The Pros and Cons of Hiring a Financial Advisor: Is it Worth it? (2024)

FAQs

The Pros and Cons of Hiring a Financial Advisor: Is it Worth it? ›

Pros of hiring a financial advisor include gaining access to expertise, leveraging time, and sharing responsibility. However, there are also potential downsides to consider, such as costs and fees, quality of service, and the risk of abandonment.

A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.

Limited availability: Financial advisors may not be available at all times, which can be a problem if you need urgent advice or assistance. Risk of scams: unfortunately, there is a risk of financial scams in the industry, and it's important to be aware of this risk when working with a financial advisor.

Investors who work with an advisor are generally more confident about reaching their goals. Industry studies estimate that professional financial advice can add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated.

But, if you're already working with an advisor, the simplest way to determine whether a 1% fee is reasonable may be to look at what they've helped you accomplish. For example, if they've consistently helped you to earn a 12% return in your portfolio for five years running, then 1% may be a bargain.

Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.

Here's when you may want to forgo a financial advisor and do it yourself: You're confident in managing your own investments: If you are comfortable selecting and managing your own investments, you may not need a financial advisor. Perhaps you follow the markets closely and do your own research on potential investments.

All financial advisers should be registered with the FCA. This means they meet the right standards and you get more protection if you're not happy with the service.

A disadvantage of a fiduciary is that fiduciary advisors are often more expensive than non-fiduciary advisors as they charge higher market rates.

Is my money safe with a financial advisor? ›

The Bottom Line. There is always going to be inherent risk in trusting your money with another person. Financial advisors are meant to take care of your money but it doesn't mean each and everyone will always have your best interest at heart.

Lack of perceived need. Many consumers share the perception that they simply don't need a financial planner. They may receive financial advice from a family member or friend; in some cases, they feel they've already achieved their goals and thus don't require advice.

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

Not everyone needs a financial advisor, especially since it's an additional cost. But having the extra help and advice can be paramount in reaching financial goals, especially if you're feeling stuck or unsure of how to get there.

Deciding to work with a financial advisor is a personal choice. There is no set litmus test for whether you need one. If you have investable assets, personal and financial goals, or questions about your finances, you may want to hire a financial advisor.

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

That position will allow other advisors in the area to go after your clients and pick them off with their marketing efforts. 5. The Statistics: 80-90% of financial advisors fail and close their firm within the first three years of business. This means only 10-20% of financial advisors are ultimately successful.