Do You Need A Financial Advisor or Can You Do It Alone?

Examining where you are financially and putting together a Financial Preparedness plan requires a bit of time and effort. Inevitably, the question pops up as to whether to do this on your own or to work with a financial advisor.

The short answer is yes, either way. The long answer is if you choose to go it alone, make sure you have reliable sources of information.           

I’ve had the luxury of being an advisor and an individual investor.  What I’ve learned over the years is that there are pros and cons to working with an advisor or doing it on your own.  As I’ve said, every person needs to do what provides them with the most comfort.

The intent of this section is to provide you some insights to help you make the decision of how to proceed on pursuing your plan.  The reality is that most of the work will need to be done on your own anyway.  Gathering information, retrieving statements and thinking about your situation are all things that you will do.  You’ll also need to review your situation on a yearly basis.  These things shouldn’t be delegated to someone else.             

So let’s look at what you need to consider when deciding to choose or not to choose an outside resource to help you formulate a plan for your finances.

Some of the pros of working with a Financial Advisor are:

• A good one is priceless, and the cost will be easily made up in advice and convenience. They will spend the time to understand you and your financial needs and work toward your goals. A good advisor will be interested in you for the long term, not for short-term gain.  Remember that an advisor is running a business and a good one will understand that a long-term successful relationship with you will be mutually beneficial. 
• They’re on top of the latest trends and products. In light of the latest mortgage backed securities disaster, this can be a pro or a con but I’ll list it as a pro here.  It’s important that you understand that an advisor provides advice; you make the decisions. Therefore, choosing an advisor doesn’t mean that you neglect your need to stay educated about investing and the current markets.  Your knowledge of investments and finances should grow as you work with your advisor.  Believe me, the good advisors value an educated discussion with a client!
• They can save you time and worry. Retirement planning should be a major part of their job and a good advisor knows how to do it. For some of us, they save us the worry of whether or not we have the right information and are using it correctly. For many people this is a great source of comfort. Talking to a professional informs us and gives us the choices we need to make the right decisions.

Some of the cons of working with a Financial Advisor (FA) are:

• Cost. While not always true, when you consider the fees and expenses of investments and investment accounts, the cost of working with a financial advisor can be higher than going it alone. Always be sure to understand what all the fees and expenses are and how your advisor gets compensated. 
• Bad advice. Really, this can happen as easily online or on the golf course as with a professional. A good rule of thumb is always to step back and understand the risks and alternatives when someone makes recommendations or provides advice about what you should do with your finances.  That goes for family as well as advisors.  Always remember that you are in control.  It’s your money.  In the end, they’re your decisions.  Not someone else’s.
• Incentives. Financial advisors make their money by investing yours. Their incentive is to get your money working so they get paid. You should consider the type of investor that you are, but I believe that should be wary of commission only brokers. Instead consider flat fee or those that get paid on a small percentage basis. The thinking here is that they either have no incentive to “churn and burn” or have a direct incentive to make you more money because they get a small percentage of it.
• Selling you what you don’t need. See above. If the advisor has not talked to you about risk and clarified the type of investors you are before they make an investment recommendation, you need to walk away from that conversation.  Also, watch out for big insurance or package deals that you have trouble understanding. Chances are the Financial Advisor doesn’t understand them either but gets a big chunk for selling them, possibly up to 7%. Ask them how they get compensated for an investment.  They’ll even respect you more for asking.
• Good financial advisors retire too. Be sure that you’ve discussed your advisor’s “career plans” and any “succession plans” they may have for their business or when they decide to retire, you’ll be stuck with the task of finding another ace FA again.  

           The fact is you can do it either way. Some people feel better having someone help make their retirement plan for them, and others want to stay firmly in control. The rest of us lay somewhere in between and need to weigh the pros and cons of whether to hire someone to help us out or not.


How to pick a Financial Advisor?
If you choose to work with someone rather than going it alone, it leads to the question of how to pick a financial advisor, Certified Financial Planner™, or other financial professional. Like finding the right doctor or dentist, making the wrong choice could be damaging to your (financial) health. It’s best to proceed cautiously and ask a lot of questions before signing on with anyone.

• Referrals. This is often the best way to find any professional, whether it be your mechanic, your brain surgeon, or even your hair stylist. Ask your friends and family but don’t stop there. They may “like” the person just fine, but always do more due diligence on your own. This is your financial health, after all.  It’s YOUR advisor, not your friend’s!
• Interview several. Give yourself choices. Get second, third, and fourth opinions.  Let them know that you’re interviewing several other advisors to find the most appropriate one for you.
• Google them. One of the advantages of the internet is you can find out about people. Do it. You might be amazed at what you dig up. Check out their standing with the National Association of Securities Dealers (NASD). This is the regulatory body for stockbrokers and financial advisors.   
• Ask them how they get paid. The reputable advisors will be happy to answer this question and as I said, they’ll respect you as a client for doing so.  If they don’t answer you or you don’t like or understand their answer, move on to the next advisor interview. 
• How are they licensed? Can they sell mutual funds, stocks, bonds, insurance? Are they limited in any way?  It’s wise to work with an advisor who can provide you the most options as investments selected should be based on the needs of the client, not limited by what the advisor can or can’t offer.
• Consider the firm they work for. Big names like Merrill Lynch and Morgan Stanley can be high quality but they can be expensive. If the financial advisor you’re considering is working as an independent they still have a trading and product platform they work within. Ask them who the company is and then research it.  Google the firm and ensure that they are not only legitimate but don’t have any pending judgments against them.
• Ask them what their service level commitments and communication policies are. How often will they contact you? Do they conduct annual reviews? Quarterly reviews?  What happens when problems occur?  Who can you call and how quickly will they respond to your concerns?
• Do they have specific designations? Many FAs have letters after their names. Unfortunately, these “qualifications” often mean only that the firm they work for had set up an easy class so they could get these letters and impress clients. Major firms are especially notorious for this. Many reputable advisors have gained the Certified Financial Planner™ (CFP©) designation. The training to get this designation is intense and thorough. It indicates that the advisor has been through training that is focused on all aspects of financial planning including estate and retirement planning. A growing designation in the industry is that of the CFA (Chartered Financial Advisor).  This indicates that the advisor is extremely knowledgeable about investment selection and understanding the micro and macro factors impacting the markets.  Either of these designations should be view as a plus when considering advisors.

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