You dont need a financial advice if:

One of the most commonly held misconceptions in investing is the idea that you must work with a financial advisor in order to be successful.

Perhaps this myth has persisted for so long thanks to persistent marketing on behalf of financial advisory firms.

However, the reality is that investors who manage their own money are often able to perform just as well or better than those who work with a financial advisor and without any high fees eating into their returns.

If you’re still on the fence about whether or not you actually need a financial advisor to be a successful investor, consider these points.

1. Financial Advisors Rarely Beat the Market

Large-cap fund managers – people who could be considered the most elite. The elite when it comes to financial advisors – are outpaced by the S&P 500 a staggering 92.2% of the time.

Even Fran Kinniry, the head of portfolio construction for Vanguard Investment Strategy Group. Once admitted in an interview with U.S. News and World Report that beating the market was, “Really hard to do” for financial advisors.

Instead of helping you actually beat the market. Financial advisors serve more as a coach and counselor. Talking you through the tough times and persuading you not to make emotion-based decisions.

However, you have to decide for yourself if this service is really worth paying for.

2. They Charge You Regardless of Whether or Not They Make You Money

The fees that financial advisors charge are not based on the returns they deliver but rather are based on how much money you invest.

This means that even if they end up losing the money that you entrust them with, you’re still going to get a bill for their services.

Not only does this system add extra. Unnecessary risk and expenses to your investment strategy. It also leaves little incentive for a financial advisor to perform well.

While they will earn more if they are able to grow your wealth, at the end of the day, they get paid regardless.

Maybe you work (or used to work) in the finance industry. Perhaps you just love the thrill of watching stocks rise and fall, and enjoy the research behind structuring a well-balanced portfolio, with an appropriate amount of risk. If it’s something you’re passionate about, and have the time for, you might not need to bring in an outside party.

  • You dont need a financial advice if: You’re running on autopilot

If every month you save systematically, have your portfolio set to auto-rebalance and your investments are relatively simple, you likely don’t need a financial advisor. It’s when your financial situation becomes more complex that an advisor could add value. But if you have your finances set on autopilot, and are on-track for retirement, you’re probably doing just fine.

If the amount you have coming in from pensions and social security are more than enough to cover your needs, then the dependence on your investment portfolio is less significant than it may be for other families. With that steady income, you might not need a financial advisor to help keep your finances in check.

3. Putting Your Money in the S&P 500 Will Make You More Money

Simply putting all of your money into the S&P 500 and forgetting about it will almost always yield higher returns than entrusting your money with a financial advisor.

As already mentioned, the S&P 500 beats large-cap mutual funds 92.2% of the time.

How is it, though, that the S&P 500 is able to beat money managed by financial advisors so frequently?

The answer lies in the high, percentage-based fees that financial advisors and fund managers charge.

Overall, a financial advisor may be able to perform better than the S&P 500.

However, once you subtract the fees that they charge, your returns almost always end up being less than they would have been if you had put your money into an index.

4. You Can Make Better Returns by Choosing Individual Companies and Investing for the Long-Term

Putting your money into the S&P 500 may be a more rewarding option than entrusting it with a financial advisor, however, there is an even better option still.

By carefully choosing individual companies, you can perform the same role that a financial advisor does yourself without being restricted by any of the requirements they have to meet and without having to pay any of their fees.

Choosing high-quality individual companies and waiting until they go on sale to purchase them is by far the most effective investment strategy available.

Best of all, unlike financial advisors who are required to invest their clients’ money into the market right away, choosing individual companies yourself allows you the freedom to keep parts of your money in cash until the opportunity to buy a quality company at an attractive price arises.

When might I need financial advice and how can an adviser can help me?

A financial adviser may be able to help you with:

  • investing or saving your money
  • planning for your retirement
  • making the most of a lump sum of money such as a redundancy payment or an inheritance
  • buying a property or taking out a mortgage
  • what type of insurance you need
  • significant life changes, for example starting a family, getting divorced
  • improving your tax situation

An adviser can help you to find the most suitable financial product based on your personal circumstances.

Choosing a financial adviser

There are many different terms used to describe financial advisers. Some advisers are independent, meaning they offer advice on all financial products available in the market, while others offer a restricted service, meaning they only offer advice on financial products from a limited number of providers.

The table below explains the different types of financial advisers and what they can do for you.

TYPES OF FINANCIAL ADVISORS
Multi-agency intermediaries: give advice about, and sell products from, a number of financial service providers. They must hold what is known as a letter of appointment from the financial service providers they advise and sell products on behalf of. They are sometimes referred to as ‘restricted intermediaries’.
Authorised advisers: give advice about all financial products right across the market even if they don’t hold a letter of appointment from the financial service provider. They must consider and advise you on the most suitable financial product or products available in the market. They are sometimes called fair analysis advisers.
Tied agents: only advise and sell products from the financial services providers they are tied to. They cannot offer financial products from other financial services providers they are not tied to.
Mixed status advisers: the number of products the adviser can advise on and the number of financial service providers they sell products for varies.
For example, a financial adviser might offer advice on pension products from six financial services providers, but may be tied to one insurance company when advising and selling home insurance, so can only advise and offer products from that insurance company.
TOP TIP
A financial adviser can only call themselves independent if they carry out a fair analysis of the market, meaning that they give advice on all financial products, right across the market.
DID YOU KNOW?
If you are looking for investment advice, a financial adviser has to tell you if the advice is being given on an independent or non-independent basis.