So you’re saving for retirement. Or you’re nearing retirement and you want to make sure all your ducks are in a logical, orderly line. Friends and family have suggested that you hire a financial advisor, but you’re not so sure. You’ve heard they’re expensive. You don’t even know where to begin looking. How will you know if they’re any good? And overall, are financial advisors worth the money?
So many questions. So many variables.
As you approach retirement, and even while you’re reaping the benefits of your retirement plan, there can be questions that you’re simply not prepared to answer. In cases where your money is on the line, working with an advisor makes sense. But how much is too much to spend? Can you just learn the ropes on your own?
Join us as we answer this burning question once and for all: Are Financial Advisors Worth the Money?
When Planning for Retirement, are Financial Advisors Worth the Money?
You have financial goals for retirement, and you really do believe that they’ll meet your needs for the long term. You might be right—but how will you know? Paying for financial advice just to find out might seem futile—but again, how will you know for sure?
There are some criteria you can use to determine if you should start looking into financial advisory services. So let’s get to it; let’s decide if your retirement could benefit from a financial planner.
Is your retirement plan complicated?
Some future retirees see their retirement plan as fairly simple. Maybe all your debt will be paid off. Maybe saving for retirement has been a lifelong priority. Maybe your Social Security payments plus disbursements from your retirement savings plan will cover all your monthly expenses, with a little left over. Maybe you have a place to live, and enough money to last until you’re 100.
If this sounds like you, then you have created the best possible scenario for a comfortable retirement. You’re probably the least likely to need the advice of a financial advisor.
So, you could choose to stop reading now. Or, you can turn that comfortable retirement into the retirement of your dreams by converting your good financial standing to an excellent financial standing. The way to do that? Hire a financial planner.
When you’ve got all your ducks in a row, you can settle for that. Or, you can grow those ducks. Money management by registered investment advisors can put your funds to work for you.
Are you managing your retirement investments?
How involved have you been with your 401K? Do you manage your investments by hanging on the S&P 500’s every move or has your portfolio gone unchanged for 30 years? Approximately ¼ of all investors choose to manage their own funds. They truly enjoy it, and they have the knowledge to make decisions that will ultimately benefit their retirement plan.
If that doesn’t sound like you, the advice of a financial advisor may prove to be valuable. Or, if you like to dabble in investing without guidance, know this: Vanguard has found that during the period 2008-2012, 58,000 amateur investors lost 8% of their retirement plans’ value. What did they all have in common? They made integral changes to their retirement plans…and those changes were not well-advised. Moreover, Morningstar has found that self-directed investors usually make less money than the funds they invest in. They don’t often understand the value of forecasting, and therefore buy high and sell low.
Your level of involvement with your retirement savings, as well as your level of knowledge, will have a lot to do with your need for professional financial advice. However, there’s more.
A financial advisors’ worth comes into question with people of varying ages. When you’re in your 20s, just starting out, you may think about consulting with someone about the best retirement plan for your needs (which will typically be higher risk and greater gain potential). But then, it’s probably not worth the fees to keep them on-board—unless you don’t have the discipline to carry out the plan they’ve designed for you.
Conversely, when you’re in your 40s and 50s, it makes sense to hire a financial planner who will stick with you through retirement. This is the point in your career when you’ll want to reduce the number of risky investments, while maintaining and growing the funds you’ve accumulated. A certified financial planner will have investing strategies suitable for achieving maximum growth—and if you don’t have the skills for doing that, then his or her service will be worth every penny.
Know the difference between fee-based and fee-only advisors
A fee-based advisor is generally paid a percentage of the investor’s portfolio, by the investor. The advisor is also paid by the companies whose products he or she is selling.
A fee-only advisor only collects payment from the client (the investor).
In many cases, people tend to trust fee-only advisors more wholly. That’s because they have no financial interest in selling one product over another. Most investors feel that this type of financial planner is more focused on their performance and referrals for their livelihood, rather than incentives. Also, they like the idea of their financial advisor being a fiduciary…or a professional who puts the interest of their clients first.
Do you have difficulty adjusting your financial behaviors?
Most investors know that financial advisors give financial advice—it’s in the title. However, what many don’t realize is that these professionals also work with investors to adjust spending, saving and investing habits. In many ways, they are equal parts financial advisor and financial coach.
How good are you when it comes to receiving instruction and following through with it? Without fail? Are you comfortable with change and commitment? Or do you prefer to receive guidance from a motivated professional?
Many investors like working with a financial advisor because there’s an accountability factor. There’s someone looking at their earnings, their spending, their investing…and delivering the correction and motivation that’s needed for success.
In most cases, the average person will stray from a financial plan unless there’s some form of accountability.
Are you too conservative with your money to make more money?
Financial planners are risk takers, and they assume risk for those people who would otherwise leave their money to languish in savings accounts. If you’re the type of person who sees a good investment, but avoids it, you could benefit from the safety net offered by a financial advisory.
Sometimes we all need a nudge. We need someone to tell us, “It’s going to be okay.” And when we know that person is a seasoned professional, then the leap doesn’t feel as scary.
When Are Financial Advisors Worth the Money?
The truth? In most cases, financial advisors earn (and more than pay for) their fees. And unless you’re a financial professional yourself, you’re bound to learn something that will result in growth.
You can figure on paying a financial advisor .5% to 1% of your entire portfolio on an annual basis. If you choose wisely, a good financial advisor can increase the value of that same portfolio by an average of 3-4% per year.
Does that sound like a good financial plan for retirement? Do you feel, after conducting some primary research, that those gains are more than you could expect to experience on your own? Well then, I think the answer to the question Are Financial Advisors Worth the Money? is pretty clear.
In truth, most retirement plan investors will benefit from the advice of a financial planner. Even just a second opinion to verify that funds are allocated properly could mean the difference between losses and gains.
As you move toward retirement, or work to make your retirement income work for you, The Senior Life is here to help. Whether you need practical advice for managing your finances, help with avoiding scams or you want to establish an estate plan, we’ve got your best interest in mind. Visit us! Spend some time on our website! And start to envision the retirement of your dreams!