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Should I Use a Financial Advisor or Do It Myself?

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The complexity of the financial industry, especially professionals specializing in advisory services, requires the expertise of a financial advisor. The problem is knowing when to hire a licensed advisor firm and how financial advisers charge their clients. There are pros and cons of money management you must consider before choosing a reputable financial professional. Trust and credentials are two important characteristics to look at when considering wealth management services.

Is it time to hire a financial advisor?

The answer to this question depends on your status as an income earner and whether you are self-employed, a corporate executive, or an entrepreneur.

If you have recently inherited money or real estate properties, a licensed advisory firm would most likely be a good option to help you create a long-term investment strategy to reach your desired financial goals.

Another time to use a financial advisory firm is when you retire or are nearing retirement age. If you are a high-income earner or high-net-worth individual, a certified financial planner will help you manage your funds using strategic management to meet your retirement objectives. Investment management is definitely an essential service in planning financially for the future.

Pros & Cons of Money Management

While there are pros of having your money managed professionally, there are also cons associated with mismanagement and receiving non-certified services. One of the advantages of money management by a financial planner is ensuring that funds are accurately allocated in your investment account. Financial advisors consider possible risks, as well as investment criteria assessments to balance your portfolio. A licensed advisory firm manages your money strategically and systematically to minimize the effects of market downturns.

Furthermore, when you have multiple or diverse assets, portfolio management services help simplify and manage all the moving parts by examining your finances, setting long-term and short-term goals, and managing the risks that accompany each asset. In such cases, we would recommend getting some help to ensure that you get the best returns possible.

Compensation, on the other hand, can be considered a con of money management services, depending on how much money you have available for investments. Paying an advisor to manage $20,000 of investments, for example, might not provide you with the same value as acquiring professional services to oversee millions of dollars of investments. When dealing with smaller amounts of money may not be the best step for you.

When to Work With a Financial Advisor

The complexity of the financial advice industry requires professionalism in investment management. Whether you should work with a financial advisor depends on your understanding and education in finance and investments. Younger individuals in their 20s and 30s, for example, may not need help if they have a TFSA and just beginning to invest for future retirement.

DIY (do-it-yourself) investor or individuals who are overwhelmed with investment options, on the other hand, should definitely consider working with a certified financial planner. Portfolio management is time-consuming and requires commitment and dedication in developing and implementing investment strategies. A financial advisor can periodically check your investment portfolio to inspect its health by reviewing your assets and consequently helping you make decisions to maximize investments.

If you know nothing about financial planning and investments, it’s essential that you work with a financial advisor. This can benefit new or inexperienced investors in educating and obtaining experience in investment management and investment strategies. It will also teach you how to monitor your money. If can afford it, we always recommend that you take advantage of advisory guidance, as it will help you in making better decisions in selecting the appropriate investment products to build your portfolio over time.

Benefits of Financial Advisory Services

  • Portfolio diversification of different types of assets, sectors, and markets including national and international.
  • Customized portfolio with accounts structured for flexibility to make adjustments based on economic conditions and events.
  • Adjustments to asset allocations for rebalancing your investment portfolio on a regular basis.
  • A knowledgeable and licensed advisor who always takes into account the client’s best interest.
  • Trustworthiness in maintaining long-term and short-term relationships with clients.
  • Lower tax liabilities to save you money.
  • Efficient reporting to clients in an Investment Policy Statement with all your investment selections, management fees, and risks.
  • On-going monitoring and management of investment portfolios.
  • Meetings with advisors every quarter or every six months.

The Importance of Financial Advisory Standards

Not all companies and firms operate under the fiduciary duty leaving room for fraud and mismanagement of clients’ investment accounts. If you are receiving services from companies who don’t have a fiduciary duty, consider a reputable and registered financial advisory – it’s the only way to ensure you are receiving services in your best interest. You need a registered financial planner who will recommend the appropriate service suitable for meeting your investment needs.

Types of Compensation Fees

There are typically two types of compensation fees financial advisors charge for portfolio management services: fee-based and fee-only. Fee-based compensation fees are usually paid by a third-party or the client. Financial advisors charge a percentage of the client’s assets under management. They may receive compensation from a third-party for selling a life insurance policy or annuities and for placing trades and selecting funds or securities to include in a client’s portfolio.

When it comes to fee-only compensation, the fee is a percentage of all managing assets. Compared to fee-based compensation, it is a cheaper alternative for investors needing services for part-time management. Fee-based compensation is much higher for investors with assets of $500,000 and up.

If you are still not sure whether you need someone to manage your investments, determine how much money you already have in investment accounts. The more money you have, especially in the range of millions of dollars, the more value you get when you hire the services of a registered financial advisor to manage your wealth. In order to avoid high compensation fees, you may not need to consider getting advisory help if your savings are under $75,000. Get a portfolio review with Exponent today to find out how we can help you maximize your investments and manage your money efficiently.

 

Exponent Investment Management