Opinion on financial adviser

[Filipp Laptev]

What are the pros and cons of working with a financial advisor? Should I or should I not?

[Tyler Mullen]

This is a broad topic and the answer is different for everyone.  I have used a variety of advisors over the years, been an advisor myself and self managed, here are some thoughts...

Some Pros:

Having someone you expect to be more qualified than yourself paying more attention to your investments than you might want to.

If you work with a fiduciary they should put your interest ahead of their own with a written commitment.

They keep you organized for tax time.

They will generally have a set template of investments based on how you answer the questionnaire, interpret that as a plus or a minus.  Independent advisors are generally thought to have an advantage because they can recommend anything, they are not locked into "the family"... also if they are CFP will/should be able to give a more holistic template of advice beyond specifically what's in your account with them, so gold, insurance needs, retirement/estate planning, business continuity and/or real estate for example.

They tend to be very risk adverse even if you want the riskiest investments most will still be putting you in funds/etfs. The more aggressive you want to be the more you're going to want to pilot solo, unless you have significant assets and/or find a specialized advisor that will do individual stocks, options, futures or whatever else you're looking for. I put this in the pro category because for most people less risk is more appropriate. Although the riches people are not diversified at all, Bezos, Balmer, Gates, Buffet; but for every one of those there's a million people that bought a lot of something and it went to zero. Most people will do better giving themselves something to fall back on, that's what diversification is meant to do. Same with REI, it's foolhardy to put all your cash into a single property, keep no reserves and just pray the flip goes well or go bankrupt. That's not "investing".

Some Cons:

They charge advisory fees.  Even 1% or less can seem small but over time this can be a significant drag on a portfolio when you consider you pay it even if your account goes down.  (Referring here to standard advisors, not hedge funds and private funds that differ in fee profile.)  These fees are in addition to the management fees within a fund/etf.

Limited set of investment choices.  These choices might have higher management fees than others "not in house".

Possibly slower to react to events in the world or markets than you might be.  Remember after 9/11 people were on TV advising "not to sell out their accounts", many sold everything and went all cash once the markets opened days later.  That's a good or a bad thing entirely depending on you, the point is if you're not looking/managing it all the time, then you're accepting someone else might make a different decision than you.  What if you want to sell everything and you can't get your advisor on the phone?

It's one more place your PIA is floating around waiting to get hacked, not compared to investing solo online, but compared to other things like REI, metals. If you're really worried about it you could do this through an entity so at least if the entity data is stolen it's not your PI that is gone. Although at this point most peoples PIA is stolen, generally the more recently it's stolen the more it's traded/sold/used for fraud, so it's still good to limit PIA from being stolen repeatedly.

They're going to recommend a defined set of investments/allocations based on your questionnaire and where their back office black box says we are in the economic cycle, rate cycle. Again, if you want to be able to be more hands off because you time is much more valuable computer programming or syndicating massive REI deals, there you go.

You have to vet properly to begin with & monitor constantly.  When you consider a specific person you should ask around about their reputation.  You should look them up on FINRA and be okay with the report there.  You can look up public records to see if they have convictions/judgements against them.

You also have to actually verify they hold your account through a proper third party custodian, there are only a few companies that do this, their info is widely available.  This is what Bernie Madoff didn't do, he told people his accounts were with a custodian (one which I won't name here) and quite literally no client, no regulator ever verified this.  So he created his own statements and the numbers were made up, the "trades" were entirely fiction.

Watch out for people looking for victims, when it sounds too good to be true, just avoid it.  For example, in a heart breaking story, I got to deal with the aftermath for an elderly couple victimized by this guy:

https://www.seattletimes.com/s...

Should you or shouldn't you?

The answer is different for everyone so all I can do is share opinion and you have to consider it with all the other info you gather.  I do my own now but that's also because I'm interested in it and I compete against myself.  Other people look at it like a CPA, attorney or dentist, I too hire out for all three, so shoulder shrug I guess... 

Keep in mind it's not a forever "decision" nor does it have to be an "all in" decision.  You can choose to hire help for a limited time and then "take over after takeoff".  You can split the portfolio and then compete to see if you can beat the advisor using your own account.  There are also so called "robo-advisors" you might consider, one of which I use.  I'm happy to share specifics of anything I mentioned in DM if you'd like to reach out.

Whatever path you choose, keep your head on a swivel!  I wish you well as you gather info and I hope your research leads you to your best choice.

Tyler Mullen, CFE