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3 Keys To Knowing “Are Financial Advisors Worth It?”

Last Updated:  February 29, 2020

Executive Summary

Are financial advisors worth it? Are they worth the fees they charge? That’s a great question and very hard to answer because there are many “types” of financial advisors.

Some “financial advisors” simply try to sell you an investment or insurance product that pays them huge commissions. Other financial advisors actually want to help you get ahead financially and make the most of your money.

Some financial advisors are highly credentialed, skilled, and experienced. They’re constantly sharpening their skills and staying current on economics, taxes, and legislation.

Other financial advisors may barely have passed high school (but they may be amazing at selling you their stuff!)

The truth is the best financial advisors are worth their weight in gold! They can help you squeeze every last dime from your finances, giving you massive money confidence to—and through—retirement. They act as a coach who can guide you through life’s financial maze . . . a trusted partner who can improve your financial and retirement life on many levels.

Other financial advisors care more about making their Lexus payment than helping you succeed financially. They can cause financial harm and destruction which can devastate you and your family for generations!

As you can tell, it’s important to understand what a “real” financial advisor does before making a decision on whether a financial advisor is worth it or not.

So let’s jump right in with the 3 things you should know to decide whether a financial advisor is worth it or not!

1. Why Pay Fees When I Can Be My Own Financial Advisor?

The alternative of hiring a financial advisor is you being your own financial advisor. This has its own set of concerns, upsides, and downsides.

The upside is you save financial advisor fees and commissions (if they’re a fee-based or commission-based financial advisor). This can add tens of thousands—if not hundreds of thousands—of dollars to your financial future! That’s a pretty big upside I’d say!

More money for your retirement! More money for your kids and grandkids! More money for philanthropy and other charitable endeavors!

The downside is you’ve got to do the work yourself. While it may seem super easy on the surface, it really isn’t! You see, real financial advisors focus not just on your investment portfolio. They focus on minimizing your taxes, maximizing your overall retirement planning, protecting your family if you die, and much, much more!

So will you be able to execute your own financial and retirement plan with great success? Because if you can, saving the fees you’d pay a financial advisor is a no-brainer!

But the concern is what if you can’t execute on your financial and retirement plan the same way a professional financial advisor could?

The Financial And Retirement Planning “Blitzkrieg”

Information comes at you with the speed of the internet these days. With the click of a mouse or touch of a finger, you can find just about anything you’d want online through your computer or your phone.

This is very much a double-edged sword! Not everything you see or hear is credible or valuable. This is especially true when it comes to your financial and retirement planning, and the stakes couldn’t be higher!

Listen to the right piece of information and you’re on your way to the retirement of your dreams! Listen to the wrong piece of information and your retirement can be decimated!

So while you can certainly be your own financial advisor, the question is is that the best decision for your financial situation? The follow-up question to that is the same question we started with, “If I’m my own financial advisor am I worth it?”

I may give myself (what I believe is) amazing free financial advice only to find out I’ve got to work another few years before I retire, or I can’t enjoy the retirement travel I dreamed my entire life of. Worse yet, I may make decisions that make going back to work at 70 a necessity!

You may not charge yourself “financial advisor fees,” but in the end, will you cause yourself an unforeseen financial catastrophe? At 75 will you need to drive across town to grab a handout from one of your kids just to pay the rent?

That’s a scary thought I know. The scarier thought is it’s a real possibility! It’s a real possibility that happens every day.

You Need Three Things To Be Your Own Financial Advisor (Successfully)

To be successful and manage your own finances you MUST have these three things:

  • Desire – You must WANT to be your own financial advisor. You need to enjoy money, taxes, estate planning, insurance reviews, mapping out your retirement plan, and a lot more. Desire is something you must have and it’s the easiest thing to have for most people. But there’s more to the story.
  • Time – You need the TIME to learn about taxes, investing, insurance, estate planning, and on and on. You should be well-versed in preparing for the future using various retirement planning software programs and spreadsheets. You need to be regularly monitoring your retirement plan and investment portfolio to make tweaks and adjustments as they’re warranted. All of these things take a lot of time!
  • Knowledge – Finally you need the KNOWLEDGE to know what to do, when to do it, and how to do it. A big part if this is the time to dedicate to learning the nuances of financial and retirement planning. The other part is learning and executing on what you’ve learned. Regardless, you need to know what you’re doing if you want to be successful!

