Should I use a financial advisor or do it myself
This article covers what financial advisors do, how they can help you, how much they cost, and situations where you don’t need to hire a financial advisor.
Summary
Financial advisors have the expertise and experience to help with both simple and complex financial situations.
Portfolio returns could be as much as 5% higher than those managed without a financial advisor.
Compensation for professional financial advice comes from fees you pay or commissions paid by sellers of financial products on the back end.
Unbiased offers an easy way to match you with an advisor to suit your needs.
What does a financial advisor do?
A financial advisor helps individuals manage their money and plan for their financial future. More specifically, they can advise on the following:
Tax laws and tax efficiency
Insurance
Investments
Retirement
Estate planning
Mortgages
Fidelity Investments found that using a financial advisor resulted in a portfolio 5% higher than a self-managed portfolio. With a portfolio of $1,000,000, that’s an increase of $50,000.
There are many types of advisors. Some financial advisors specialize in a certain area, such as retirement or taxes.
When you meet with a financial advisor, you’ll discuss your needs, goals, and current finances. An advisor can help you evaluate your options and make recommendations based on your unique situation.
When should you hire a financial advisor?
Most people hire a financial advisor when they’re up against a financial question they don’t know the answer to. Some examples include:
You have a major life event: A financial advisor can help if you’re changing jobs, planning for a child, looking toward retirement, or receiving an inheritance.
Finances are getting complex: You might have a rental property, different investments for partners, have a child with a disability, or need estate planning services. If there’s a situation you’re having trouble managing on your own, a financial advisor could provide some relief.
You want an expert to handle your finances: If you’re not interested in chasing investments and just want it handled for you, you might love handing it over to a pro.
You want a plan: If you want to get on the right track from the get-go, hiring a financial advisor early in your career could help.
You made a mistake: If you made a mistake or want to avoid making mistakes with your finances, a professional can help you stay on track.
Financial advisors have the expertise to guide you through any money situation you’re facing. As your finances get more complex and you have more questions, you may want to reach out to a financial advisor.
When do you not have to hire a financial advisor?
While advice from an expert can be valuable, there are some situations where a financial advisor isn’t as crucial. These include:
You enjoy the research and time it takes to manage every financial aspect of your life.
You can keep up with tax and investment law updates.
Your taxes are simple.
You don’t have an estate.
You don’t have dependents.
You’re a W-2 employee.
Keep in mind, financial advisors have advisors. Even the experts hire advisors who have expertise in areas where they don’t. If you’re feeling confident in one area, but need help in another, there’s a financial advisor that specializes in that area.
How much do financial advisors cost?
How much you pay for your financial advisor depends on how they’re compensated, but you can expect to pay upfront for a fee-only advisor, a percentage of your assets under management, or buy a product that pays the advisor a commission on the back end.
There are several models for how financial advisors are paid.
Fee-only Advisor: Your advisor may charge a flat fee or an hourly rate for services. They do not receive commissions or a percentage of your earnings and typically operate as a registered investment advisor (RIA) because they give investment advice. They follow strict standards and act as fiduciaries to make recommendations that benefit you the most.
According to research by Kitces, advisors charge an average of $250 per hour. A financial plan that takes 10 hours to construct would cost $2,500.
Commission-based: Financial advisors can make money by selling certain insurance policies or investment funds. They’re paid by the companies who provide these financial products. However, it can create a conflict of interest for the advisor, who may feel inclined to recommend an investment that offers a good commission but may not be the best option for you.
Fee-based: Your advisor can earn money from both client fees and commissions.
Assets under management (AUM): Many advisors are paid a percentage of your assets under management (AUM). It’s typical to see a range between .95% and 1.5% for assets up to $500K, with the media rate right at 1%. If you have $1,000,000 with the advisor’s firm at a 1% fee, you’ll be charged $10,000 for the year.
What are the pros and cons of working with a financial advisor?
Whether you decide to continue on your own or if you start working with a financial advisor, there are pros and cons to each side.
Pros of working with a financial advisor
Financial advisors have the education, experience, and expertise to advise you on your finances.
Advisors can help you avoid costly mistakes.
Financial advisors can save you time by reducing the amount of time you need to research investments, insurance, tax law, estate planning, and more.
Preparing a solid plan with a financial advisor can give you peace of mind.
Cons of working with a financial advisor
You need to pay for a financial advisor, and costs can vary widely.
Advisors may have conflicts of interest, such as those who earn commissions or operate under an assets-under-management (AUM) model.
You may feel less involved in your investments and financial planning.
Should I hire a financial advisor?
If you’re still on the fence about whether or not you should hire a financial advisor, try interviewing a few. You may find one you like.
You may also get a better feel for which compensation model you prefer paying for, whether that’s a fee-only advisor, comprehensive assets under management (AUM) advisor or a commission-based advisor. This will affect which financial advisor you want to hire.
Get expert financial advice
If you have a question about your finances that doesn’t have an easy answer, consider connecting with a financial advisor who can help you make tough decisions with confidence.
Unbiased has a network of financial advisors it can connect you with. It starts by answering a few easy questions.
Content Writer
Alene Laney is an award-winning journalist for Unbiased, where she breaks down financial topics related to retirement, investing, and banking. She specializes in helping readers make the best decisions for their money with long-form content for brands and consumer publications.