Is A Financial Advisor Worth The Cost?

How often have you heard the expression, “You need to spend money to make money?” Usually reserved for business owners, it’s a sentiment that can also apply to financial investments. If you’re wondering if a financial advisor is worth the costs, you’re not alone. Many people question if it’s a smart money move to turn over some of their hard-earned income for investment advice. They often believe they are too disingenuous and expensive.

Outdated Stereotypes

In the past, financial advisors were often portrayed as older men in fancy suits in even fancier offices, in the game for their own profit. It’s a cliché that no longer applies. Today’s financial advisors are changing the way the game is played, looking for opportunities to provide something of value for “regular people” like you. Deciding whether one is worth the cost depends on your financial situation, your ability to manage wealth, and your current assets.

Is a Financial Advisor Right for You?

A recent survey from financial technology company, Fiserv, found that, on a scale of zero to 10, just 36% of consumers rate their financial health satisfaction as an 8 or higher. On average, the same group gives itself a middling C+ on the ability to save for long-term goals such as retirement. To make matters more difficult, nearly half of U.S. households report having no one they can rely on for financial advice.

How do you determine if the cost of a financial advisor makes sense for you? An honest self-evaluation is a good start.

  • Do you consider yourself knowledgeable on a wide range of investment options?
  • Do you enjoy researching and reading about investing?
  • Do you have a proven track record in investments you’ve made for yourself?
  • Do you have the time to monitor and reevaluate the investments you’ve made so to make necessary changes to your portfolio?

If you answered “no” to all or most of the above questions, you may want to seek out the services of a financial advisor.

Financial Advisor Costs

Financial advisors come in a complex array of professional designations, with each one having distinct areas of expertise. It’s important to understand, too, that there’s a big difference in service levels when you pay an advisor a fee for advice versus a commission on products.

  • Fee-only registered investment advisors provide comprehensive advice and have a fiduciary responsibility to act in your best interests. They do not accept compensation or receive commissions based on financial product sales. That means they have fewer inherent conflicts of interest.
  • Commission-based advisors, agents, and brokers collect commissions on specific products and transactions. Since their key focus is selling investment products, financial expertise may not be their greatest strength or interest.

Watch out for the designation “fee-based,” a category commission-based agents and brokers have coined. You’ll still pay a commission, plus get charged a fee.

The Bottom Line

Yes, financial advisors come at a price, but you should look at the idea of a professional advisor the same way you do for your other investments: if your ROI justifies the costs, it will be money well spent. Think of it this way: if paying a financial advisor protects you from one poor decision a year, or finds an opportunity you overlooked, you may very well increase your investment returns, despite the associated fee. The truth is, nearly everyone can benefit from working with an advisor, the trick is in finding one who truly has your best interests in mind.

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