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Should You Fire Your Financial Advisor?
This may be one of those indicators that signals a stock market top, but recently I’ve been inundated with a number of questions that boil down to this: Should I fire my financial advisor?
Investors may think it’s easy to rack up double-digit returns because that’s what’s happened over the past 18 months.
In 2022, which has been a terrible year for investors, very few have asked about giving their financial professional the axe. Still, there’s a case to be made that if you’re paying someone to simply allocate your assets, there are plenty of cheaper alternatives.
If you’re looking for a way to capture investment advisory fees, the easiest way is to do it yourself. Start by opening an account with one of the large firms that offer low-cost index mutual funds or exchange-traded funds.
Once you’ve transferred your money into your new account, you’ll need to set your time horizon, an important component of establishing your asset allocation. The next step is to honestly assess how you feel about risk. Think back to 2022 and ask yourself if you were worried or lost sleep over the decline in values. On the other hand, if you’ve reduced your risk and now feel bad about missing out on the subsequent upside, consider that as well.
Ben Carlson, the Director of Institutional Asset Management at Ritholtz Wealth Management, recently wrote: “Investing in itself is a way to minimize regret. Some investors regret missing out on big gains, while others feel more regret when they participate in big losses.”
You need to be clear about which regret causes you the most anxiety, and then take that answer into consideration as you prepare to put your money to work.
Many companies offer risk assessment tests, asset allocation tools, and plenty of support content to help you. You may also want to educate yourself and indulge in some free advice from various social channels.
Just be careful to understand the motives of anyone who prefers advice, regardless of the platform. As I noted in my book The Great Money Reset, when you seek advice on YouTube, Reddit, TikTok, or through podcasts, “you’re entering the mosh pit of investing — there are some super smart people there, some who have no idea what they’re doing, and some who have an agenda and are trying to promote one investment idea or another. Look at what you find with a careful and skeptical eye.”
There is also a middle ground between paying someone to manage your money and doing it all yourself.
Automated investment platforms (also known as “robo-advisors”) can take the investment selection process off your shoulders. Every robo-advisor product is a little different, but they all generally start by asking you to answer a bunch of questions. The results are run through an algorithm, and voila, your money is put to work.
The cost of most robots is usually under 0.25 percent annually, much cheaper than the 1-1.5 percent that full-service brokers charge. If you have more than a certain amount of money invested with the robot, you may also have the option to pay a small additional fee for financial advice.
So who should pay for personalized financial planning? Anyone with a more complex financial life, perhaps because they own a small business, or those with a lot of income and no time, energy or interest in doing it themselves.
Additionally, anyone going through a major financial event, whether good or bad, or who is considering a major change, such as a career change, can also benefit from the advice of a Certified Financial Planner.
Jill Schlesinger, CFP, is a business analyst for CBS News. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check out her website at www.jillonmoney.com.