Do You Need a Financial Advisor? 3 Pros and 3 Cons

By Sara

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Last Updated: December 27, 2022

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Becoming a self-taught financial expert can be an exciting thought for some, while others may see this as a daunting task.

However, when it comes to your financial portfolio, there are two options. 

You can either manage your portfolio yourself by learning about different strategies and coming up with a plan to reach your goal, or you can hire a financial advisor who takes care of most of these details.

On one side, having a financial advisor can help answer more questions and come up with a safe financial plan.

On the other, managing an account on your own reduces fees and allows you to become more financially literate. 

 

 

What is a Financial Advisor? 

A financial advisor is a professional with special qualifications to provide financial advice legally.

A financial advisor can help you with your:

  • wealth management
  • retirement
  • life insurance
  • general financial advice

Anyone can have a financial advisor and can use one to ask financial questions or help them set up an investment portfolio and even manage that account.

 

3 Pros of Having a Financial Advisor

Having a financial advisor can be a great help, especially if you want to make a plan for your finances and don't know where to start.

A financial advisor can help make recommendations and create a financial plan for you while managing those investments. They are a great resource if you need help during a major life event or just want to ensure that you are making the best decisions around your financial goals. 

 

1. Develop a Financial Plan 

One positive of having a financial advisor is that they will help you develop and implement a financial plan.

Advisors understand the market and have helped many individuals with financial plans, so they can help you make good decisions regarding your portfolio. They can provide you with tailored advice and point out certain opportunities to save or invest your money.

They can also help you stay on track with your financial goals. A financial advisor can help you with a budget and managing debt, which may be part of your financial plan. 

 

2. Manage Your Investments 

One major reason people choose to hire a financial advisor is that they can manage your investments for you.

This removes any risk of making poor investment decisions and learning about investing. An advisor has years of experience understanding the market. They can help you make smart decisions when it comes to investing.

They can help you understand different types of investment options as well that can help you reach your goals. Advisors will provide you with an in-depth analysis of your current finances so you can understand how your portfolio did, as well as where you currently are financially. 

 

3. Act as a Fiduciary and Expert 

Most advisors act as fiduciary, meaning they will consider your best interest when making financial advice.

Along with having your best interest in mind, they are also an expert when it comes to understanding the market, investing, and financial regulations. There are many regulations that can affect your investments which can impact the decisions you make.

A financial advisor will know these regulations and make the best decisions for you around these regulations. 

 

 

3 Cons of Having a Financial Advisor

While a financial advisor is available for anyone at any financial level, that doesn't necessarily mean that every individual should have one.

The cost of an advisor can add up, along with using someone with little experience, which may lead to bad planning and churning investments to receive a commission. These negative aspects of an advisor may lead you to want to take your financial portfolio into your own hands. 

 

1. Cost

One of the biggest drawbacks to having a financial advisor is the cost.

Many advisors charge a fee that is either a percentage of the assets they are managing or a flat fee. These fees can add up, especially if you have a larger portfolio and are paying your advisor a percentage of your total assets.

In addition, some advisors have additional costs for their services, from providing a financial plan to offering investment advice. Some even take a fee whenever they make a trade for you. 

 

2. Poor planning 

 Another drawback to having an advisor is poor planning, usually from any lack of experience.

Your advisor may make a plan that doesn't meet your goals. If an advisor doesn't have years of experience, they may be offering the same advice to all of their clients. Not all financial advice is the same, and each individual's situation will result in a slightly different plan. 

 

3. Churning 

While most financial advisors act as a fiduciary, not all are.

There is a worry that your advisor could often churn your investments for their benefit, not your benefit. Churning can result in higher fees that you have to pay, which results in lower returns. Every transaction an advisor makes can result in a fee, which benefits them. 

 

 

Final Thoughts 

With everything in finances, all decisions you make around your portfolio are your own and personalized to your situation.

For some, having an advisor may be the best for them because they don't have time to learn about the market. For others, having an advisor may cost too much due to fees, and the research to learn about the market could be easier for them.

You may now decide that a financial advisor isn't for you, but a life event could occur where you want that financial advice. Always do research and think about if this is the right financial move for you. 

Photo by Startup Stock Photos

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