Is your financial advisor worth the money you pay them? Let this guide help you find out!
Question: If a manager is just putting my money into index funds that follow the market, is he doing anything to make my money grow? As long as my money is within my risk tolerance, what is the manager’s interest? I have access to index funds now and if the majority of the funds they buy are AAPLs, well, I can do that. Is there any work they do to help my money make money, or are they just following the market? When the market is good, I’m good, and vice versa. What advice can you give me? (Looking for a financial advisor? You can use this tool to connect with a financial advisor who might meet your needs here.)
Answer: The pros say that if all the advisor does is invest your money in index funds, then yes, it might be time to cut ties with that advisor. “A good financial planner will help you with more than just your investments and provide comprehensive financial planning,” says Jay Zigmont, Certified Financial Planner. Indeed, the purpose of an advisor is to help you with investment behavior, cash flow planning, tax minimization strategy, estate planning issues, insurance policy structure and to help you learn how to live your best life now and in the future, while using your money to help you do just that, says Kaleb Paddock of Ten Talents Financial Planning.
“Ninety percent of financial advisor jobs have nothing to do with investments. I would recommend finding a genuine fiduciary financial planner who is okay with this and will focus more on your life than your investment portfolio,” says Paddock.
And for Aaron Klein, CEO of Riskalyze, a fintech company that provides software for financial advisors, the value of a financial advisor lies in helping you solve complex and important financial issues that arise during times of stress, anxiety and volatility in the markets. . “Our psychology tends to sabotage us as investors, and it navigates bear markets where financial advisors really earn their fees, helping us stay calm, avoid bad decisions, and stay the course,” Klein says.
In short, if you’re paying a financial adviser’s fee just for index funds, it might not be worth much, says certified financial planner John Piershale of John Piershale Wealth Management. “If your advisor provides you with good service, a risk-adjusted portfolio, and is there for you, especially in tough times, a lot of people find value there because they don’t want to go it alone,” says Piershale. You can use this tool to connect you with a financial advisor who might meet your needs here.
Typically, financial advisers who manage investment accounts rebalance their clients’ portfolios a few times a year, says certified financial planner Danielle Mirua of Founder-Spark Financials. “Depending on the financial adviser, he may actively transact on your account, and the downside of having a financial adviser transact frequently on your account is that the transactions may incur more fees and taxes on you,” says Miura. .
When in doubt, ask your financial advisor about their investment philosophy and strategy and remember that you are paying for the investment management service. “It’s perfectly normal to ask your financial adviser why they make specific transactions on your account and it’s possible to manage your own investment account, however, there are risks in making poor investment decisions based on your risk tolerance and your timeline,” says Miura.
An advisor may be more appropriate for someone who wants help dealing with market volatility. “We’re emotional and usually when the markets go up we get excited and want more and when the markets go down we get scared and want to sell everything,” says Certified Financial Planner Matthew Crum of True North Financial Services. As a third party, an advisor can help calm emotions in times of extreme happiness and fear, helping clients maintain proper perspective on their investments and avoid short-term mistakes.
But not everyone needs to work with an advisor. This guide will help you determine if an advisor might be useful to you.
Do you have a question about your financial advisor or want to hire a new one? Email email@example.com.