The Pros And Cons Of Hiring A Financial Advisor

A financial advisor can be a wonderful resource for getting your finances in order, offering you expert advice across a range of financial matters. But financial advisors are not all created equal, and those looking for an advisor must understand the potential drawbacks of using one.

Here are the pros and cons of hiring a financial advisor and the key things you need to know.

The pros and cons of financial advisors

Pros of hiring a financial advisor

They can provide a comprehensive financial strategy based on your needs

Financial advisors focus on developing a comprehensive strategy that can cover many aspects of your life, including investment, insurance, estate planning and more. (Here’s how to find a financial advisor in your area.)

“They can help you develop a comprehensive plan that takes into account your current financial situation and your long-term objectives, and have extensive knowledge of financial markets and a wide range of investment products,” says Rodrigo Faro, former CEO of Brainvest, a wealth manager.

A good advisor also listens to your needs and crafts a strategy tailored to your requirements.

They act as a “project manager” for your overall strategy, says Beau Henderson, RICP, founder of RichLife Advisors in Gainesville, Georgia. That includes investments but also Medicare, long-term care and Social Security.

Show up with your agenda and what you want, he says. “Take an active co-creator role.”

They can help you stick to your plan

Creating a holistic plan is really only half the battle. In good times, it’s easy to create a plan and commit to it. But when times get tough, people often want to deviate from a plan that can guide them through and instead opt for what feels emotionally safe or secure. 

At times like these, a good advisor will get you to stick to a proven, long-term strategy, motivating you to do what’s in your best interest and avoid the habits that will sink your retirement.

“Working with a disciplined advisor can take much of the emotional stress out of managing one’s wealth and avoid these mistakes,” says Pat Kujawa, AIF, regional director at wealth advisor Halbert Hargrove.

They’ll manage your portfolio for you

At their best, financial advisors can give you freedom to not worry about your investments and instead focus on what you really love doing. “Many clients find that offloading the stress of managing their own wealth is extremely liberating,” says Kujawa.

“Working with a financial advisor can save you time and allow you to focus on creating a plan and monitoring progress of the plan as you spend valuable time on other endeavors,” says Brad Cast, RFC, wealth manager, Merit Financial Advisors in Alpharetta, Georgia.

A good financial planner will put your best interests first

Choosing the right financial advisor can pretty much guarantee that your best interests will be put first at all times.

“The most important thing a person should be aware of before engaging a financial advisor is that they should choose a fiduciary advisor,” says Faro. “As a fiduciary, an advisor is required to provide advice that is in their customers’ best interests, even if that necessitates suggesting a less expensive investment alternative or declining a commission,” he says.

Even better is a fee-only fiduciary, who is paid exclusively by clients. These advisors are paid by you to act in your best interests, so they don’t have the conflict of interest of “free” advisors from the big financial firms (who call themselves advisors but are salespeople in disguise).

They’ll help you plan for the unexpected

A good advisor can help you plan for mishaps along the way, whether it’s a layoff, a surprise home repair or a stock market crash.

“Most people are reactive — acting after something bad happened,” says Henderson. “Financial planning is important enough that you need to be a proactive participant.” And that doesn’t mean you have to spend a lot of time every year worrying about your financial situation. “In some cases, it could be a couple hours per year,” he says.

They’ll help you get ‘life clarity’

Are you really thinking about how you’re spending your money and what you want out of life? A good advisor can get you to plan for what you really want and then help you realize those goals — what Henderson calls giving clients “life clarity.” “An advisor can help people discover the values that are meaningful to them and then help them use the money to get there,” he says.

“What is the purpose of the money if not to enjoy life, pass onto family or friends as legacy and so much more,” says Kujawa. ”A good advisor can help actionize your good intentions.”

Cons of hiring a financial advisor

They may have unclear fees

Financial advisors get paid in different ways. Some charge an hourly fee. Others charge a fee that’s based on the assets they have under management. But as a client, this is something you need total clarity on from your advisor.

“It is important to understand all fees and the structure in which the advisor operates,” says Cast. “This is both the responsibility of the advisor and the client. The financial advisor is responsible for providing value for the fees.” He adds, “Truly, the goal should be to feel like the advice and service received are worth more than the costs of the relationship.”

Fees can be a huge drag on your portfolio’s performance over time, so it’s vital to know what you’re paying and how much they cost you. Bankrate’s investing calculator can show how much those fees will cost you over time. Spoiler: You could easily pay tens of thousands over a career.

Their qualifications may be difficult to vet

Some financial advisors may have few or no qualifications, having just hung up a shingle and called themselves an advisor. But consumers do have resources to whittle down the field before conducting further research into an advisor.

If an advisor advertises credentials such as a certified financial planner (CFP) or registered investment advisor (RIA), you need to follow up with the CFP Board or FINRA’s BrokerCheck or the relevant organization. Of course, that’s just a starting point for your research.

“It’s often difficult for prospective clients to conduct proper due diligence on advisors in advance, and the industry does a good job of running ads on TV and radio that make all firms sound alike, but they are not,” says Kujawa.

Here are five key questions to ask any prospective financial advisor before you begin working with them.

Not every financial planner will be a good fit for you

“A good advisor may not be a good advisor for you,” says Henderson. “It needs to be the right fit for your household.”

Not all advisors are experts in every topic, though they may be good generalists. So you need an advisor who has the expertise — or who can call in other experts — to do what you need done. Beyond that, the advisor should treat you well, return your calls and generally meet promises. And you should also be made to feel like you can ask questions without being judged.

The most important things to know about hiring a financial advisor

Besides the pros and cons, potential clients need to understand a variety of things about hiring a financial advisor, say the experts. Here are some of the top things to know.

Know why you’re hiring the advisor

As you’re looking for a financial advisor, it’s important to know what you want because that will shape who you select. Advisors don’t all do the same things, and some specialize.

“People need to know what they want out of the advisor relationship,” says Henderson, or they can become part of someone else’s agenda.

If you want someone to manage your investments, then look for someone with a proven record in that area. If you need more holistic advice or advice on specific areas such as Social Security, estate planning, insurance or one of many other areas, make sure they have that ability.

If you’re just looking for investment advice, the best robo-advisors can build an investment portfolio that fits your risk tolerance and timeline — all for a low cost.

You’re building a relationship

While it can be easy to overlook, your financial advisor will have access to one of the most sensitive areas of your life. So you need someone you can trust and build a relationship with over time, ideally for decades.

“It’s like dating,” says Henderson. “You don’t necessarily commit your life to the first person who takes the call.”

That means investigating any potential advisor for fit and making sure they’re going to do what you need them to do. 

Your advisor’s incentives matter — a lot

If you want to hire an advisor who does right by you — and avoid feeling that you’re just an income stream for someone else — then you need to closely look at the advisor’s incentives.

So-called advisors at big financial institutions typically don’t have a fiduciary standard to clients but rather a “suitability standard.” They’re not legally required to give a client the best product, but rather, one that’s suitable, which could lead to suboptimal investments.

“That doesn’t mean they are bad, but their business model usually puts shareholders of their companies’ interests first, the company second and usually the client comes third,” says Kujawa.

The gold standard for a properly aligned advisor is a fee-only fiduciary. That gives you the best shot at getting someone who works in your best interests. Get your prospective advisor to put it in writing. If they’re unable to do so, they may have a conflict of interest.

Bottom line

Hiring a financial advisor can be a great move for you and your family, but you need to be clear on what you want and need from the relationship. Only then can you start to find an advisor who’s going to match your needs with the right plans, experience and temperament to get you there.

— Maurie Backman contributed to an update of this article.