Is a Financial Advisor Worth It?
Getting ongoing comprehensive financial advice, consultation, and investment management generally costs around 1% of your portfolio every year.
Is a financial advisor worth it?
For folks looking to invest between $5 million and $500 million who want to find the best financial advisor, get our free wealth management and financial planning book here.
In our case, that 1% fee is discounted when you invest $10 million or more. But price is not the most important criteria when choosing a financial advisor.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Not even close.
This guide answers the question “Is a financial advisor worth it?”, helps you see what else to consider, and what’s at stake if you get it wrong.
With a good financial advisor, the fee enables you to receive timely advice, delivers a continually adjusted plan that manages risk while growing and protecting your wealth, and helps you make smart decisions when unexpected situations come up.
It’s hard to do all this alone.
So, should you get a financial advisor or do it yourself? Is a financial advisor worth it? The answer depends on you, what you know about wealth management, how much time you have or want to spend on it, and many other factors.
You have a right to know what you’re getting for that 1% fee. This article will unpack what a financial advisor does, what they charge, if it’s worth it, and how to find the best financial advisor for you.
Many advisors require a minimum investment amount, which can range from $50,000 to $10 million. However, you could hire an advisor by the hour to answer your questions, paying around $300/hour.
If you aren’t sure about achieving financial security for the long term, then a financial advisor can apply their expertise to solve your money worries. That’s worth paying for.
You should hire an advisor if you lack the time or knowledge to trade in the markets or if you have particular financial needs, such as saving money on taxes or managing debt.
Yes, they help you make money by investing it in products that align with your income needs and risk tolerance. Over the long term, stock markets will always go up.
You need an advisor if you don’t have the time or inclination to be a trader, you feel overwhelmed by the state of your finances, or you need advice in areas such as tax minimization.
Many advisors have a minimum account requirement, starting as low as $50,000 and up to millions, depending on the services. You can also get advice by paying an hourly fee as low as $200.
What Are Financial Advisors?
Financial advisors are experts in finance who are trained and qualified to provide financial advice to individuals, businesses, and institutions, including investments in financial markets. They hold a variety of certifications, such as CFP, CPA, RIA, and many others. Advisors who are certified brokers or broker-dealers are regulated by the Securities and Exchange Commission (SEC).
Financial advisors provide a range of services, such as retirement planning and asset management. How they are paid can be a factor in selecting an advisor.
Understanding Financial Advisors
Any financial advisor can create a financial plan that is a framework for achieving your financial goals. Some may have a specialty, such as tax management or estate planning.
With the advisor you choose, you’ll review your financial situation and goals for the future. You’ll develop a financial plan, which will include recommendations for investments. The plan will reflect your risk tolerance.
The advisor will invest your money based on your financial plan and monitor your portfolio’s performance. As your life circumstances change, you will work together to adjust your financial plan and portfolio accordingly.
How Financial Advisors Make Money
Financial advisors use various compensation models; the most commonly used is based on assets under management (AUM). The advisor will charge a fee equal to a percentage of AUM, typically around 1%. So, if you invest $1 million with your advisor, you’ll pay a fee of $10,000 per year, at the 1% rate. The value of your assets will change over time, and your advisor could fix your fee at $10,000, regardless of that fluctuation.
So, charging a flat annual fee is another compensation model.
Advisors may also charge an hourly rate or a flat fee for some of their services, such as preparing a financial plan.
Some advisors earn commissions on sales of certain products and when trading in securities on your behalf.
Finally, advisors may earn a combination of commissions and fees, making them fee-based advisors. In contrast, a fee-only advisor makes money solely from the fees paid by the client.
What Does a Financial Advisor Do, and Is a Financial Advisor Worth It?
A financial advisor develops customized long term investment plans for investors and clients. Is a financial advisor worth it?
But that’s just the beginning.
