A financial advisor provides you with advice on investments, taxes, and retirement spending. My experience speaking to advisors and their customers has generally been positive. Most customers believe they can trust their advisor to provide sound financial advice.
The problem with financial advisors is the price they charge for this advice. In two words: REALLY EXPENSIVE.
If you are buying a mutual fund with your advisor, you are paying an average of 2.3% annual fee on your money. That’s incredibly expensive and can add up to hundreds of thousands of dollars over your working life.
Here’s an example from a previous blog entry:
So how do we get to the $250,000 figure? Here are the assumptions. Your family income is $90,000 year and you set aside 10% or $9000/year for retirement for 40 years.
You invest in low cost index funds like Vanguard’s VCN and you beat the high fee mutual funds by 1.6% per year, which according to The Economist magazine, is the amount that mutual funds have lagged the market in the USA over the past 20 years.
If you take the yearly $9000 contribution and suck out the 1.6% average loss you can expect by buying the average performing mutual fund, you end up with $250,157 less vs. buying the low cost index fund.
Clear enough I think, but it doesn’t answer the question “where does someone go for specific financial or tax advice or planning for future generations if you don’t have an advisor?”
My answer is to hire an accountant for a few hours for $1000 or so and he/she can answer all your questions without any conflict of interest concerns. The accountant won’t profit from your decision to buy a certain mutual fund or ETF. They get paid strictly for providing advice.
Still need more information, you can hire a tax or estate lawyer for a few hours.
The money you spend with these unbiased professionals will be a tiny fraction of how much you will have to pay a financial advisor.
Here’s a blog for an accountant that I follow. His blogs are very educational and he seems to know his stuff. By the way, I have no relationship with this person and will not benefit in anyway if you chose to use his services.