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Ask an Advisor: Should I Skip the Financial Advisor and 1% Fee If I Understand Investments?

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Susannah Snider, CFP
Susannah Snider, CFP

Is it worth paying a financial advisor to manage retirement funds if you are confident in your own financial investment strategies? I feel like I have a solid understanding of long-term investment strategies. And as such, I feel the roughly 1% of managed assets that I would pay for any outside advice would exceed the gains I might see. True, it is important to get outside opinions to compare best practices with investments, but the famous Warren Buffett investment bet – in which he pitted a low-fee index fund against an actively managed portfolio of hedge funds – makes me leery of trusting any professional investor. 

-Mike

You’re absolutely right to ask this question. If you feel comfortable investing on your own, what’s the point of working with a financial advisor whose fee of 1% of assets under management could chip away at your investment returns?

I reached out to a network of advisors for their take on this query. They were quick to stress that the services a financial advisor may provide can justify the cost. But many of them also suggested that clients consider whether 1% for bare-bones investment management is worth the fee.

“Managing investments is (or should be) only a small part of what financial advisors do for their clients,” says George Gagliardi, financial advisor at Coromandel Wealth Management. “If your advisor is only managing your assets and charging 1%, find another advisor. You are overpaying.”

Here’s how to determine whether it makes sense for you to work with a financial advisor.

(Note: The advisors quoted in this article are only speaking for themselves. Your own experience may vary, and not everyone will find working with an advisor worth the cost, depending on their situation.)

You’re Right to Question 1% for Just Investment Management

Ask an Advisor: I Have a 'Solid Understanding' of Investment Strategies. Why Should I Pay 1% to a Financial Advisor?
Ask an Advisor: I Have a ‘Solid Understanding’ of Investment Strategies. Why Should I Pay 1% to a Financial Advisor?

The advisors we spoke to generally agreed that paying 1% doesn’t make sense if you’re only getting basic investment management services.

“Hiring a financial advisor to just manage a diversified indexed portfolio when you’re a seasoned investor – without any additional services like financial planning and tax – most likely would not be worth the fee,” says Brian Schmehil, certified financial planner and managing director of wealth management at The Mather Group.

He adds, that’s “unless the advisor is utilizing tax-loss harvesting, direct indexing and asset class location.”

The Many Services That (Might) Justify the Fee

Ask an Advisor: I Have a 'Solid Understanding' of Investment Strategies. Why Should I Pay 1% to a Financial Advisor?
Ask an Advisor: I Have a ‘Solid Understanding’ of Investment Strategies. Why Should I Pay 1% to a Financial Advisor?

If, however, you are looking for more holistic financial planning services, want to manage taxes, gifting and other aspects of your financial plan or have trouble controlling your emotions during times of market volatility, your calculus may change. Clients may find that 1% fee worth it, depending on their particular situation and the advisor’s services. Here’s what an advisor may offer.

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