Disclaimer: While none of these blog posts should be construed as financial advice, in my profesional life I am a Financial Advisor and clearly have bias in writing an article about why you should pay for one.
If you’re okay with that — carry on.
I can list many different reasons, most empirically supported, for why you should pay an advisor a fee to manage your investments… but the only one that truly matters is the benefit of being held accountable by an incentivized 3rd party.
Prospective Client: “I just take all of my money and put it into the lowest cost S&P 500 index fund.”
Me: “Nice, can you send me your statement?”
Their Statement: “Not just the S&P 500 Index Fund.”
Their reason? Some variation of someone else told me to buy (insert investment).
We all lack self awareness at times (that’s why coaches exist).
Yet in the arena of personal finance where what’s at stake is whether or not you’re able to retire… lacking self awareness can be fatal to your financial health.
This is why “DIY Financial Planning” never made sense to me.
The value in Financial Planning isn’t in mechanistically putting money into accounts and purchasing insurance.
If that was the case everybody would hire a robo-advisor and call it a day.
The value in Financial Planning is being able to align fallible (and often myopic) human behavior with appropriate financial action.
For example:
Your 401k drops by 20%.
You’re only a few years from retirement.
Do you sell?
This is where the rubber meets the road with regard to your plan — will a financial calculator, a spreadsheet, and the internet be enough to help you make the appropriate decision?
Further do you have the requisite self awareness to be unemotional about said decision while looking at the remaining 80% of your nest egg.
Probably not.
Therefore help (ideally paid help) should be used to figure out what to do, and more importantly what to avoid (like selling your investments due to a market pullback).
It’s in these moments (which happen more frequently as you get older and wealthier) that the 1% fee you’re paying your advisor becomes worth its weight in gold.
And given that said fee is based on how much money you have… it would be nonsensical for your advisor to suggest anything that would make you poorer.
“Incentives are a hell of a drug” - Rick James (maybe)
Cheers