Go to an all-you-can-eat restaurant and you’ll know if you got your money’s worth (the amount of antacid needed the next day might be a tell). But it’s harder to decide whether you’re getting good value from the financial advice you receive.
You may be tempted to define value as the price you pay and the results you achieve. But both approaches are problematic — cheap and expensive advice alike can be awful, while a great (or terrible) period of performance may not tell your portfolio’s entire story. Rather, the value a financial advisor provides is more subjective and reflects your current needs, which will change with time.
Ask these questions to decide whether what you’re paying for financial advice is money well spent — or it’s time for another approach.
Does the type of advisor match my needs?
It’s reasonable to ask if you’re paying for more than you need, given your life stage. Here’s how to maximize your financial advice journey:
1. Focus on free advice first. Climbing out of debt or just entering the workforce? Many sources of free financial advice can help with basics including budgeting or saving for retirement.
3. Hire a human for specialized help. When your family or financial situation becomes more complex, a human advisor can offer comprehensive financial planning. Some advisors require a minimum balance (such as $250,000), and the median cost is 1% per year. But others charge by the service or the hour.
4. Mix things up. You can work with a human and still keep your robo-advisor account. Or, if you want to return to a more hands-off approach, consider the hybrid model offered by many robo-advisors that combines low costs with some access to human help.
What am I paying, and what results am I getting?
Financial experts will tell you not to make investing decisions solely based on fees or past performance, and we agree. But it’s important to understand how both affect your investments.
Why fees matter. As your account balance grows, so too will the amount you pay (even if the percentage charged is fixed). And every dollar that goes toward paying your advisor is one less dollar you’ll have to invest. The difference between a robo- and human advisor’s fees really add up over time. Over a 30-year period, you’ll forgo more than $107,000 by paying advisor fees of 1% versus 0.25%.
Do you know how much you’re paying for advice? Ask your advisor or consult your statements. If it’s significantly higher than average (0.25% to 0.5% for many of the best robo-advisors or a median of 1% for human advisors), it may be time to look for a new advisor.
Why results matter. You may have performance envy when the S&P 500’s on a tear if your returns look lackluster by comparison. However, your portfolio’s performance will differ from the broader stock market — because it reflects your particular timeline, goals and willingness to brave ups and downs.
Ask instead: Am I on track to achieve my financial goals? If you feel uncertain about your progress, ask your current advisor for clarification. If you are dissatisfied with the answer, consider finding a new advisor.
Am I getting the most bang for my buck?
Here are some ways to get the most out of this relationship:
Maximize a robo-advisor’s services. Many providers offer customers access to human advisors — and this service often is included in fees you’re already paying. That’s a significant benefit, one you should take advantage of for help setting financial goals or preparing for life changes (like having a baby). What’s more, robo-advisors are offering an expanding variety of free goal-based tools, such as automatic portfolio rebalancing, tax-efficient strategies and socially responsible investing funds.
Ask for more from your human advisor. Conversations with your financial advisor have likely evolved from those in-depth discussions about your finances and goals in the early days. That’s normal, but make sure you’re getting what you need out of each interaction and ask for more time (or information), as necessary. If you have concerns about strategy, ask your advisor to explain anything you don’t understand. You hired this individual to help achieve your financial goals, after all.
Is it time to move on?
So you’ve maximized the offerings from your advisor, but still feel underwhelmed? Question whether you could do better elsewhere — pay lower fees, achieve goals faster or have a better working relationship.
You may decide it’s time to break up with your current advisor. Decide what you want from your next advisor, then compare robo-advisors or interview prospective human advisors to find the right fit.