This content is provided for general informational purposes only, and is not intended to constitute investment advice or any other kind of professional advice. Before taking action based on such information, we encourage you to consult with appropriate professionals. We do not endorse any third parties referenced within the aforementioned article. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. In addition, past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.
It depends – expert financial advice can accelerate your success, but it’s not guaranteed and the fees get steep.
What's Playbook? We're your friendly guide to paying less in taxes (legally!) and putting your money in the right places automatically. Money stuff can feel hard, but we’re here to help along the way.
Independently managing your finances takes extreme concentration, strict attention to detail, and a healthy dose of luck. This might be why two-thirds of Americans acknowledge that they need to step up their financial planning game. However, only 37% work with financial advisors, even though professional advisors are Americans’ most trusted sources for financial advice.
So, are financial advisors really worth it? They are if they help you save more money than they charge. If you’re spending $1,500 annually on financial advice that helps you save an additional $2,500 for your retirement, then they’re likely worth it.
We’ll dig deeper to explore the pros and cons of working with an advisor and comparing it to robo advisors and individually managing your finances.
Financial advisors are professionals licensed to offer expert guidance and assistance in managing various aspects of your personal finances. Their primary role is to help individuals, families, and businesses make informed decisions to achieve their financial goals.
In a nutshell, a financial advisor is your trusted financial partner, providing personalized advice tailored to your unique financial situation. Naturally, their services are not free. Not having one may simply come down to individual budgets or personal preferences.
There are a few different types of financial advisors, but their services often include:
Not all financial advisors deal with all of the above, so you’ll want to research what a particular advisor offers in terms of services before you decide to hire them.
Typically, there are a few ways that financial advisors make their money, including:
No matter how they earn a living, financial advisors usually have the same goal: making your money earn you even more money.
Many financial advisors won’t work with you if you have less than $100,000 to invest, so that could determine whether an advisor is worth it for you right off the bat.
Similarly, financial advisors typically charge fees between 0.25% to 1% of all your assets under management each year. (that is, 1% of your total invested assets), but they might charge higher fees for the extra labor involved with managing smaller investment accounts.
Financial advisors come with benefits and drawbacks, and there are many other opportunities to help you reach your financial goals without shelling out for professional advice.
Advisors can help you hit the fast track toward your goals and leave financial woes in the rearview mirror.
The biggest disadvantages of using a financial advisor are how one can cut into your investment earnings.
Robo-advisors are like financial advisors that inform your investment decisions with algorithms.
These apps and services typically have lower fees than standard financial advisors since there’s less (or no) human involvement with your finances. Many will charge a percentage fee that adds up to less than you’d pay a human advisor, such as 0.5% of your total invested assets.
Robo-advisors can make investing easier, but they don’t typically support a holistic financial plan. There are financial planning apps that begin with an airtight plan and then automatically invest in a similar manner. Some of these services even offer flat fees rather than a variable AUM fee, which keep your costs fixed as money grows.
So, you’ve got that entrepreneurial spirit, and you’re thinking, “I can totally do this on my own!” DIY investing means you’re calling the shots: It’s you, your computer, and a world of investment options at your fingertips.
Going DIY with your investments can:
However, the drawbacks of a DIY approach are real. Investing is a time-consuming and risky business that takes significant research and strategic analysis. And let’s face it – most of us aren’t finance gurus. Without expert guidance, you might miss out on savvy opportunities or worse. Plus, following the ups and downs of the market can feel like an emotional roller coaster.
On the other hand, financial advisors answer your questions with their know-how and act as an emotional buffer between you and your money, preventing you from making rash decisions.
DIY investing isn’t a great option unless you’re a studious pupil of Wall Street. Even then, it might pay to have additional expertise in your corner to help you make the right moves. That’s what makes automated investing services so valuable – most people don’t have the time or base knowledge to dig into investment theory and watch markets day-in and day-out.
Financial advisors can be a great asset to anyone looking to grow their investment portfolio, retire earlier, or worry less about their money. However, financial advisors aren't cheap and their expertise and quality varies. Do your research to find the right type of advisor for you and consider low-cost alternatives like robo-advisors for your financial planning.