Is an investment advisor worth the money?

The world is full of specialists, and yet when it comes to one of the biggest things in people’s lives, many people put off, over pay, or do-it-yourself in an area where a small change can make a huge difference.

When the bolts stripped from the back of my toilet tank I grabbed my son, drove to the local big box hardware store, and promptly bought a new toilet. I spoke briefly with someone from the plumbing department who asked why I didn’t just use a hack saw to cut through the bolts. One piece of advice saved me about $150 and a whole lot of stress.

Now, take that level of knowledge, advice, savings or money and stress, and multiply it by a life time of savings and investing decisions. The effect of compounding interest overtime is staggering when it comes to small changes. There are endless websites out there that give all kinds of advice (one of my favorites is client’s citing a website from a doctor who gives investment advice, but never look up before surgery and say “my financial advisor suggest you use a #4 McCracken scalpel just below my L8 vertebrae to fix this”). At Capital Partners Group I spend all day thinking about the implications of investment strategy, taxation, market loss, true diversification and other issues that make me the life of the party (along with spending years obtaining my ChFC designation).

Back to the question at hand. Ultimately a whether a financial advisor is worth hiring depends on a two basic factors.

  • Are they a net positive to your bottom line?
  • Do they give you peace of mind?

As to the dollars and cents question, people often frame the answer as “well, in 30 years I would have 500k in my bank account and paid you 20k, so without you I would have 520k”. That is very often not the case. Many people wouldn’t save, would lose money in the market, or would miss out on some specialized piece of advice or strategy without my knowledge. Its’s possible that without a financial advisor that same person wouldn’t have considered higher future taxes and cost themselves 150k with improper tax diversification. A properly trained, fee only fiduciary can be worth multiples of whatever you ultimately pay them.

Moreover, let’s assume a straight-line calculation. Given an identical investment portfolio plus or minus a fee even if the end number in the bank account did result in our hypothetical 20k reduction, is it worth $55 a month to not have to worry about any of those issues? For most people the answer is yes.

Oddly the second question often outweighs the first. I have more than one client who actually had a good handle on their finances who hired me just because it was worth it to them to pay a little to take a huge issue off of their plate. They were a specialist in their field and were freed up to focus on what they did best, ultimately increasing their own financial bottom line and releasing a major point of stress from their life.