A few days ago I brought up a few of the benefits of using a financial advisor or planner. But is a financial advisor really necessary? Maybe not. Here are five reasons why you don’t need a financial advisor.
1. Many are commission-based.
A number of financial advisors work on commission, making a percentage of their money on trades you may or may not need. If you’re working with a commission-based financial advisor, be aware that they are salespeople first, financial advisors second. That’s not to say they are dishonest or are trying to take you for all you’ve got. However, human nature takes over at some point, and they may or may not be making recommendations based on your best interest.
2. They’re pricey.
If you opt for a fee-based financial advisor, you’ll probably have a better experience overall. They tend to be more objective, as their compensation doesn’t come from how frequently you trade. These services don’t come cheap. They may charge a percentage of your overall assets, a retainer, or an hourly fee. Hourly fees vary widely, but the average is around $175.
3. They don’t make small investors a priority.
If you are investing a few thousand dollars, it’s safe to say that an advisor with a large clientele won’t make you as much of a priority as clients with a few hundred thousand invested.
4. They won’t make you rich overnight–or at all.
I’ve talked to people who are under the impression that financial advisors will bring them astronomical return rates on their investments. That simply doesn’t happen. Depending on who you talk to, you can expect an average rate of return of around 7%, maybe even 12%. A financial advisor can’t double or triple that.
5. They may not be certified.
The best advisors have gone through a great deal of training and on-the-job experience to obtain Certified Financial Planner (CFP) certification. This certification is more or less the industry gold standard, but just about anyone can convince you that they’re a “financial planner” (see #1 above). However, just because they are interested in investing doesn’t mean they’re qualified to handle your money.
Don’t get me wrong, a financial advisor can be very helpful. And I don’t want to make it sound like they’re all shady salespeople. But there’s a good chance you can manage your own portfolio and get the same results–for free.