A good financial advisor or financial planner must consider factors such as economic trends, stock market volatility, changes in financial regulations, money management, your investing timeline, and above all – what matters most to you with regard to your life, your desires, your future, and your financial peace of mind.
Here are some of the roles of a financial advisor:
– Schedule ongoing reviews with clients to discuss their financial goals
– Make it clear to the client the kind of services they can get
– Educate the client by answering questions regarding investment opportunities as well as risks involved
– Make good investment decisions and investment recommendations on behalf of the client
– Help clients plan for distinct events, such as retirement planning, second home buying, and many more
– Keep an eye on clients’ accounts and suggest possible changes that can improve the account’s performance. Adjust to changes in life such as marriage, divorce, retirement, investments, managing credit cards, and more
– Some offer investment advice on a variety of topics; some have narrowed it down to specific niches such as retirement advice or risk management
And don’t forget this one:
A primary responsibility of a financial advisor is to make the client feel comfortable. This happens by establishing trust with clients, especially by giving honest and direct answers to the client’s problems. In our case, no question is off-limits as we want full transparency.
So, does performing these roles answer the question of “Is a financial advisor worth it?”
Paying a Financial Advisor 1%? (Is a financial advisor worth it?)
Most people understand the value of a financial advisor after learning what they do.
But this is the real issue:
When is the best time to get a financial advisor? Is it after your career is established? After your business startup goes public? Ten years before retirement?
People who know they need one someday want to know when to get a financial advisor. When is the approximately 1% investment worthwhile? Is a financial advisor worth it?
Let’s do a quick cost/benefit analysis to determine if now is the right time to pay the 1% fee for an advisor.
How Much Do Financial Advisors Cost?
Let’s do a quick but broad answer first.
Depending on the advisor, there may be fees, charges, or hidden costs. Some advisors charge only fees. Others charge initial fees just to create the comprehensive plan.
Those charges tend to range between $1,500 and $5,000. If you need ongoing advice or have a short time to enhance your portfolio, expect to pay a monthly retainer to the tune of a few hundred dollars if you work with this type of financial advisor. Is a financial advisor worth it?
Other advisors charge percentage-based fees like the 1% of assets under management mentioned earlier. Some charge both – the initial fee and the ongoing one.
Now for some details:
A large number of financial advisors are investment advisors. They specialize in helping investors like you manage your investments. They can give you investment options, how to know more about investing, investing strategy, managing wealth for your investment.
Most of these tend to be fee-only financial advisors. They 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 will charge more or less.
Do you need help creating a plan and then expect to manage it yourself? That’s different than if you want ongoing investment management so you don’t have to worry about it. Then, should you ask “Is a financial advisor worth it?”
What you pay depends in part on what you want. And if you get what you want, you can answer “Yes” to the question “Is a financial advisor worth it?”
A quick example:
At 1%, a high net worth individual who wants to invest $500,000 would pay $5,000 each year. If you earned 10% growth, or $50,000, that would mean you net $45,000 in growth that year.
Some advisors, like Pillar Wealth Management, offer structures where the percentage-based fee reduces with the size of your assets. For example, our minimum investment requirement is $5,000,000 and our fee is 1%. But that fee begins to decline when you invest $10 million.
We’ll get more specific with financial advisor fees and costs in a moment.
What about those hidden costs mentioned earlier that some advisors charge?
You can find out more about those in our exclusive guide, 7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning.
This is a must-read for any serious investor with high net worth or ultra high net worth who wants to grow and protect their wealth, and is looking for help.
How Do You Benefit From Hiring a Personal Financial Advisor?
These are the main benefits of hiring a financial advisor, and they will answer the question “Is a financial advisor worth it?”
. If these are valuable and desirable to you, then it is worth paying the 1% fee for the services:
- A roadmap and proper financial plan for a better financial future.
- A reliable third-party opinion on your money. Even with some knowledge about investing, you are still probably a “mess” somewhere. Therefore, if paying an advisor may save you from making costly financial decisions or help identify a good opportunity that you overlooked that will increase your investment returns, then it is worth it.
