Financial Tip Friday: Do You Need A Financial Adviser?

Financial Tip Friday: Do You Need A Financial Adviser?

Yesterday on the way home from work I was listening to a fascinating interview on NPR with the author of the book Death of Expertise. I went out and immediately ordered the book. The interview sparked a number of questions about anti-intellectualism in America, the fallacy of reasoning by anecdote, the lack of trust in our institutions, etc. It is also got me thinking about personal finance and how many people actually seek out financial advice from a specific expert? If you watch an hour or two of television per day or even are on social media you will probably see multiple adds for companies asking “Are You Ready For Retirement?” How Much Have You Saved?” Or they will provide some wonderful little family scene and then they cut to an adult or couple who are, typically appear to be around my age or older (43), having a fascinating conversation with some adviser at an insurance company or brokerage firm. These scenes are typical and aren’t necessarily bad per se, but do you really need a financial adviser?

Answer: It Depends.

When You Don’t Need A Financial Adviser

Full disclosure, I don’t have a financial adviser. I manage my/our investments myself. I don’t feel like I need a financial advisor for a number of reasons:

  1. I am not doing anything fancy in terms of investments. I have five different mutual funds and four of them are index funds (I actually should do an updated post on my investments). I don’t do anything really big. I invest in funds that are boring and buy the whole market. I am thoroughly convinced that passive investing is generally better than active investing. And what I mean by that is generally passive funds (e.g. index funds which just track a financial index, e.g. S&P500) are generally superior to actively managed funds.
  2. I am primarily investing through my retirement plans at work and I don’t need to pay an outside adviser. If I every wanted some advice on my investments or information I could call up the brokerage firm where all of my investments are (Fidelity) and just ask someone’s advice. I don’t necessarily need someone else to manage my money because it is locked in retirement plans that I can’t do anything about anyway.
  3. I don’t have enough money in outside funds. I actually received a call last week from a financial adviser who found me on Linkedin asking me to set up a meeting. I humored him over the phone, he asked me a couple of questions, and then he asked me how much money I have outside of my retirement plans (which he would get no commission on). After giving my answer he said, “well why don’t you give me a call when you hit six figures in that account.” The truth is that outside of my retirement plans I don’t have a lot of money saved. I have five figures saved in a Roth IRA, but nowhere close to six figures where this guy would even sneeze in my direction.
  4. I don’t want to pay the fees. A lot of financial advisers make their money off of commissions. I have had more than one insurance/financial guy try to sell me whole life insurance (hint: it is a HORRIBLE product). Those advisers earn a ton of money off of those products. Frankly, I don’t want to pay the high commission fees. I don’t want them getting “rich” off of me. Someday, I might actually pay a fee-based adviser to develop a specific plan for Mrs. ROB and I, but I am not there yet.
  5. Finally, I am doing pretty well on my own. Because I am doing really nothing fancy the recent gains in the stock market have been my gains. I am making as much money as the next guy and I am fine with that. I mean I would love to have bought Facebook and Snapchat in their initial IPOs, but I am content with building this a bit at a time. As far as I know the tortoise always wins the race (at least in the story).

When You Might Need a Financial Adviser

Now just because I don’t have a financial adviser doesn’t mean that people shouldn’t get one. There are legitimate reasons to obtain some financial advice.

  1. You have complicated investments. There are some people who have all kinds of different forms of investments. They might have real estate, inherited wealth, multiple retirement accounts, etc. In that case you might want to talk to a financial adviser to sort it out all out. I like my life clean, which is why I haven’t done anything fancy yet.
  2. You want a holistic financial plan. Financial planners don’t just help with investments they actually can develop a financial plan for you in general. They will talk about debt, budgeting, your house, insurance, etc. They might talk to you about leaving money to heirs, etc. The only way I would ever recommend a financial adviser is doing a FEE-BASED adviser. This is someone who will sit down with you, gather your information, and then write-up a personal plan for you. In other words, they don’t get paid by the products they hock, but the actual plan they set up. And then you might choose them to manage your money, which they might get a % of your overall portfolio (typically .5 to 1% of your assets, which might be good advice for those who need help).
  3. You are totally clueless about money. Let’s say you get an inheritance of $100,000 from your parents and you are bad with money. In that scenario you might want to see an adviser. They can help you figure out where to put that money. Windfalls can be great, but they can also be dangerous. Personally, I think everyone should become more financially literate and potentially do their own investments. At the very least, I like the idea of financial advisers teaching people the ins and outs of investing. That is why I have thought about becoming a financial adviser. To me it is like the teaching profession, just about money. I LOVE teaching and that might be an interesting 2nd career for me someday (I am not leaving my job anytime soon, if ever).

The Bottom Line: I am NOT against getting a financial adviser. I don’t have one at the moment, but I have thought about hiring someone for a few hundred bucks to lay out a holistic plan for Mrs. ROB and I. I just don’t like advisers that hock products. Pro-Tip: If you want a financial adviser get one that is FEE-BASED and will teach you things about your money. Also, choosing someone with the CFP (Certified Financial Planner) designation, I think, can be a valuable tool in weeding out some people who call themselves advisers, but are really financial sales people.

2 thoughts on “Financial Tip Friday: Do You Need A Financial Adviser?

  1. I agree. I think advisors aren’t necessary if you take a little extra time to get interested in your own money. As you mentioned, if you really need some help, a fee-based advisor would be best. Although, it can be challenging to hand over a specific fee when the traditional model hides the fees so well! If I had to start all over again I might consider using a roboadvisor, but I’m glad I took the time to figure out my finances early on.

    1. Totally agree. It really does amaze me how many times we just leave things to convenience or won’t take the extra step. I certainly understand that this confuses people, but I honestly don’t think it is that hard. But I also feel the same way about the things I teach. I will always have some sort of job prospect because I can do some things a lot better than others that are vital to education, business, etc. A roboadviser would be interesting. I wonder how the competition between Buffett, the hedge funds, and roboadvisers (when there is one) will turn out).

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