Is a financial advisor worth it? A financial advisor is a professional who provides financial guidance that involves creating a plan for procuring your respective financial objectives. He/she monitors and guides your progress all the way.
Among other things that these individuals do includes helping with retirement planning, shrewd investments, and above all, helping you secure your financial future. All these services come at a fee, which begs for the question, is a financial advisor worth it?
Table of Contents
- What Do Financial Advisors Do?
- When is it Worth Paying a Financial Advisor 1%?
- How Much Do Financial Advisors Cost and Charge For Plans?
- How Do You Benefit From Hiring a Personal Financial Advisor?
- The Difference Between Financial Advisor and Financial Planner
- Financial Advisors
- Financial Planners
- How Much Money Should I Have To Make It Worth Getting a Financial Advisor?
- How to Find the Best Financial Advisor?
- Step One: Have a Clear Understanding of the Advisor You Want
- Step Two: Look for Financial Advisors With Reputable Credentials
- Step Three: Know How To Compensate Financial Advisors
- Step Four: Screen for Criteria Using Search Engines
- Step Five: Ask Questions
- Step Six: Verify Credentials of the Advisor
- Step Seven: Learn to Spot Potential Fraud Risks
We understand why you ask this question. Such financial advice and investment management costs about 1% of your portfolio every year. In our case the fee is discounted at $10 million. Therefore, it is within your rights to know whether you are getting what you pay for.
Vanguard, which is one of the largest investment companies in the world, with over 30 million investors, has been searching into this question over the past 15 years. And, following their findings, they agreed that there is a significant increase in return whenever one chooses to work with a financial advisor.
Vanguard refers to this advantage as the Advisor’s Alpha. When fundamental specifics are observed in the process, you can attain an Alpha of 3% each year.
Additionally, Russell Investments, another large money management firm, carried out a similar study and concluded that a competent financial advisor could secure an increase in returns by up to 3.75%.
What Do Financial Advisors Do?
Even as they figure out the right investment portfolio for the customer, financial advisors must consider factors such as economic trends, changes in financial regulations, and above all, how a client feels about decisions- are they comfortable or not?.
Here are some of the roles of a financial advisor:
- He/she must schedule ongoing reviews with the clients to discuss their financial objectives
- Make it clear to the client the kind of financial services they offer
- Indulge the clients by educating, and answering questions regarding the investment opportunities as well as risks involved
- Making investment recommendations or investing on behalf of the clients.
- It’s their responsibility to help clients plan for distinct events, for instance, retirement, second homes and the such
- Keep an eye on clients’ accounts and suggest possible changes that can improve the account’s performance. Adjust to changes in life like marriage and more.
Much as a good number of financial advisors offer advice on a variety of financial topics; some have narrowed down to specific niches like retirement or risk management.
Note: One primary responsibility of a financial advisor is to make the client feel comfortable, and this is through establishing trust with clients, especially by giving honest and direct answers to the client’s questions. In our case no question is off-limits as we want full transparency.
When is it Worth Paying a Financial Advisor 1%?
Anyone anywhere could benefit from the services of a professional financial advisor. However, the cost involved is often the stumbling block. Even so, it reaches a time when paying for financial advice is an investment. So, when is it worth paying a financial advisor 1%?
You need to carry out a cost/benefit analysis to determine whether or not it is the right time to pay the 1% fee for a financial advisor. This involves asking yourself questions like:
How Much Do Financial Advisors Cost and Charge For Plans?
The fee varies; however, most fee-only financial planners tend to charge between $1,500 and $5,000 to provide a comprehensive financial plan. If you need ongoing advice, expect to pay a monthly retainer to the tune of a few hundred dollars. That’s a case for financial planners.
These planners employ a holistic approach to your finances; in other words, they help you with everything from retirement, debt, spending decisions, and investments.
On the contrary, a large number of financial advisors are investment advisors. They specialize in helping you manage your investments.
Most of the fee-only financial advisors ask for a fee that equals a percentage of assets that you have invested. The industry benchmark stands at 1% though it is not official. Some advisors may charge more or less.
Therefore, if you are planning on investing $500,000, you would pay $5,000 each year. There are cases where the advisors offer structures where the percentage of fees charged descends with the size of your assets. For example, our minimum at Pillar Wealth Management, LLC is $5,000,000 and our fee is 1% (discounted at $10 million).
If you can get these benefits in a financial advisor then maybe it’s worth paying the 1% fee for the services:
- A roadmap and proper plan for your financial future
- A reliable third party opinion on your money. Even with some knowledge about investing, you are still likely to “mess” somewhere. Therefore, if paying a financial advisor saves you from making one wrong decision or helps identify an opportunity that you overlooked, and increase your investment returns, then it is worth it regardless of the fee.
The Difference Between Financial Advisor and Financial Planner
A financial advisor offers their professional help to someone that is looking for better money management, higher returns and lower losses. In sitting with their clients, financial advisors try to understand the client’s current financial position and their objectives.
Advisors spend most of their time researching various investment openings and the most successful companies at a given time; therefore, they make viable suggestions to the clients.
Financial planners take a holistic approach to a person’s finances. They calculate a client’s net worth, income, plus their debt, after which they offer advice to the clients on how to meet objectives and safeguard their assets.