- Guidance in planning for retirement.
- Help with decisions like when to sell a business, or divest company stock, or purchase real estate.
- Expertise in issues facing people with ultra high net worth such as estate planning, insurance, tax minimization, and more.
- Freedom – knowing you don’t have to worry about managing or protecting your wealth because a registered fiduciary expert is doing it with your best interests in mind.
Given what you’ve learned here, is a financial advisor worth it?
How Much Money Should I Have Before Getting a Financial Advisor?
Some people feel that they don’t have enough money – meaning net worth – to hire a financial advisor. To find out if you’re a good candidate for working with an advisor, let’s get into the various fee structures.
Here are the types of costs you can expect when hiring a financial planner:
Retainer Fee or Flat Fee (Annual)
You will pay a flat or retainer fee once per year, unless you pay in installments. Usually, this kind of payment is used for a project such as preparing moment-in-time financial plans. The flat fee charge started from $2,000 to $7,500.
After that, you would have to do the work of implementing, managing, and adjusting the plan. Or, you would need to pay and ongoing fee for that service.
This kind of payment is mostly used by firms that have no complicated financial services – just consulting. Hourly fees can range from $200 to $400 per hour.
This kind of payment is charged based on the performance results that the clients get. This payment has no standard charge as this additional charge gets applied when you reach the goal agreed upon with the financial planner.
Assets Under Management (AUM)
This type of payment will charge you based on a percentage of your assets. We talked about this one already.
The more assets you have, the lower percentage will be.
The fee can vary depending on the type of advisor you’re working with. Robo advisors use artificial intelligence to manage your investments. Human financial advisors can deliver far more services, but generally cost more as you would expect. Some firms also offer a combination of a robo advisor and a human advisor. In that case, is a financial advisor worth it?
What about Pillar Wealth Management?
Because 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 caters to the custom needs of people with high and ultra high net worth.
Here’s the good news: In terms of percentages, you won’t generally pay more for a wealth manager like us compared to a typical financial advisor. It’s still around the 1% range. So, is a financial advisor worth it?
The Difference Between Financial Advisor and Financial Planner
So many terms get thrown around, and it can get confusing.
So, what’s the difference?
A financial advisor offers professional help to someone that is looking for better money management, personal finance, higher returns, and lower losses when markets crash.
They try to understand the client’s current financial situation and their goals.
Advisors spend most of their time researching various investment opportunities, and the most successful companies over a given time frame, between short- and long-term periods. Then, they make suggestions to their clients that are in their best interests – assuming the advisor is a fiduciary, which not all are. When clients forge a long-term relationship with their financial advisors, retirement planning advice will inevitably become part of the conversation.
Here’s the secret:
There actually isn’t much a difference between financial advisors and planners. Much of this just comes down to certifications and professional achievements.
Financial planners take a holistic approach to a person’s finances. They assess a client’s financial and life situation, including debt, and offer professional advice on how to meet objectives and safeguard their money and assets.
A planner may suggest consulting an attorney about a prenuptial agreement that ensures wealth and other assets are divided to the benefit of their respective client. So, is a financial advisor worth it?
Some financial planners also advise on preparing for retirement, money management, retirement income, health insurance, starting a new business, and things of this nature. So, is a financial advisor worth it? Pillar Wealth Management, in contrast, offers all these sorts of customized services and helps with any life decisions that will impact your finances – and we include all this as part of our single fee.
Certified Financial Planner
CFP is a benchmark that shows someone has already expertise in certain scopes of investing strategy such as insurance, home buying, taxes, financial planning, and others.
A CFP must pass several exams and keep their certification active though continuing education to enhance their knowledge and skills. So, is a financial advisor worth it?
How to Find the Best Financial Advisor
When you decide to hire a financial advisor, it means you are convinced that now is the time to get help protecting and growing your wealth. So, is a financial advisor worth it? Yes, that it is worth the investment.
