Are independent financial advisors worth it?
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.
Independent financial advisors do not necessarily have the same safety nets as those working for banks or large investment companies. This means that clients do not have as much protection if something goes wrong with their investments.
It's usually best to get independent financial advice so that you can look at the widest range of advice and products available.
Key points
A financial advisor can help you identify and achieve your financial goals. Consider hiring an advisor if your finances are complex or you experience a major life event.
Bottom line. While not everyone needs a financial advisor, many people would benefit from personalized advice to help them build a strong financial future. You don't need to have a lot of wealth to take advantage of a financial advisor.
Reason #1: Personal Freedom, Flexibility, and Control
As an independent financial advisor, you have the freedom to control where and when you work.
Simply put, they don't offer good value or ROI compared to what they cost. If you really want to unlock financial freedom, doing it yourself is the way to go. And now that you know it's not only possible – but easy – you can get started.
If you have less than $50,000 of liquid assets then you may also want to consider going at it on your own as the fees might not be worth it. With that said, financial advisors can bring a wealth of information and experience to the table that can make a huge difference in your potential return.
Advisers often charge between 1% and 2% of the asset in question (e.g. a pension pot), with lower percentages being charged for larger assets. So, this means higher fees may apply for smaller assets.
You should meet with your advisor at least once a year to reassess basics like budget, taxes and investment performance. This is the time to discuss whether you feel you are on the right track, and if there is something you could be doing better to increase your net worth in the coming 12 months.
Is it worth paying 1% for a financial advisor?
The short answer is yes. Ken Robinson, certified financial planner at Practical Financial Planning, says while a 1% fee may be common, advisers who charge based on AUM are increasingly scaling down from 1% at lower thresholds in the past. But if you get a lot of service, the 1% fee isn't always a bad thing.
A 1% annual fee on a multi-million-dollar investment portfolio is roughly typical of the fees charged by many financial advisors. But that's not inherently a good or bad thing, but rather should hold weight in your decision about whether to use an advisor's services.
Most of my research has shown people saying about 1% is normal. Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.
The cost and the risk of conflicts of interest are the main disadvantages of working with a financial advisor.
They are independent and whole-of-market, which means they aren't acting on behalf of any particular product, provider or other body. They usually work for themselves and act on behalf of you, the client. This means the advice they give you must be impartial.
3. Putting Your Money in the S&P 500 Will Make You More Money. Simply putting all of your money into the S&P 500 index ETF, SPY, and forgetting about it will almost always yield higher returns than paying a financial advisor for advice. The S&P 500 beats most financial advisor portfolios most of the time.
The wealthy also trust and work with financial advisors at a far greater rate. The study found that 70% of millionaires versus 37% of the general population work with a financial advisor.
Source: 2021 Fidelity Investor Insights Study. Furthermore, industry studies estimate that professional financial advice can add between 1.5% and 4% to portfolio returns over the long term, depending on the time period and how returns are calculated.
"Certainly, it's important to have an advisor you can trust, but you still want to keep the relationship professional," Notchick adds. "When that relationship becomes more like a friendship, high fees almost always mean the investor will pay the price."
Key takeaway: It's no coincidence that most American millionaires use a financial advisor. With an experienced financial advisor on your side, you are more likely to take the strategic actions necessary to achieve your long-term goals.
Where should I put $10,000 right now?
Open a high-yield savings account
If you're unsure where to put your $10K, consider stashing it in a high-yield savings account while you compare your options. The best high-yield savings accounts earn more than 5% APY. Unlike with a CD, you can withdraw your cash at any time without owing an early withdrawal penalty.
Edward Jones serves as an investment advice fiduciary at the plan level and provides educational services at both the plan and participant levels, if applicable.
While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual's investment portfolios, while financial planners take a look at the entire financial picture and an individual's long-term goals.
For portfolios with a $100,000 value, a 1% annual fee can reduce that value by as much as $30,000. “The average investor pays from approximately 1.5% to 2% annually,” says Stuart Boxenbaum, CFP®, investment advisor and president of Statewide Financial Group.
Based on a survey of over 300 financial advice professionals, NextWealth research shows that the average overall cost of investing through a financial adviser in the UK is 168 basis points (or 1.68%). The average cost of advice is 67 basis points (or 0.67%).