I can’t—or won’t—change the oil in my car . . . it’s just not me! I could Google it, jump into some forum and ask a few questions. But I really don’t have the desire to change my oil.

I don’t have the time to do things I don’t want to do! Well, I do have the time, but my time is better spent doing other things I enjoy or which provide more value to my life!

Time is after all the most valuable commodity any of us will ever have!

I also don’t have the knowledge of cars or how they work. I’d need more time and the desire to learn about cars, and teaching myself how to change the oil correctly.

While I may change the filter, add the right amount of the right kind of oil, and finish the job “successfully”, what if I don’t put the drain plug in properly? What if the car leaks and I blow my motor?

That’s the financial catastrophe I’m referring too! You think you did everything right only to find out you’ve dug yourself a big hole.

It’s no different with you and your financial and retirement planning. You face unmitigated financial devastation if you “forget the drain plug” and mess up! A blown motor is easier and cheaper to replace than a 401k or investment account when you make a bad decision.

2. Some Financial Advisors Are Worth It, Others Not So Much!

Remember, you need THREE THINGS to be successful with your financial and retirement planning. You need the desire, the time, and the knowledge. It’s like a three-legged stool! You lose one leg and you’re falling on your butt!

So you don’t have the desire to be your own financial advisor . . . that’s OK! I don’t have the desire to wash my dogs (mostly I don’t anyway, sometimes it’s fun :). I don’t want to paint my house or do my own taxes either for that matter.

It’s far more fun spending time with my wife and twin boys!

OR you don’t have the time to spend watching your money, planning your taxes, rebalancing your investment portfolio, making sure you’ve got the best interest rates on your savings accounts, or researching the nuances of estate planning.

OR finally, you don’t have the knowledge, education, and skill to manage your own financial plan competently. Maybe you’re a brilliant artist or the best nurse . . . but money “stuff” just isn’t your thing.

Then You Need to Find The Best Financial Advisor

You must NOT lump all “financial advisors” into one category. Financial advisors are vastly different in their competence, skill, education, and execution. You really need to focus on finding the best financial advisor—a financial advisor you can trust—because the answer to this question “Are financial advisors worth it?” will be dynamically different!

If you’ve got the best financial advisor for your situation you’re far more likely to think “Absolutely my financial advisor is worth it!”

If you’ve got some “hack” financial advisor—the kind that hocks a bunch of insurance or investment products—the answer will unequivocally be “No, my financial advisor isn’t worth it!”

Assuming you’ve found the best financial advisor for your situation, then the question becomes “Is the juice worth the squeeze?” I mean you’re asking yourself are financial advisors worth it, after all, so the key word now becomes “worth”. Am I going to get enough value back to make paying for a financial advisor a great decision?

As I mentioned, you must know the fees they charge—or the cost. Once you know what fees you’re paying your financial advisor you can more accurately determine the worth. This becomes a function of the value they provide MINUS the cost, that alone will tell you if a financial advisor if “worth it” or not.

3. Is The Value The Best Financial Advisor Adds Worth More Than The Fees They Charge?

To answer this question you first need to know what your financial advisor fees are. You can’t judge the value a financial advisor brings to the table without understanding the costs first.

I’m not just talking about the percentage they charge. I’m talking about the percentage they charge to manage your money, the commissions they get (which you likely don’t know about), the internal expenses of the investments they recommend, the trading costs for owning those investments, any custodial fees, everything in-between and much more!

There are so many ways financial advisors and their firms charge it will make your head spin! I’ve not found one investor in 25 years know the percentage they’re paying their financial advisor let alone the other embedded fees they don’t know about. You’ll have to do your own homework on that because financial advisor fees vary greatly.

Pro Tip: If you don’t know what you’re paying your financial advisor they’re probably not worth it! The best financial advisors will show their fees in black and white, and it shouldn’t take you more than a few minutes to figure this out!

Let’s assume you’ve got a million-dollar portfolio and you are paying 1% ($10,000) on that portfolio for financial advisory services. This is very reasonable in today’s financial industry, (however, I personally feel retirement planning and investment management fees should be separated.)