Considering how important this is, you want make sure to pick the most suitable advisor for your goals.
Below is a step-by-step guide on how to find the best financial advisor:
Step One: Know the Type of Advisor You Want
This is probably the most important step.
Some advisors provide long term advisory services but no investment management services. Others manage investments but provide little advice or no financial planning. Some do both.
But that barely scratches the surface.
Some are hands on. Some are mostly hands off – they create a plan, set it on autoplay, and let it run, checking in once a year.
Some advisors specialize in retirement planning. Some in business financial advice. Some in working with families. Some, like Pillar Wealth Management, have minimum investment requirements and only work with clients who have certain levels of investable assets.
And, wealth managers such as ourselves cover a deep and broad range of investment strategy which our customers 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). Then, you can without hesitation say “Yes” to the question “Is a financial advisor worth it?”
At Pillar, our wealth managers are Registered Investment Advisors.
Those who bear these credentials passed an examination that demonstrates their proficiency. For an advisor to maintain the designation, he/she must conform to an ethics policy and abide by the continuing regulation or education demands. So, is a financial advisor worth it?
Never underestimate the value of speaking to an advisor’s current clients. What they tell you about his/her integrity and performance is probably worth more than any credentials.
Step Three: Know How Financial Advisors Get Their Salary
Financial advisors value their services in different ways. To land the most appropriate advisor, you should know all forms of compensating a potential advisor. We discussed these earlier. You can get charged asset-based fees, commissions, or hourly rates.
Know the difference between a fee-only advisor and a fee-based advisor. Fee-based advisors have flexibility in the mode of compensation as they can get incentives or kickbacks from their company by meeting sales objectives. Get informed about fee structures before answering the question “Is a financial advisor worth it?”
Step Four: Screen for Criteria Using Search Engines
To answer the question “Is a financial advisor worth it?”, hop on the internet and do your research.
Online searches present a great way to narrow down the financial advisors near you, if location is important to you.
If location doesn’t matter, some financial advisor firms work with clients remotely. Such a system allows you to select an advisor based on expertise rather than location.
Here’s a smart move:
Look at their website. Find out more about their expertise, investment values, beliefs, and methods by reading their blogs.
If they don’t have a blog – that’s a bad sign!
People often ignore research and too easily trust an advisor. You can lose a lot of money if you just trust anyone. The risk here isn’t so much fraud as it is incompetence.
Your wealth is not an experiment. Your portfolio is not a guinea pig.
Step Five: Ask Questions
With the right questions, you can weed out advisors who may not be a good match. For example, 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? Is a financial advisor worth it?
With the help of specific interview questions, people can discern how the financial advisor communicates, their area of expertise, and the clients they prefer to work with.
While it’s a good idea to ask for references, be aware that regulations ban financial advisors from using testimonials, and many clients may not feel like talking to strangers about their experiences with an advisor.
Step Six: Verify Credentials of the Advisor
As part of answering the question “Is a financial advisor worth it?”, verify an advisor’s credentials and complaint history by checking their records with the Financial Industry Regulatory Authority (FINRA).
You can find anyone who will give you financial advice even though they’re not a professional with no credentials. They might give you investment options, investment strategies, and money management.
But get real:
Is a financial advisor worth it? Do they really have any idea what they’re talking about?
Choose your advisors based on their credentials. Organizations that can help you with verification include the CFP Board, the Security and Exchange Commission (SEC), or other membership organizations with whom the advisor associates.
If an advisor has a complaint, it does not necessarily mean that you should automatically disqualify them. Any formal statement of discontent by an individual stays on an 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 access to your assets, it is easy for them to perpetrate fraud.
Here’s how to avoid it:
Most trustworthy advisors, including Pillar Wealth Management, use a third-party custodian in holding your assets. This means the advisor doesn’t actually have access to your money.
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.
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