Is a Financial Advisor Worth It?

A financial advisor may be worth it if the value they add — by helping you avoid costly mistakes and pay lower taxes, freeing up your time or giving you peace of mind — more than offsets their fee. Some studies estimate that financial advisors increase average annual returns by about 3%, which could more than offset the industry average annual fee of 1%^[0]

For some people, a financial advisor is a game-changer. For others, they’re completely unnecessary. To learn the answer for yourself, you need to understand what you’re paying and what you’re actually getting in return.

Doing the math on financial advisors

The cost of a financial advisor varies widely, depending on the services you’re getting. The question of whether a financial advisor is worth it typically arises when someone is considering paying ongoing fees for financial planning and investment management.

Many advisors charge a percentage of the assets they manage for you (your “assets under management,” or AUM).

• AUM fee rates range widely — the industry average is about 1%, or $5,000 per year on $500,000 in investable assets. That may sound innocuous but it can add up significantly over time and eat into your investment returns. 

• Because these fees are a percentage of your assets, you’ll spend more dollars on financial advice as your assets grow. 

Alternatively, some advisors charge annual flat fees. In these scenarios, clients typically choose from a range of service tiers for financial planning and investment management.

• Fixed fees stay the same even as your wealth grows, but you may still be shelling out a significant sum for ongoing support instead of investing it. 

• Also, there’s no guarantee the fees won’t increase over time, or that you won’t need to jump to a higher service tier to unlock a feature you need.

» Run the numbers and compare fees with our financial advisor fee calculator

The intangible value of a financial advisor

Although the tangible benefits are an important aspect of measuring an advisor’s value, they don't capture the whole picture. A good financial advisor also saves you time and gives you peace of mind. They should:

• Bring an expert and outside view to your finances, giving you an impartial (but personal) look at your options and path forward.

• Take a holistic look at your situation and suggest improvements. 

• Ask questions and flag future spending decisions that unearth important financial goals.

• Help you navigate complex financial matters such as taxes, retirement and estate planning.

• Help you feel prepared and confident during tough times, whether you’re going through a stressful life event or the market is.

• Help you and your partner work through financial decisions together without stress.

• Keep you accountable to your goals or help you re-evaluate when your goals change.

• Take financial matters off your plate and let you focus on your life.

These intangible benefits may be most valuable to you if you feel overwhelmed or stressed about money and can’t give your finances the attention required to make the progress you want to make.

» Ready for the next step? Check out our picks for this year’s best financial advisors

When to hire a financial advisor

Your age, income and life stage may prompt you to consider working with a financial advisor. But they aren’t the best indicators of when to hire someone. It is more helpful to consider the complexity of your situation and the problem you’re hoping an advisor can address, as well as any underlying feelings you have about money and how comfortable you feel managing your own finances.

For example:

• A young investor getting started saving for a home downpayment and retirement may benefit from learning good money management from free resources and maybe using a robo-advisor to dial in asset allocation and tax efficiency. But a young investor who inherited investments sitting inside a retirement account or trust may benefit from working with a financial advisor who can help them with complex, time-sensitive decisions.

• A high earner with regular income who’s comfortable with their finances and isn’t fazed by market swings may find it helpful to meet once or twice with a certified financial planner (CFP) to set a financial plan that they implement on their own. But someone with variable income from multiple sources who’s overwhelmed by competing goals and wants assurance they’re doing the right things could benefit from meeting with an advisor several times a year.

• New parents with an existing financial plan and plenty of room in their budget may have a handle on the added expenses they’ll soon experience but may need some help drafting a will or trust. They may be better off working with a specialist. But a family for whom a new baby triggers a new desire to get their finances in order and tackle big financial goals might want to work with someone with broader expertise.

» Dive deeper: Here are 7 signs you may need a financial advisor

How to align what you pay with what you need

Figuring out when and if a financial advisor is worth it takes a little personal reflection and a lot of comparison shopping. If you decide to hire someone, your goal should be to find a financial advisor that offers the services you need and the type of relationship you want at a price that works for you.

To start, ask yourself four sets of questions:

1. What’s the problem you’re trying to solve with a financial advisor? Is it a temporary issue or an ongoing one? Could it be solved with a lower-cost service?

2. What type of relationship do you want with an advisor? Would it bother you to work with a different advisor each time you had a question? Do you want your own dedicated advisor? Does meeting in-person matter to you?

3. How complex is your financial life and how well are you able to manage that complexity yourself? Do you want to keep doing that? If you didn’t have to, what would you do with that time instead, and what value does that have?

4. Do you want the advisor to prepare your tax returns and estate planning documents, or are you comfortable with your advisor referring you to someone else for those things?

Your answers could influence what you end up spending on a financial advisor — and help you find the one whose efforts and insights make it all worthwhile.