You know you should start investing your money – that savings account is actually losing you money when you factor in inflation! But, where should you start? You may not feel confident investing your own money, which is why many are steered towards financial advisors.
But this brings up a hotly debated topic in the finance world – is a financial advisor worth it? This is something many people have a strong opinion on one way or the other. And depending on who you ask, you’ll get a different answer. That’s why, we’re going to instead pose a different question – when is a financial advisor worth it? Because the fact of the matter is, this isn’t a one size fits all answer.
Say you don’t have the time or financial literacy to invest your money confidently on your own. Sure, you’ll have to spend a good chunk of change hiring a financial advisor to handle your investments. But if you can cover their costs with your returns, it could be worth hiring a personal financial advisor. There’s something to be said about enjoying peace of mind, too!
On the other hand, though, most financial advisors fall short in terms of the value they deliver. You may not actually end up with any confidence or peace of mind depending on the specific financial advisor you hire. In fact, you can do exactly what they do on your own – essentially for free.
As you can see, this is a pretty convoluted topic – but we’re going to simplify it for you over the course of this article. We’ll start by covering what financial advisors are and what they do. Then, we’ll explain the costs associated with financial advisors as we begin diving into the main topic at hand today: when is a financial advisor worth it? We’ll wrap things up by making the case for doing it yourself, and pointing you in the right direction. It’s time to take control of your personal finance goals – and it’s easier than you think. Let’s not waste any more time!
What Is A Financial Advisor?
First things first, what is a financial advisor? This is a specialist who advises their clients on how they should invest their money. This can be as simple as investing in stocks or providing life insurance policy suggestions. They can even help you with tax planning.
There are a few different types of advisors – some work under an agency while others are independent. There isn’t nearly as much work that goes into becoming an advisor as you may think. You simply must pass one or more exams to become licensed. This is a problem that those who oppose advisors point to – if anyone can become a financial advisor, why not handle your finances yourself? More on that later.
These days, financial advisors are becoming broader and broader to encompass all that personal finance entails. It’s no longer just about earning you a return in the stock market. With that said, let’s take a look at what exactly financial advisors do.
What Exactly Does A Financial Advisor Do?
As we just mentioned, a financial advisor helps you navigate all things personal finance. This can be stock market investing, retirement planning, tax planning, estate planning – you name it. As such, the specific roles and responsibilities they take on depend on the goal. Today, we’ll talk primarily from an investment standpoint.
You may be under the impression that a financial advisor works hard to find good opportunities in the stock market for you. And while financial advisors of the past certainly spent their days uncovering stocks, monitoring positions, and making plays, things are a bit different these days. While stockbrokers – a different class of financial professionals – execute trades for you, a financial advisor simply provides guidance and makes informed decisions on behalf of their clients. But how much guidance do they really provide? When’s the last time you heard of a financial advisor calling up their clients’ and advising them to move their investments to cash? How many are proactively adjusting their client’s investment allocation prior to a shift in the market? It seems those types of advisors are few and far between.
Now, financial advisors mainly invest your capital into mutual funds, ETFs, government bonds, etc. While you may find some financial advisors that still invest in individual stocks, this is far less common. And as you can probably imagine, this is another point those who oppose advisors make. Choosing a financial product to put your money in is actually pretty straightforward these days – and is something you can probably do yourself. Why pay outlandish fees to have someone do it for you? We’ll come back to this point later on. First, let’s talk about fiduciary duty.
Fiduciary Duty – What It Means For You
You would think that all financial advisors have their clients’ best interests at heart. After all, they’re obligated to do what’s best for you and your financial goals – right? Well, not necessarily. This is where fiduciary duty comes up.
While RIAs (Registered Investment Advisors) are held to a fiduciary standard (meaning advisors must always unconditionally put the client before themselves), this is becoming rare in practice. Many large financial institutions claim to act as fiduciaries, but their compensation structures suggest otherwise. Speaking of which, let’s take a look at the various costs associated with hiring an advisor for yourself.
The Various Ways You’ll Pay A Financial Advisor
You know financial advisors are going to cost you something – but how do you go about paying them exactly? This isn’t set in stone, as different companies have different payment structures. There are many intricate differences from company to company, so we’re just going to cover the most basic ways you’ll pay your advisor:
- Hourly Rate
- Commissions Only
- Quarterly/Annual Retainer
- Percentage of Assets Under Management (AUM)
- Combination of Commissions & Other Fees (like hourly/retainer)
Because rates are ever-changing in accordance with the market and each company has its own unique costs, it isn’t easy to pinpoint what you can expect to pay. However, there are a few estimations we can provide. Generally, when paying a company using the percentage of AUM model, you can expect to pay at least 1%. So if you want to invest $100K, you’ll pay $1,000 a year. Note that when you begin to accumulate more wealth, their compensation increases relative to your investments, but has their value increased? Let’s say you are near retirement and have a $2 million account. That would imply they earn $20,000 a year. Has the value they provide increased by 20x? On the other hand, hourly rates can be as much as $100/hour – and more experienced advisors charge anywhere from 2-5x this amount.
When Is A Financial Advisor Worth It?
Now that you have a better understanding of the costs associated with a financial advisor, it’s time to get into the main topic at hand – when is a financial advisor worth it? And frankly, we fall on the side of the debate that favors doing it yourself. From what we’ve seen over past decades, the returns you will get may not even cover your advisory fees. The plans that financial advisors come up with these days are far too cookie-cutter. Nine times out of ten all financial advisors will suggest spreading your funds across 4-5 different funds and dollar cost average. Do you really need to pay someone to automate investment contributions? You aren’t really getting your money’s worth unless you find a diamond in the rough in your advisor.
