Are Financial Planners Worth It?

I thought it might be useful to look at some numbers to really get a sense of how much value an adviser would have to provide to make it worth it, strictly from a cost perspective.

It is nearly impossible to measure convenience. If someone simply would prefer not to think too much about it and have someone else manage their investment portfolio, then this discussion probably does not have much value for them and is moot. Before we look at the numbers, we have to understand that with regards to fee structure, there are basically two types of advisers.

The first type, sometimes referred to as Fee-Only are paid only for the advice they give, normally per session. In other words, if you have specific questions, they will charge by the hour for their time. They do not earn commissions by selling financial products nor do they charge a percentage of the assets under their management.

The second type, sometimes referred to as Fee-Based typically make commissions on the products they sell and/or as a percentage of the assets under their management.Financial Planner

With that out of the way, let’s look at twin sisters Cindy and Wendy Watson. On the their 24th birthday, December 15th, 2013, their grandparents gave both of them a gift of $10,000.  Both sisters decide to invest all of the money in the new year.

Cindy decides to hire a financial adviser that offers his services at a rate of 1.5% annually. Whatever Cindy makes each year, her returns will be 1.5% less what they otherwise would have been as her adviser will deduct that amount from her gains as his payment.

Conversely, Wendy – who happens to be a RetirementSavvy reader and has been learning about investing through various mediums (e.g. formal classes in school, financial blogs, financial magazines, etc.) decides to forgo the adviser and manager her own portfolio.

On January 1st, 2014, both sisters will invest the $10,000 in the same products and each month they will invest an additional $200 ($2,400/year). As fate would have it, over the course of 40 years, the sister’s money was invested – and traded in and out – in the same investments. Over the 40 years, the average rate of return on their investments is 7%. How will the sister’s respective portfolios look come 2054 as they prepare for retirement? A good Investment Calculator gives us some insight …

Wendy Watson

Cindy Watson

As you can see, everything else being equal, the fees paid by Cindy to her financial adviser come at a cost of $231,389,05 at the end of 40 years. Does this suggest that financial planners/advisers have no role? Not necessarily. However, I believe that for the vast majority of people, in the vast majority of cases, financial advisers are best avoided, particularly the Fee-Based type. If an investor does decide to use a Fee-Based adviser, I would suggest they do so with the full understanding of what the cost will be.

I believe most individuals will be much better served by taking the time to educate themselves, become financially literate, and use Fee-Only advisers – paying a single fee – on the occasions that they have specific questions for a specific issue.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. I understand that Financial Advisers have their place, but I don’t think that place is in the pockets of the “every day Joe” investor.

    When it comes to investing, the library is full of FREE education. (many times written by the same advisers we’d traditionally pay fees to) It seems to me (as you pointed out James) that the fees associated with advisers just isn’t worth it.
    “Research” may show that most people fail miserably at investing on their own, but it’s been my experience that most of those failures are the result of a lack of education, not the lack of a paid financial adviser.
    If those who failed at investing had researched more, asked more questions & avoided emotional investing, I’m convinced they’d have done a lot better.
    I just don’t understand why I’d pay a financial adviser when I can read his/her advice in a FREE book at the library.

    • “Research may show that most people fail miserably at investing on their own, but it’s been my experience that most of those failures are the result of a lack of education, not the lack of a paid financial adviser.” Great observation, Taz. One thing I have learned over 12 years of investing is that there is great value in educating yourself.

  2. I can understand both sides of this coin. If a person is NOT financially savvy, I believe a good financial planner is definitely needed. Now with that being said, this would give time for the investor to read up on and learn all about investing and the market to enlighten themselves. This would probably lead to the investor taking care of his own investments at least until time to withdrawal.

    Some people don’t want to be bothered or are not interested with investments, even though it is their future. They don’t trust themselves, or as Scott said, they are too emotionally involved and will withdrawal as soon as they see the market dropping.
    I am not a Savvy investment person, but I am very fortunate to be married to someone that is! I would be lost (and poorer) without him! I do have to say though, that I am learning more and more by reading this blog. Thanks again!

    • Thanks for the comments, Karen. At the end of the day, I have no problem if someone elects to use a professional financial adviser. After all, it is their money. My overarching point is this…investors should be acutely aware of exactly what they are paying and how those fees/costs can impact their bottom line over time. If they believe they do not have the capacity to learn about investing – or simply prefer the convenience of letting someone else manage their portfolio – more power to them.

  3. I understand the math of looking at financial planner as an expense or a flat fee or assets under management fee. Dalbar studies show consistent evidence that individuals left to their own will make poor choices as to investments. Dalbar’s most recent analysis 12/31/12 for the prior 20-year period reflects “average investor” performed at 2.3% for period (1993-2012).  This is another example that emotions affect results.  Holding bonds during this period 6.3%, S&P 500 8.2% REIT’s did 11.2% and inflation did 2.5%.  Having process and discipline to stay invested mattered. Most will not have the emotional strength to endure down markets swings.
    Many of those I have counseled over the past 27 years come to ask advice about expenditures, lifestyle, helping family members financially and more. Many also need term life insurance and trust me to understand the needs of their family when they die- peace of mind.
    If you are not seeking advice and needing feedback on financial issues and all is running smooth you may not need an advisor today. There will likely come a time in the future you would be very wise to invest into either a relationship with retirement income specialist or insurance agent for family support.

    • Thanks for taking the time to stop by and comment, Scott. As I touch on in the blog post, there may be times when an adviser has value. I also make that known in my book when I note that I plan to use a fee-only type adviser as I get within five years of retirement to help with developing a withdrawal plan and to get specific guidance with respect to the different options for drawing Social Security benefits.

      However, by and large I believe that most people have the capacity to become financially literate and manage their portfolio well enough making a fee-based type adviser unnecessary. Again, thanks for stopping by, it is an interesting question that deserves thoughtful consideration by those with different opinions.

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