The Pros and Cons of Hiring a Financial Advisor | Entrepreneur (2024)

FAQs

The Pros and Cons of Hiring a Financial Advisor | Entrepreneur? ›

Pros of hiring a financial advisor include gaining access to expertise, leveraging time, and sharing responsibility. However, there are also potential downsides to consider, such as costs and fees, quality of service, and the risk of abandonment.

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.

Industry studies estimate that professional financial advice can add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated. Good advisors will work with you to create a personalized investment plan and identify opportunities to help grow and protect your assets.

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.

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.

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.

Many financial advisers charge based on how much money they manage on your behalf, and 1% of your total assets under management is a pretty standard fee. But psst: If you have over $1 million, a flat fee might make a lot more financial sense for you, pros say.

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

What is a red flag for a financial advisor? ›

Red Flag #1: They're not a fiduciary.

You be surprised to learn that not all financial advisors act in their clients' best interest. In fact, only financial advisors that hold themselves to a fiduciary standard of care must legally put your interests ahead of theirs.

Depending on the net worth advisor you choose, you generally should consider hiring an advisor when you have between $50,000 - $1,000,000, but most prefer to start working with clients when they have between $100,000 - $500,000 in liquid assets.

An advisor needs to know how much money you bring in each month and each year. It will help them create a realistic plan for meeting your goals and protecting your assets. Yet, some clients don't disclose all their income sources to their advisor.

Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.

Many, but not all, registered investment advisors use an independent firm as their custodian. This means they don't take actual possession of your money. The investment manager may have the discretion to buy or sell securities and in what quantity for your account, but the custodian holds the assets.

Significant loss threats include advisor death or disability, key person loss, an unexpected disaster (natural or otherwise), lawsuits, and failure to plan for business succession.

A good financial advisor or robo-advisor can be worth the cost if you're able to save more money, cut your expenses or better plan for the future. A financial advisor can also help you feel more secure in your financial situation, which can be priceless. But financial advisors can also come with high fees.