Once they have assessed a client’s financial status, they devise plans for the client’s financial future. For instance, a planner may suggest consulting and attorney about a prenuptial agreement that ensures money and other assets are divided to the benefit of their respective client.
How Much Money Should I Have To Make It Worth Getting a Financial Advisor?
Even though financial planning services are readily available unlike years before and because of fee-based payment methods, some people still feel that they don’t have enough money for services of a financial advisor. At this point, we are left with one question, how much money should I have to make it worth getting a financial advisor?
If you have at least $500,000 in assets and are interested in acquiring a comprehensive plan, you should consider a financial advisor.
However, not all financial advisors are born equally. You should find one who specializes in helping folks of your financial caliber.
Referencing how we at Pillar Wealth Management work, and being that we specialize in helping folks with a minimum of $5 million and up to $500 million, someone with $500,000 wouldn’t be a good fit. Simply put, our level of services specifically cater to the custom needs of a certain financial level.
How to Find the Best Financial Advisor?
When you decide to hire a financial advisor, it means you are convinced that it is the right decision. And, it is like getting yourself or family a chief financial officer. Considering how important this is, you want to undertake a disciplined approach to ensure that you are picking the most suitable advisor for your objectives.
Below is a step by step guide on how to find the best financial advisor:
Step One: Have a Clear Understanding of the Advisor You Want
Financial advisors are different; some provide financial planning services exclusive of investment management services, whereas others manage investments but provide little or no financial planning. Additionally, some only offer services on retirement income planning. Finally, wealth managers such as ourselves cover a deep and broad range of services which our clients demand expertise in.
Therefore, to find the best financial advisor, you must understand the type of advice you want.
Step Two: Look for Financial Advisors With Reputable Credentials
If you need an advisor with reputable credentials, consider someone who is a Registered Investment Advisor and is a Fiduciary, Certified Financial Planner(CFP) or Personal Financial Specialist (PFS).
Those who bear these credentials passed an examination that approves of their proficiency in the subject matter. For an advisor to maintain the designation, he/she must conform to an ethics policy and abide by the continuing regulation or education demands.
Never underestimate the value of speaking to an advisor’s current clients, ultimately what they tell you about his/her integrity and performance is probably worth more than any credentials.
Step Three: Know How To Compensate Financial Advisors
Financial advisors charge for their services in different ways. To land the most appropriate advisor, you should know all forms of compensating a potential financial advisor. Some conventional compensation methods include charging an asset-based fee, commissions, or hourly rates.
Know the difference between a fee-only advisor and a non-fee-only advisor. A non-fee-only advisor has flexibility in the mode of compensation as they can receive incentives or kickbacks from their company following meeting sales objectives.
Step Four: Screen for Criteria Using Search Engines
Online searches present a great way to narrow down the financial advisors near you, find out more about their expert opinions through reading their blogs as well as billing methods and compare them with your needs.
Some financial advisor firms work with clients remotely. Such a system allows you to select an advisor based on his/her expertise rather than location. This is beneficial during times like Covid-19 or as you travel the world.
Step Five: Ask Questions
With the right questions, you can weed out financial advisors who may not be a good match for your quests. Questions like, how many years of practice does he/she have? How do they get their compensation? Are they capable of walking you through different retirement projections?
With the help of specific interview questions, you can discern how the financial advisor communicates, their area of expertise, and their right client. The idea here is to understand the answers, if you don’t, go ahead and ask follow-up questions or move on to the next advisor who communicates better with you.
Usually, it is advisable that you ask someone for references. Also, regulations bar financial advisors from using testimonials, therefore, be vigilant of any individual who uses them.
Step Six: Verify Credentials of the Advisor
You should know the legitimacy of an advisor as well as his/her service record before you hire. Verify an advisor’s credentials and complaint history by checking their records with the Financial Industry Regulatory Authority (FINRA).
Other bodies that can help you with the verification include the CFP Board, the Security and Exchange Commission (SEC), or other membership organizations with whom the advisor associates.
An online site like, Brightscope, can help you determine the organizations with which an advisor is registered and whether they have any complaints reported.
If an advisor has a complaint, it does not necessarily mean that you should automatically disqualify them. Any formal statement of discontent by a customer stays on a financial advisor’s record for an extended period.
An advisor with multiple complaints should worry you.
Step Seven: Learn to Spot Potential Fraud Risks
Once someone has custody of your assets, it is easy for them to perpetrate fraud. Most reliable advisors use a third-party custodian in holding your assets. Therefore, your accounts would be opened at a large and established firm like Fidelity or Charles Schwab.
This move allows the advisor to trade and offer service on your account, however, it’s the custodian who reports transactions to you, substantiate signatures, and more.
Even so, you still need to stay cautious of firms with the custody of your money to avoid a situation like Bernie Madoff’s Ponzi scheme.
According to research, analysis, and testing by large financial institutions such as Vanguard and Russell Investments, there is a quantifiable growth in return whenever you choose to work with a financial advisor.
Pillar’s Private wealth management offers custom, sophisticated and trusted financial advice to high net worth and ultra-high net worth investors with between $5 million and $500 million of investable assets. Our expert founders understand the complex paradigm of investing and planning and can provide you with the advice you seek.