What are you getting for that $10,000? Is it worth it?

The bigger problem is the true value-added won’t show up on the investment performance statement! Crazy I know, we’ve been trained by the “Wall Street marketing machine” to chase returns. The guy with the most returns wins!!!

But the truth is value-added shows up in a host of other ways. For example:

  • Your lifetime taxes may be slashed due to tax-loss harvesting, asset LOcation, Roth conversions or other tax planning strategies
  • If you died tomorrow and your spouse and family woke up the next day knowing they were financially OK and the life transition went according to plan
  • You “front-loaded” your retirement with travel and fun knowing the back-end of your retirement plan was rock-solid allowing you to enjoy more and worry less
  • You made Uncle Sam “cry uncle” by squeezing more than 96% of Social Security recipients do from their Social Security retirement benefits
  • You “stayed the course” in a rough market when everything “was different this time” because you had a great financial coach along the way
  • You put into place a housing wealth strategy that would cover your late-in-life long term care expenses
  • And I could go on . . . and on . . . and on!

The value a financial advisor adds won’t always be tangible in dollars and cents. It comes in many forms and is largely unquantifiable, unfortunately.

Is There Any Research On The Worthiness of Using A Financial Advisor?

Blanchett and Kaplan studied the four main information sources (financial planners, transactional financial advisors – brokers/bankers, friends, and the internet) used today by Americans for financial planning purposes. 

In their paper entitled, “Gamma in Action: Financially sound households get advice from financial planners,” they wrote

“Of the financial information we studied, we find that households working with a financial planner made the best overall financial decisions. Meanwhile, those households working with a transactional advisor made the worst financial decisions of the group.”

And what were the authors asking about? 

They inquired about information and advice related to:

  • Portfolio risk appropriateness
  • Savings habits
  • Life insurance
  • Credit card use
  • Emergency savings

These are key areas to anyone’s financial success. 

Different people will have vast degrees of difference in their financial IQ. Therefore, the value that can be added by hiring a financial advisor will also differ. 

If you are unsure on how to optimize every angle of finances discussed in this article, then the potential value-add from a financial advisor could be tremendous and the cost of the advisor would be well worth it.

But, you need to find the right advisor.

Morningstar And Vanguard Did Similar Studies

Morningstar wanted to quantify how much value the best financial advisors can add to a client’s situation. They coined the term “advisor GAMMA” to illustrate the value-added. They determined 5 factors that can add 1.57% to a retirement plan!

Vanguard did a similar study but found 7 factors that have a major impact on financial results for an investor. They determined that a great financial advisor can add up to 3% per year to a retirement plan!

Those are AMAZING RESULTS! And I didn’t make them up! They’re not my numbers or my research. Those are direct from Vanguard and Morningstar.

If you’d like to learn how to add 1.57% to 3% per year to your retirement and financial planning watch my 12 Ways webinar here. You don’t NEED a financial advisor to implement any of the strategies I review, but if you have a great financial advisor they should be able to incorporate those strategies into your planning.

Is A Financial Advisor Worth It? Summary

At the end of the day, a financial advisor may or may not be worth it depending on several factors, such as:

  • Can you be your own financial advisor?
  • Are you working with the best financial advisor for your situation or some “hack?”
  • Is the value your financial advisor adds worth the fees they charge?

Financial planning is without a doubt a complex and difficult beast to tame. If you are not able to accomplish your financial goals, it is 100% fine to seek help. In fact, that’s what smart people do! (they don’t want to leave the drain plug out and blow their motor!)

Just make sure that you find the best financial advisor skilled in the issues that affect you most. They’ll be able to provide you with true value!

If you can find this, there will be no question that a great financial advisor is worth the cost and the solutions they provide will pay for the advisor’s fees many times over!

Frequently Asked Questions

Are financial advisors worth it?

For a financial advisor to be worth the fees they charge you must know if you can 1. Be your own financial advisor which takes desire, time, and knowledge, 2. Understand how to find the best financial advisor for your situation because financial advisors vary greatly, and 3. Understand the value that financial advisor brings to your situation and the costs you incur in hiring that person which will determine if a financial advisor is worth it or not.

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