“For the last four years, my 401K has outpaced what my financial adviser has done separately,” says Patty, 54, over lunch. “I’m paying the guy a fortune. Do you really think I still need him?”
“Are you gifted or just lucky?” I ask. “Make sure you know how to research investments before leaving your financial adviser. Start by reading The Wall Street Journal, Money, and lots of other financial publications. When you feel confident about your investing skills, ready to accept total responsibility, start monitoring, evaluating and tweaking your portfolio.
I’m sure it might be very tempting to try it on your own, especially when you haven’t seen much growth. It appears you feel you’re not getting much for your money. Remember, though, actively managed portfolios don’t always beat the S&P 500 Index.
“My neighbor says I can save a lot of money in fees by doing ‘everything’ myself,” Patty adds. “Good idea or bad idea?”
“Obviously, you want to retire someday,” I reply. “How do you feel about making mistakes with your own money? If you find yourself on the wrong side of owning an investment that’s going south, you might wish you’d stayed with your financial adviser.”
“Sometimes, in my opinion, there’s just no substitute for human interaction,” I say. “At a minimum, you can gain insight on retirement, college planning, tax issues, and building a legacy for your heirs. Getting help from a decent financial professional, I believe, improves your chances of success. ”
Need more evidence? “People seek more human guidance as they get closer to retirement,” says an August 2015 survey commissioned by Financial Engines, the largest independent investment advisory firm in the U.S. “A majority, 54 percent of employees surveyed, who don’t currently work with a financial planning adviser are interested in working with one.” Financial Engines, www.financialengines.com, surveyed more than 1,000 employees, aged 18 to 70, participating in their employer’s defined contribution plans.
You may also find customer service at online and robo-advisory firms, at times, that’s impersonal and not very satisfying. Calling or chatting with someone who isn’t familiar with your personal situation is another possible risk. Should your call or online chat escalate, you may experience even more frustration if your issue gets passed from representative to representative.
Do-it-yourself investing also might lead you to making bad choices, like buying high and selling low in chaotic markets. Selling an investment too soon, for example, might cause profits to be taxed at high ordinary income tax rates instead of lower tax rates for capital gains.
You may also benefit from a financial adviser who offers a variety of investment opportunities for the less affluent. Second opinions often validate current investment strategies or inspire changing course.
Are financial advisers worth it? Knowledgeable and competent financial professionals, I believe, are often worth their fees. Using a decent financial professional keeps you headed in the right direction and, with a little luck, helps you avoid making investment mistakes.
Jim Germer is a Bradenton CPA and financial adviser at Cetera Financial Specialists, LLC, member FINRA/SIPC. 100 Third Ave. W., Suite 130. Phone: 941-746-5600. Email: firstname.lastname@example.org