Do You Really Need A Financial Advisor?

For a lot of people investing can be an overwhelming and daunting task. Should I invest in stocks? Bonds? Mutual funds? Puts? Calls? Should I just invest my entire net worth in Greek debt?!

Financial Advisors can help you sort through the confusion and guide you in your investment choices. However for most people, I just don’t see the value in hiring a financial advisor. Here’s why:

  • Financial Advisors are salespeople first. – When I was in college, I majored in finance because I wanted to become an advisor and help people manage their money. However, once I graduated and started interviewing for positions I learned the truth. The companies that financial advisors work for don’t want someone who knows all about finance and investing. They want someone who can sell ice to an Eskimo. Oh yeah, they want someone who knows a lot of rich people too. Every company I interviewed for asked me to list out just about everyone I knew along with an estimate of their salary and net worth. When my girlfriend got laid off from her pharmaceutical sales job she had financial planning companies knocking down her door with the thought she had a large network of doctors she could now bring to them.
  • Financial advisor’s aren’t miracle workers. – Having one manage your money isn’t going to guarantee you market crushing returns that will transform your savings into a Warren Buffett-esque fortune. Find the right asset allocation for your risk tolerance and a diversified portfolio of index funds will perform as well as anything a professional will put you in.
  • Your interests aren’t the top priority. – There are good advisors and there are bad advisors. The bad ones will try to put you in funds with their company’s name all over it & will have you making all sorts of different moves while they sit back and collect commission on each one. Good advisors do have your best interests in mind, but you’re still just one of many clients that they have.If you have fewer than a few hundred thousand dollars to invest, it will be extremely hard to stay on your advisors radar. If you’re younger or have less money to invest it’s even more likely that you’re better off managing your own portfolio.
  • Financial Advisors are expensive. – With online brokers like TD Ameritrade or Schwab you’ll pay $10 or less for every trade you make. Even the cheapest financial planners won’t come close to that. This means they’ll have to perform that much better just to overcome the higher fees they charge.

If you’re the type of person that generally has control over your budget and finances and has an interest in keeping up with investments my advice would be to manage your own money.

If you have a large amount of money (think $250,000+) or you’re really just not comfortable with the do it yourself approach. It’s important to find a good advisor that you can trust. Here are some tips:

  • Make sure to find a “fee only” advisor – As you can probably guess, fee only advisors work only for a set fee. It could be hourly, per session or just a percentage of assets under management. Fee only advisors are preferable because all your expenses are known upfront. They aren’t working for a commission so they won’t be motivated to talk you into making unnecessary trades. You can search for a fee only financial advisor at
  • Look at their certifications – Ideally you want an advisor with the CFP (certified financial planner) or CFA (Chartered financial analyst) certifications. Achieving one of these designations takes education, experience and the passing of a series of some very difficult exams. One of these designations isn’t an end all be all for finding good advisors, but it’s not a bad place to start.
  • Conduct an interview – The first time you meet with an advisor, think of it like a job interview. Except this time around, you are the one doing the hiring. I’m not saying ask them generic question like “if you were a color what color would you be?” But ask probing, thoughtful questions that will give insight into their character and approach to managing money.

There is no one right answer to the question of “Do I need a financial advisor”. You have to assess your own abilities and willingness to manage investments without making rash emotional decisions. Whether you decide to manage your own money or hire an advisor, what is most important is that you make saving and investing a priority and follow the plan that best suits your needs.


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14 Responses to Do You Really Need A Financial Advisor?

  1. I’m not bothering with a finacial advisor, at least not for a while. Our combined retirement accounts are under $10,000 and we don’t have much in the way of other assets, either.

  2. I really think it comes down to your personal situation, though generally I would not recommend it unless you have a sizeable amount to invest. I would not say they are ALL sales people, but many are. There are a few good ones who will put your interests first, which is why it’s important to get a fee only advisor. I’ve interviewed for a few positions myself and all they want is a salesperson…sad.

    • Actually interviewing for the positions myself really turned me off to the whole field. There are good ones out there, but I agree you really need a sizeable amount of money to invest for it to be worthwhile.

  3. I’m going to go with ‘no’.

    Several people who I know use financial advisers. They don’t use them because they need help. They use them because they want to put zero thought into their finances.

    What kind of advice do you think they get? Index funds in a retirement account. High yield MLP for retirement income. But this annuity which you will never understand. (all real examples)

    On the other hand, as your financial situation becomes more complex you should probably invest in a good accountant.

    • A lot of people just think that someone else will have all the answers, and don’t trust the information they can find themselves. Most people of the people my age that get involved with advisors are just being sold life insurance and being sold crappy funds owned by the company the advisor works for.

  4. No, we are not using one. The closest we got was when we talked to one about life insurance. He is good and we had really great time; but there were two things that bothered me: one, he was clearly on commission; and b) when I mentioned something of my future plans he thought I am joking. I was very serious and I saw these plans through.

    Can, I ask though, who can one turn to when they really need another opinion or even advice?

    • Don’t get me wrong. There are good advisors out there & once you get yourself into a certain situation it can make a lot of sense to get one. The key if you’re looking for one is to find one working for a fee instead of commission, then talk to several different advisors before choosing one. You want to pick one that you get along with and understands the vision you have for your future and your money.

  5. My company provides meetings with a fee-only planner as part of our 401K plan. It’s nice because he’s unaffiliated with any specific company, and so far he’s given me a lot to think about in terms of account management for early retirement.

    • My old company provided us access to a financial planner for free as part of our 401(k) plan. It was helpful to meet with him once or twice just to get a second opinion on my strategy, but I don’t think I would have gotten much out of hiring one full time to manage my accounts.

  6. Martin says:

    I have my own experience with advisers. One adviser cost me 30k, well a little less than that. He offered me trading commodities. They had that nicely managed. They were advising what to buy and when I was saw supposed to enter the order so in case of complains they could say I entered the order (based on their advice but that wouldn’t be disclosed). When my account shrank from 30k down to 4k I finally realized what an idiot I was, pulled my money out and since then I am managing my money on my own and I listen to adviser only to find new opportunities, but stay out of any opportunity where I will have no control of my own money.

  7. There is no right answer here and a lot depends on the what the investor brings to the table. If the investor is motivated and wants to learn and can stay on top of his financial affairs then he can do it alone with a no-load, index oriented, diversified portfolio or mutual funds. But I would suspect there are not a lot of people out there that can do that.
    My suggestion is to get with a mutual fund company, someone like Fidelity, where they have the type of funds mentioned and can educate you. I have found that many of their reps are very knowledgeable. Additionally, they have a whole stable of private access reps who can give you insight and knowledge as to the basics and beyond. They also have programs that are question and answer oriented to gauge a person’s risk tolerance. I would recommend taking it slow, learn and then invest.

  8. Nora says:

    Just dodged a bullet with a financial advisor with Ameriprise. My husband wanted to see a financial planner and got in contact with one of these people. Thank God I looked at the information they wanted from us before we’d even agreed to use them! They want all your account numbers, your entire extended family’s personal information, etc. Yikes! I’m never comfortable giving out my own personal info to strangers, much less that of my children or other relatives. Plus, why do they need my brother’s information to advise us on our assets? Sounds like they’re just looking for business leads. Totally not comfortable with these people.

  9. Pingback: The Wrath of Advisors | The Wealth Sgt

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