Financial advisors worth their fees

Everybody has a lot of advice but very few people have solutions. Especially when it comes to what you should do with your money.

Do you listen to your stockbroker brother-in-law? Or your neighbor who can quote you the Dow Jones behavior for the past quarter? How about seeking a sit down with your daughter’s highly successful father-in-law?

A 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement but only 29% work with a financial advisor.

The value of working with such a professional varies from individual to individual. While financial advisors are legally prohibited from promising returns, research suggests people who work with a financial advisor feel more comfortable about their financial situation.

A recent study taken on behalf of financial managers found that, on average, a hypothetical $500K investment would grow to more than $3.4 million under the care of an advisor over 25 years while the expected value from selfmanagement would be $1.69 million, or 50% less.

This example reveals an advisor-managed portfolio would average 8% a year growth over a 25-year period, compared to 5% from a self-managed portfolio.

The hypothetical study discussed above assumes a 5% net return and a 3% net annual value added for professional financial advice.

The value of professional investment advice varies with each client’s individual circumstances and portfolio composition. Clients must carefully consider their investment objectives, risk factors, and perform their own due diligence before choosing an investment adviser.

Being aware of a few common blunders can help you in your search for a competent financial advisor.

Not all such advisors are fiduciaries — individuals ethically bound to act in your best interest. Fiduciary financial advisors must avoid conflicts of interest when recommending investment opportunities to their clients.

In your search for a financial advisor, choose one that suits your needs best. Some devote their expertise to small-business owners. Others work with young up-and-coming professionals. And there are those who specialize in retirement planning.

Take your time shopping for a financial advisor because you’re going to spend a lot of time with them if you choose wisely. Don’t pick the first one you talk with or the one that’s closest to home or the one that dresses the nicest. Ask all the prospects you meet for their credentials. You might also ask for the names of a couple of their clients so you can talk with them about their experience with the professional.

Make sure you know how the advisor is paid. Some charge a flat rate for their service. Others charge a percentage of the assets they manage.

In many cases, advisors are paid commissions by mutual funds, which is a conflict of interest.

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