding” means that paying a $100 fee to an investment advisor now will cost you $1600 in retirement savings at an 8%… Read more »

Danielle
Danielle
4 years ago
Reply to  Ross Williams

You need to do SOME research but not A LOT of research to find a fee-ONLY advisor. Not as much research as you are going to do if you decide to manage your own investments. Just got to Garrett Planning Network or NAPFA.org and you’ll find links to a lot of fee-only advisors (full disclosure, I’m a member of both). The 2% you quote is outrageous, and I don’t know any asset manager who charges over 1%, and that is generally for smaller accounts (where the most work is). But investment advice is only a small part of what a… Read more »

Ross Williams
Ross Williams
4 years ago
Reply to  Danielle

“The 2% you quote is outrageous, and I don’t know any asset manager who charges over 1%, and that is generally for smaller accounts (where the most work is).” 2% is the average for fees, some people pay more, including the fees charged by managed mutual funds and 401(k) plans. So it is probably not fair to ascribe all of that cost to having an adviser. The reality is that all those terrible investments were likely sold by someone pitching their “advice”. In short, you can spend a lot of time and money trying to avoid bad advice or you… Read more »

Ross Williams
Ross Williams
4 years ago

One thing not mentioned here is how much you have to invest. If you only have $10,000 to invest, even if you are only paying a financial adviser a flat $100 fee once a year for an annual review, that is still costing you 1% of your returns. And there are still all the other management fees associated with individual mutual funds on top of that.

Jeannine
Jeannine
4 years ago

I thought this was a great article. I couldn’t agree more that it isn’t that hard, but when one really has no idea where to start it is a bit like moving through the weeds – so many companies, so many choices to pick through, so much “noise” out there. I would suggest a follow-up article with some actual suggestions for those two or three index funds mentioned as “all you need”. More specific direction on doing it yourself would be helpful for those just getting started with doing it yourself. Myself, I strongly recommend Vanguard Mutual Funds.

MT
MT
4 years ago

Nice post. However I think the main problem is confusing investment management for financial planning which are completely different entities. I think most people would benefit from a fee for service (so no conflict of interest) financial planner to look at the big picture such as making sure maxing out retirement plans, 529 plans, having term life insurance, disability insurance and putting assets in a trust for example. The article is totally right on as no need for professional investment management for most people. People who panic and always sell at the bottom and buy at the top for example… Read more »

Easypeasy
Easypeasy
4 years ago
Reply to  MT

Like the author pointed out, it’s not rocket science. Financial management is based on three components: a financial plan; asset allocation & location; and tax advice/management. Once you have the basics in place: asset allocation & location and you rebalance annually, financial plans should be purchased on an ‘as needed basis’ by fee only advisers. Never allow a financial adviser who provides the financial plan to also manage your assets. Always have those components separated. Once you get comfortable in your abilities, manage your own assets. The best investment you can make is educating yourself on personal financial. There’s a… Read more »

cc
cc
4 years ago

I fired my financial advisers years ago. To wit: 1995: Put $20k into a hybrid mutual-bond account with a F/Adv I grew up with as a friend. 1997: It’s worth $34k. Better than owning a mint, say I. Dump another $20k into it. 1999: Get married, pre-nup everything (turned out to be a good idea). Account is worth ~ $63k and growing fast. This is at the time my main retirement vehicle. 2001: Sept 11 WTC falls, 2 airplanes in terror attacks. Adviser friend fails to contact me with advice to move my money sideways into a money market. 2002:… Read more »

Ross Williams
Ross Williams
4 years ago
Reply to  cc

I think people should manage their own money. But I think your advisor was right. Unless you were ready to sell permanently, there was no reason for you to move your money “sideways”. To the contrary, that just makes it more likely that you would have missed out when the price of stocks recovered. He should have called you to suggest “now is a good time to buy.”

cc
cc
4 years ago
Reply to  Ross Williams

The adviser was silent and that is the sin. They eat (very well) off of you and the least they can do is to look at the market, trends and other relevant information and then CALL you when a crisis arises.

Why pay an adviser that doesn’t advise after the sale?

Sure, sooner or later the dogs that lost “come back.” But will I live to see that?

The adviser was worthless and that is why I fired him.

Ross Williams
Ross Williams
4 years ago
Reply to  cc

The “dogs” weren’t permanently lost, they were lost only if you closed the door to them returning by selling. The mistake people make is thinking that the current market for stock determines their long term value. The market is priced on short term expectations, not what the stock will be worth in 10 or 20 years when you are ready to sell.

JS
JS
4 years ago

There are many facets to this and it’s hard to make a blanket statement about financial advisers. Several things to consider that are just my two cents: * You need to know how your adviser is paid. A fee-only adviser will not have that inherent conflict of interest of a commission-paid one. That’s not to say that commission-paid is bad, but you need to know how much they are getting and ensure it’s worth the services you are getting in return. * Below a certain asset level, you probably don’t need an ongoing adviser. Paying for a one-shot financial plan… Read more »

Empire Of Business
Empire Of Business
4 years ago

While I agree that some of the following reasons are valid. It is important to see what services your adviser offers. Some advisers are paired up in teams where they are experts at tax, investments, insurance and estate planning. If you can find someone you trust in the areas you feel less competent in its not a bad idea.

In addition, if you are dealing with advisers they should only work with someone who has a CFP designation.

Financial Samurai
Financial Samurai
4 years ago

I think it’s OK to hire a RIA who has a fiduciary duty to help you with your finances.

I do some personal finance consulting myself on a fee only basis to help people resolve their money problems and questions. A lot of times, people just need a sounding board.

S

Kev @ HappyLater.com
Kev @ HappyLater.com
4 years ago

Dear Cowie, I have to give credit where its due cause your article reasons for not hiring a financial adviser is well thought out, well explained and easy to understand. You do seem to have some valid reasons why not hire a financial adviser some I totally agree with, some I don’t. I have always thought it a good idea to seek advice from people are more competent in a certain area of investment or even finance management to avoid any avoidable mistakes. In my own case I will only work with a financial advisor if I completely trust them.keep… Read more »

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