Hire an Advisor?

THERE ARE TWO GREAT reasons to hire a financial advisor—and two great reasons not to.

An advisor can potentially provide you with both financial expertise and a steadying hand that keeps you on the right financial track. Traditionally, it’s been the expertise that was emphasized: Brokers would pride themselves on picking good stocks for clients and offering insights into the market’s direction. But increasingly, advisors are less a source of expertise and more a conduit for it. They draw on insights from their firm’s research department, invest clients’ assets with professional money managers and get investors’ questions answered by turning to a network of accountants, estate-planning lawyers and insurance experts.

That means many advisors are doing less advising and more coaching. They might push clients to save more, diversify their hefty holdings of a single stock, get their estate plan updated and stick with their stock funds during market declines. This sort of coaching can be enormously valuable.

Set against these two advantages are two notable disadvantages. First, and most obvious, is the cost involved. Paying 1% or 1.5% of assets every year to an advisor might sound reasonable—but, when converted into dollars, it often turns out to be a huge sum.

Second, many advisors are not especially insightful and some are downright crooked. This creates a quandary for investors: They need an advisor because they don’t feel qualified to manage their own money—but that means they probably also aren’t qualified to judge whether an advisor is any good. Still, hiring a moderately good advisor is probably better than leaving your cash languishing in a savings account. But before you hand over your life’s savings, you ought to thoroughly investigate at least three advisors, ask the tough questions and don’t hire anyone unless you’re confident you have the right person.

Next: Beat the Market?

Previous: Are Investors Idiots?

Notify of
Inline Feedbacks
View all comments

Free Newsletter