Costs are one of the primary drawbacks of hiring a financial advisor. It's typically to pay fees that are based on a percentage of your assets under management (AUM). Some advisors, however, may charge flat fees or hourly fees for their services.
Significant loss threats include advisor death or disability, key person loss, an unexpected disaster (natural or otherwise), lawsuits, and failure to plan for business succession. Best practices include insurance and continuity plans to protect those assets you cannot afford to lose.
Paying for a financial advisor may be worth it, especially if you're 10 to 15 years away from retirement and want to ensure that you can maintain your current lifestyle after you stop working.
But even the best financial advisors are at the whim of the market. Most professional investors who try to beat the market actually underperform it over a given time period. And those who do manage to outperform the market over one time period can rarely outperform it again over the subsequent time period.
New advisors face an uphill battle. Building your clientele from scratch and producing results for your firm – all while trying to learn the business – is tough. In fact, 80 to 90% of financial advisors fail in the first three years.
Graduating college, getting married, expanding your family and starting a business are some major life events that might cause you to reevaluate your financial situation. A financial advisor can help you manage these life events while making sure you get or stay on track.
Hiring a financial advisor can seem like an unnecessary expense but they often save you money in the long run. If you choose to hire a financial advisor, make sure all their fees are transparent before you sign. A financial advisor is usually recommended when their fee is less than what they save for you.
Studies have shown that financial advisors can benefit most people. While you may feel that you have the time, knowledge and access to critical financial information to make informed decisions on your own, advisors have experience in many complex situations that you may not be able to anticipate.
You're Confident 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.
While a financial adviser might fulfill a short-term purpose that requires one or two meetings, financial planners typically have an ongoing, long-term goal. Because of this, they usually have regular, ongoing meetings with their clients each month or quarter.
If you are well-versed in financial knowledge and investing and are looking to just grow your wealth, you may not need a financial advisor. On the other hand, if you are not confident in investing money or understanding the financial markets, then a financial advisor could be worth it.
The most common reason for not hiring a financial advisor is a desire for independence. A significant 52% of advisor-less respondents cited their preference for a DIY (do-it-yourself) approach to financial decision-making.
Ensuring excess availability of funds at the right time is not an objective of financial planning.
On average, you can expect to pay between 0.5% and 2% of your total assets under management annually, $150 to $400 per hour, or a flat fee ranging from $1,000 to $3,000 for a comprehensive financial plan.
An advisor who believes in having a long-term relationship with you—and not merely a series of commission-generating transactions—can be considered trustworthy. Ask for referrals and then run a background check on the advisors that you narrow down such as from FINRA's free BrokerCheck service.
Financial Advisors do beat the market indices sometimes. However, they do not outperform the S&P year after year. The research shows that most advisors do not beat the S&P over a consistent period. Even the actual mutual fund managers will not beat the S&P in a 15 year time frame over 80% of the time.
Seek professional advice
Of high-net-worth individuals, 69 percent work with a financial advisor. Compare that to just 33 percent in the general population. What's more, far and away, wealthy people consider financial advisors to be their most trusted source of financial advice—more than four times any other source.