Nevertheless, there are instances in which a financial advisor may be worth it. Say you’re making a solid income and are seeing your savings account stack up. You know that you should let your money work a bit harder for you and you want to invest it – but you’re far too busy building your own business to take on another responsibility. If you can find a trustworthy financial advisor with a track record of success, it may be worth it to let them handle your finances so you can focus on what matters most in the present: scaling your business and working to solidify the cash flow you see.
With that said, the only time we really recommend going with a financial advisor is when you cannot afford a few hours of your time every week managing your finances. And depending on the strategy you take for yourself, it may only be a few hours a month! Who doesn’t have a few hours a month to spare when it comes to their financial future? That’s right – nobody. If this is something that’s important to you, you’ll make time for it.
The Alternative To Working With A Personal Financial Advisor – Do It Yourself!
It’s really tempting to let someone handle this burden for you. Out of sight, out of mind, right? Well, ask yourself this: are you comfortable trusting someone else with your future? If you’re like us, you want to have control over your financial situation – and even companies that claim to act as fiduciaries for you may fall short. As you can now see, you really don’t need a financial advisor. The only way you’ll achieve real peace of mind in your financial future is by taking the reins yourself. And as we’ve said throughout this article, you can do everything your advisor is doing for you – with just a few resources and tools along the way.
You Can Do Everything A Financial Advisor Does – With The Right Resources!
These days, financial advisors aren’t doing anything you can’t do yourself. As we mentioned earlier, they typically invest in mutual funds that align with your financial goals. Why can’t you just do a bit of research and put your money in those funds yourself, saving the 1% fee (or more)?
Plus, by taking control of your own financial well-being, you can get creative with your investment strategy. If you have an extra hour in the morning before work, you can learn swing trading and start bringing in some supplemental income on the side. Or, you can dabble in stock options. The point is, you won’t just be placed into a cookie-cutter program that the advisor puts all their clients into.
Start By Figuring Out Your Financial Goals
The first step to taking control of your finances is determining what your goals are. Do you just want to set yourself up for retirement? You can start investing early for retirement by learning the principles of long-term investing. Do you want to earn some supplemental income to help pay bills – or perhaps replace your full-time income one day? Swing trading strategies can help you earn anywhere from 10-20% gains on your capital per period. Your specific goals will dictate the steps you take in the next section – seeking out resources to begin your journey to financial freedom.
Learn, Learn, Learn!
We said earlier that anyone can do what a financial advisor does. And it’s true. You just need to take the time to learn. There are a plethora of free resources out there that can help you get started depending on what your goal is. But the best way to go about it is to invest in a course.
You typically get what you pay for, and the information you’ll gain from free resources will be a great introduction – but it will be rather surface-level. To really gain the skills and confidence necessary to start investing your own money, you need to go all-in on a certain topic or strategy. A course will go in-depth and typically, show you the secrets you won’t gain for free. VectorVest University has a plethora of resources that will prove invaluable along your journey.
Put Your Investing Strategy To The Test
Whether you’re getting started with value investing or growth investing, swing trading or investing long term, or really any strategy, you’ll eventually need to transition from the learning stage to the implementation stage. Taking that initial leap can be scary – but that’s why we encourage you to get started with a small account. This will eliminate some of that worry and help you keep any losses you take small while first starting out.
Or, you can get started with paper trading. This allows you to practice your investment strategy with fake money. Eventually, though, you’ll have to trust yourself and the process you’ve developed. If you follow our advice from the previous step and invest your money in a quality course, you’ll hit the ground running with a high level of confidence.
Use Tools That Set You Up For Success
When you’re ready to get started investing your own capital, you will likely use a lot of technical and fundamental analysis to uncover opportunities. But, even the best technical indicators fall short sometimes. They can be difficult to analyze and form decisions around. And these days, if you’re not using a stock forecasting software as part of your investment strategy, you’re behind the curve.
VectorVest – one such software – helps you invest in confidence. No guessing games, no uncertainty. We provide you a clear buy, sell, or hold recommendation for any given asset. And because we simplify all technical indicators into three simple, easy-to-understand metrics (value, safety, and timing), you can just pick stocks with the highest rating and execute trades with a high degree of success. Finding opportunities is easy with our pre-built searches – you can find stocks or assets that align with your unique goals, no matter what they happen to be. If you want to see it in action, get a free stock analysis here – or, try the software risk-free for 30 days.
The software costs as little as $20 for a mobile subscription – compare that to the thousands of dollars you’ll spend on an advisor annually! Once your mindset shifts and you realize that it is in fact possible to control your finances on your own, you’ll realize that financial advisors are actually not worth it in the long run.
So, Is A Financial Advisor Worth It For You?
So, when is a financial advisor worth it?
At this point, we’ve provided you with everything you need to know to determine whether or not a financial advisor is worth it for you. If you legitimately cannot justify the few hours a week (or less, depending on your goals) that it takes to manage your own financial future, you may be better off with an advisor in your corner.
However, for most people, a financial advisor is not worth it. The value they provide doesn’t align with their fees. When paying someone that kind of money, we expect more out of them than they provide – and we assume you’re the same way. We’ve outlined the steps to getting started so you can control your future and enjoy peace of mind every step of the way. So, it’s time to make a decision – and that’s something only you can do for yourself. Best of luck!