Is a financial planner worth the cost? Is it a smart money move to dedicate some of that hard-earned cash to someone else to have them move it around in the market?
All too often, people are quick to answer that financial planners and advisors aren’t worth the cost. They think financial planners are too expensive, salesy, or disingenuous. And when it comes to Gen Y, negative connotations and suspicious rise.
But these assumptions are based on some stereotypes that are quickly becoming outdated.
If, when you heard the term “financial advisor” or “planner,” you envision a older man in a fancy office who profits off the financial products you buy — well, it’s time to take a look at what today’s younger, newer advisors and planners offer to consumers. Many are changing the game and wanting to provide something better for regular folks like you and me.
Whether or not a financial planner is worth the cost will depend on your situation, your proficiency with managing wealth, and your assets. Not all financial planners are expensive, and those that work as fiduciaries have literally sworn to work in the best interest of their clients at all times.
The Internet Makes DIY Planning Possible
You can find a financial planner who truly does work for what’s best for you and removes conflict of interest from their business model. (In other words, some advisors are paid a flat fee rather than being paid commissions on financial products they sell.) There’s still another side to the argument of whether or not a financial planner is worth the cost, however.
There has never been a better time than now to self-educate on almost any topic imaginable. The Internet is absolutely brimming with fantastic resources — that are completely free to access. You even have virtual financial planning services, like Jemstep and Betterment, that can still help with planning where you need it but are more hands-on and less expensive than hiring a real live human to help you one-on-one.
In the past, it may have been difficult to navigate lifelong financial planning without hiring a professional. But thanks to our constantly connected digital world, it’s not unreasonable to take a do-it-yourself approach with your money.
DIYers don’t have to worry about being able to afford anyone’s help, and make their own decisions on assets and investments. For those that feel a financial planner is an unnecessary middleman, the Internet makes it possible to eliminate the paid professionals.
So, what’s the answer? Is a financial planner worth the cost?
The Benefits of Working with a Financial Planner
Sure, financial planners come at a price. But you need to look at the idea of professional financial advice like your other investments and ask yourself an important question: What’s my ROI?
In other words, would working with a financial planner and paying the fee for doing so allow you to grow your wealth more — or provide a bigger return — than trying to manage your money by yourself would provide?
If you’re the type of person who doesn’t have the time, patience, or willingness to research the best courses to take with your finances, you can greatly benefit from having a financial planner working on your financial team.
Consider the costs of going it alone. You could not only fail to grow your wealth at the same rate as you would with a financial planner helping develop a plan of action for you, but you could end up worse off by trying to handle all aspects of your finances by yourself. People are emotional creatures, and we don’t often act rationally — which is the very reason many average investors end up buying high, selling low, and wrecking their wealth.
When you’re on your own, you need to manage not only your money, but your emotions too. You need to constantly monitor your actions and ensure the steps you take are sensible and rational. That’s extremely difficult and exhausting.
Plus, there’s always the cost of mistakes. Certified financial planners are trained professionals with a certification. They’ve had a formal education and are required to continue their education with ongoing tests and trainings to take and pass. That doesn’t mean they’re infallible, but it does indicate that their rate of errors should be lower than that of the average Joe. (That would be you, in this case.)
Tips for Working with the Right Financial Planner
If you believe your ROI will be favorable and want to work with a financial planner, your work with your money isn’t quite done. You need to ensure you’re choosing the right advisor for you. Consider and look for these factors when searching for a professional:
- Fee-Only: This means you’ll pay a flat one-time or ongoing rate to your financial planner. Fee-only advisors do not make any commissions off the products they recommend, so there is no conflict of interest involved.
- Fiduciary: Having your financial planner be a sworn fiduciary means they have taken an oath to protect your interests. This allows for you to have a better relationship with your financial planner as you know you can trust them.
- Rate: Make sure the fees you’ll pay to an advisor are within your budget. Advisors with the new XY Planning Network typically charge on a monthly cycle, just like all your other bills, and come in at $100 per month — which is considerably more affordable than traditional advisors who skim commission fees off the top of your earnings.
When DIY Financial Planning Makes Sense
In some cases, you might not be completely comfortable with having someone else manage your portfolio (regardless of if they have a sworn fiduciary duty or not). Or your financial situation may still be simple, straightforward, and uncomplicated — in which case, you likely won’t see a good ROI on paying for professional financial advisor.
If you know where to look for answers, you’ll be able to work things out on your own. There are lots of people taking the DIY approach to their finances, so you won’t be alone. There’s a lot of free information out there in the form of books, blogs, websites, forums, and apps. Even doing a simple Google search on a question you have can open a world of knowledge to you.
If you have more complex questions, there are forums and Q&A resources out there where experts and other knowledgeable individuals can help you figure things out. Two forums that come to mind are the Bogleheads forums (geared toward investing), and Mr. Money Mustache forums (focused on frugality and early retirement).
Can you create a DIY financial plan for yourself? Yes. Good information is out there and the fundamentals of personal finance are easy to understand. But there is a catch.
ARTICLE: Clark’s Investment Guide
Drawbacks of Trying to Handle Your Finances While Flying Solo
Here’s the thing about the Internet: anyone can put anything on a web page and call it accurate, factual, or good advice. Sorting through the endless information online and deciding what’s correct and what’s nonsense isn’t easy, and it’s a major pitfall of going the DIY route and forgoing the guidance of a professional.
You have to make sure you’re looking at trusted resources, not something that someone slapped together. Otherwise, you could seriously damage the state of your personal finances. The easiest way to find trusted resources is to read well-regarded blogs and books to see what tools and methods they personally recommend. Even then, use a healthy dose of skepticism, seek out multiple sources, and don’t stop asking questions.
Another downside to DIY financial planning is that it can be time consuming. Researching investments can take a while. Unless you’re passionate about figuring things out on your own, you might find yourself thinking that your time could be better spent on other projects.
As a general rule, financial planners are worth the cost once your financial situation becomes complicated enough or if you simply doubt your ability to DIY. You’re better off paying a professional than possibly making mistakes with your money (and losing some in the process). Remember to choose a fiduciary and fee-only planner.
The free resources available to you should be used to increase your financial education, whether you go the DIY route or not. By learning, you’ll have a better understanding of your situation and what your planner is doing.
That said, if you feel confident in making good decisions regarding your assets, then go for it! You can always consult with a financial planner to “spot check” your work and make sure you’re on the right track. There’s nothing wrong with taking a hybrid approach.
About the author: Kali Hawlk is the founder of Common Sense Millennial, a resource for members of Gen Y who want to do more with their money. She works as a writer and content manager, and is passionate about personal finance and business. You can connect with her on Twitter @KaliHawlk.