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Talking with a financial advisor

The Pros and Cons of Using a Financial Advisor

If you are reading this, it likely means that you are thinking of hiring a financial advisor but are unsure if it is the right choice for you. We understand that it can be a tough decision, which is why we have created this comprehensive list of the pros and cons of using a financial advisor. Let’s start by looking at the cons before moving on to the pros.

Note: This article contains affiliate links. This means that if you purchase a product or sign up for a company through one of our links, Thrive Oak will make a small commission (at no extra cost to you).

The Cons of a Financial Advisor

Finding a Good One

Like all professions, you have people who are good at their job and people who are bad at their job. The same goes for your financial advisor. If you sign up with a bad advisor, it could end up losing thousands of dollars. Finding a good advisor takes time, and you certainly don't want to jump into it with the first one that you meet. We suggest meeting with multiple advisors, bring lots of questions, asking about conflicts of interest, and even bringing them a hypothetical for them to advise on to see how they do. 

Conflicts of Interest

Motivation is critical, and you want your advisor's motivation to be in your best interest. Some advisors receive commissions when they recommend clients to a specific product, which means that sometimes that product is not the best thing for you. You want to make sure that you ask about conflicts of interest before choosing an advisor. Having an advisor who works as a fiduciary (required by law to act in your best interest) helps to negate much of that problem.

Meeting with a financial advisor

Costs

Hey there, money! Yes, financial advisors need to be paid, which means that having one is going to cost you money. Some take a percentage of your portfolio, some get paid by the hour, and some get paid by commission. If you can't afford an advisor yet, they may not be the right choice for you. However, even if you're not going to use one, it doesn’t mean that you can’t schedule a free consultation to get a basic investment idea. 

Method

Some financial advisors apply the exact same A, B, C method to every one of their clients. You get some of this, some of that, and a sprinkle of this. TA-DA! However, this process can be limiting, especially if you are looking to have an incredibly diverse portfolio, or you are looking to invest outside of traditional methods. You want to make sure that your financial advisor is not stuck in the A, B, C bubble and can create a successful plan individualized to you.

Oversight

While handing over the reins to your financial advisor may be freeing, you are giving up control over your future financial freedom. If they mess it up or are out of sync with your everchanging goals, you are out of luck. That is why financial advisors require oversight. Yes, they have to adhere to their company’s policies, but you should still keep an eye on them. Also, you should have enough financial knowledge (which you can get here at Thrive Oak 😉) so that when you check up on them, you can tell if something is going awry and call them up for an explanation. 

No Guarantee

While financial advisors can set up the perfect plan to make you a millionaire, they can't control everything, so there are no guarantees. Advisors can't stop a recession from happening or know when the market is going to take a nosedive. While they can give you the best tools for success, they can't promise that everything will turn out perfectly.

The Pros of a Financial Advisor

With all of that said, there are also many pros to working with financial advisors. Now that you know many of the cons of using a financial advisor, let’s take a look at the advantages. 

Experience

Financial advisors have dedicated their lives to making money for others. They have years, or even decades, of experience with the financial market and all the wisdom that comes with that experience. They generally have a strong intuition for market growth, wealth planning, retirement funds, and everything else that it takes to build and manage a successful investment strategy. By using a financial advisor, you get to utilize all of that knowledge.

Talking with a financial advisor

Education

Do you like crunching numbers, watching the stock market, and analyzing different index funds? Or does it make you go cross-eyed? To be successful in money management and wealth-building, you have to build a financial knowledge base. Financial advisors come with that lovely feature, which means that you don’t have to. While it is a good idea to have an overarching idea of the basics, going into the teeny tiny details can be annoying and time-consuming. Using a financial advisor means that you leave that up to them while you focus on the bigger picture. 

Comfort

In this crazy, mixed-up world, having a plan is comforting. When you create a long-term investment plan, you are laying the foundation for your financial success. By hiring a financial advisor, they are essentially paving the yellow brick road for you, and all you have to do is walk down it. Once you have retirement accounts, index funds, and other investment strategies all setup and growing, it will ease a burden from your shoulders, knowing that you are on the right track. 

Accountability

Sticking to your financial goals isn’t all that easy. If you epically fail at meeting your goals, an app isn’t going to raise on eyebrow at you or ask you what happened. A financial advisor provides accountability. They remind you of the value of what you are doing, the goals you are trying to achieve, and the success you will have if you can maintain a consistent financial strategy. In our ever-busy world, having someone dedicated to the success of your nest egg could be the difference between retiring at 55 or 80.

They’re Human

One of the best things about financial advisors is that they are human. I promise they are human. They are not just a robot or algorithm telling you the best route to go. They have emotions, empathy, and relatability. They will personalize your financial journey to you, your values, and your goals. They will be there and understand when things go wrong and help you adjust to new circumstances. Above all, because they understand emotions, they won't let yours negatively influence your financial decisions. They will act as a third party that bases decisions on facts and real-life over gut feelings and hair-brained ideas.

Goal Setting

If you were to swagger up to a financial advisor and claim that you are going to invest 90% of your income in a Certificate of Deposit, they are going to ask you, “What are you smoking?” Financial advisors are realistic. They understand the difference between dreaming big and realistic expectations. They will help you find the best investment plan for you, your family, and your life. If going on a vacation to Thailand is important to you, they will guide you on how to incorporate that with your savings goals. They understand the importance of planning for big events and how to adjust when things go awry. With a financial advisor, your financial goals can easily be modified and expanded to suit your life as it is.  

Time 

Time is money! Sadly, we only have so much time in the day, and we need to prioritize that to the best of our advantage. Using a financial advisor will save you an abundance of time. They can set up the nitty-gritty details of your portfolio in hours, whereas it would take you weeks. Then there is the management, tax-loss harvesting, buying and selling, and so many other factors that take up time.

Think about it this way. The millionaires and billionaires of the world always advise people to focus on what they are good at and hire others to do what they are bad at. If managing your portfolio takes you five hours a week, how much money could you make doing something you were good at in those five hours. If that number is higher than what it would cost you to hire an advisor, it’s worth it. OR you can think about it this way. What if you spend that five hours doing something you love, like spending time with your family or enjoying your favorite hobby. Is that time well spent worth what you are paying the advisor? If the answer is yes, then you are on the right track. 

Is An Advisor Right for You?

After looking at the pros and cons of hiring a financial advisor, did it clear up some of your questions? We certainly hope so! If you decided to skip hiring one for now, check out our article on Common Investing Mistakes Novices Make. If you decided that you are going to investigate further, get started today! 

Begin right from your couch with these online investment firms that will help immediately set up a free consultation with an advisor.

–          Personal Capital
–          Facet Wealth
–          Betterment  
–          Wealthfront

You can also access financial planning services through some Investment Apps as well as your local brokerages. If you would like to stay local and meet someone face to face, we suggest chatting with friends and family to see who they recommend and why. Once you have a few recommendations, simply call their offices, check if a primary consultation is free, and book a time to meet! By doing this, you will be on the fast track to financial success!