financial advisor

Maybe You Don’t Need a Financial Advisor

We’re all on the search for the path to financial independence. All of us would like to have a great investment portfolio and the peace of mind that comes with knowing we’ll be all set come retirement time. That’s why so many people turn to financial advisors for help. In fact, financial advisors are in such high demand right now that it’s one of the fastest growing careers in the country and there’s actually a shortage of advisors.

But is it really necessary to hire a financial advisor? Do you really need to hire someone to give you advice on what to do with your money? The answer might be no. The fact is that most people don’t really need a financial advisor, and most of the things that you’d be paying a financial advisor to do for you are things that you could do yourself.

So, before you rush out and spend money hiring a professional financial advisor, consider some of the reasons you might not want to do that:
Financial Advisors are Expensive

Let’s get this one out of the way right off the top. Does it really make sense to pay someone a lot of money to help you manage your money? More importantly, does it make sense to pay a financial advisor so they can drive around in their fancy Lexus and live in their huge home that you’re helping to pay for? Of course not. The fact is that as Eric Savitz of Forbes tells us, “The simple math is that an advisor must outperform the market by 1% a year, year after year, just for me to break even after her fees are taken out. Given that low-cost index funds managed by computers beat the most well-compensated money managers on Wall Street 9 times out of 10, I have little confidence that my advisor down the street can do any better, much less beat the market by more than her fees.” In other words, advisors aren’t worth the fees they charge.

It’s simple mathematics. Typically, financial advisors charge about a 1% fee on your account. So, if you have them managing $100,000 of yours, they’ll charge you $1,000 a year for doing so. Here’s the rub: That $1 million client of theirs is making them $10,000 a year. Whose account do you think is going to get more attention? Your account won’t be a priority. That’s the simple fact of the matter. And if the advisor has too many other accounts, you’ll get even less attention. It’s better to arm yourself with the resources you need and manage your account on your own, since no one else will care about your money as much as you do.

Here’s the dirty little secret that financial planners don’t want you to know: you can do just about everything yourself without their help. It’s true. There are so many tools and resources out there that can help you with budgeting, investing, retirement planning, and managing your portfolio, that hiring a financial advisor just isn’t necessary or cost-effective. Look into getting a good financial planning program, like Quicken Personal Finance, to help you get your financial situation in check. It will put you in total control of your finances, and it’s much more affordable than paying an ongoing fee to your financial advisor.

Okay, so maybe you’re the type of person who wants expert help. Maybe you don’t have a lot of financial knowledge, and maybe you’re just not interested in learning about investing. That’s fine, but that still doesn’t mean that you need to hire a financial advisor on a long-term basis. Instead of paying an ongoing fee to a financial planner, instead consider just hiring them for a few hours. You can invest a few hours into a financial advisor for an annual (or even less often) portfolio checkup. This way, you get the expert advice you need, but you still maintain control over your portfolio and you’re paying much less.

Truth be told, not everyone needs a financial advisor. That’s not to say that advisors are bad. They aren’t. Many financial advisors provide great services. However, hiring a financial advisor just isn’t necessary for most people. You can achieve financial freedom on your own with the right resources and knowledge.

One Reply to “Maybe You Don’t Need a Financial Advisor”

  1. Jackson H

    I would contend that anyone who is above even a modest income level really should have a financial advisor. Unless, of course, you yourself are a financial advisor.

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