Ask Stacy: Do I Need a Financial Adviser, or Can I Manage My Money Myself?

Financial Adviser
Photo by Mike Focus / Shutterstock.com

When you’re sick, you go to the doctor. When your car dies, you find a mechanic. But when it comes to your money, do you really need a financial adviser, or can you do it yourself?

Here’s this week’s question:

Do I really need a financial adviser to handle my money, or will I do just fine in a low fee Vanguard [mutual fund] or something similar?
— Robert

Before we get to Robert’s question, here’s a video we shot a while back at the New York Stock Exchange.

Now, on to Robert’s question.

Going it alone: penny wise, pound foolish?

Every year we cover income taxes, and every year, in stories such as “7 Tips to Find the Best Tax Pro,” we offer advice like this:

Remember, most preparers are simply entering your information into a software program. Rather than pay hundreds to someone else, you could spend a lot less and … do it yourself.

The same logic applies to managing your money. Money management isn’t rocket science. In fact, I’d consider it more basic than income taxes. Providing you’re willing to do a little reading, you can easily do it yourself. For example, let’s look at Robert’s case. Here’s what he might consider:

  • Step one: Decide how much he can put into long-term savings. Long-term means money he definitely, positively won’t need for at least five years.
  • Step two: Subtract his age from 100 and put the result as a percentage of his long-term savings into a simple, unmanaged stock index fund. So if he were 40, he’d put 60 percent (100 minus 40) of his savings into a fund such as the Vanguard 500 Index Fund or 500 Index ETF. (I typically suggest Vanguard because they’re low-cost. I have no affiliation with them.)
  • Step three: Take the remainder of his long-term savings, 40 percent, and divide it equally. Leave half in an interest-bearing, risk-free savings account, put the other half into a bond mutual fund, such as the Vanguard Intermediate-Term Bond Index Fund, or an ETF.

He’s done. No pro needed.

If Robert is concerned about putting too much into stocks, especially all at once, he could invest gradually over time. If he feels that investing 60 percent of his long-term savings into stocks is too risky, he could choose to invest less. And if he’s confused by terms such as “500 Index,” “bonds” and “ETF,” he should read more.

Bottom line? Robert, and most other investors, can safely go it alone, provided they’re willing to do a modest amount of reading and research.

That said, there may come a time when anyone might consider seeking the services of a professional. Perhaps the amount of money involved is large enough to be intimidating, the options so complex you feel out of your depth, or you just want confirmation you’re on the right track.

Fine. There’s certainly nothing wrong with turning to a pro. There is, however, something that can go wrong if you turn to the wrong kind of pro. So let’s explore how to find the right kind.

What’s in a name?

In a past life, I worked as a financial adviser for several big Wall Street investment houses. While I called myself a stockbroker back then, those in the advice business these days rarely do. Instead, they use titles they presumably hope will convey trust: financial analyst, financial adviser, financial consultant, financial planner, investment consultant and wealth manager, among others.

When it comes to quality advice, these are all interchangeable labels. None requires any specific education, skill or certification. In fact, your barber probably has stricter licensing requirements than are needed to call yourself almost any kind of financial adviser or consultant.

More important than titles? Compensation

The problem with the investment advisory business is this: Most advisers make money from commissions. And anyone who makes money from commissions can never be completely trusted.

Overly harsh? Maybe. There are certainly many commission-based advisers who are both sharp as a tack and honest as the day is long. But they’re working within a bad system, one that requires them to move your money around to get paid, when often that’s not in your best interests.

Furthermore, typical advisers, at least as I write this, aren’t required to act as a fiduciary, meaning they are not required to place your financial interests ahead of their own. Instead, they adhere to a lesser standard of conduct, known as suitability. Suitability requires only that they suggest investments that are suitable for an investor with your goals, risk tolerance and financial means.

An example to illustrate the distinction: Suppose your goals and risk tolerance suggest that a stock mutual fund is right for you. There are two similar funds available. One charges a 5 percent commission, and the other 2 percent. A fiduciary would be legally required to suggest the fund with the lower cost, because that’s obviously in your best interests. The suitability standard, on the other hand, allows the adviser to suggest the fund that pays them the higher commission, because either fund is suitable.

The simple truth is this: A system built on commissions and without fiduciary standards invites abuse. That was true when I started as a stockbroker 35 years ago, and it’s true today.

Who can you trust?

To receive objective advice, you’ve got to take commissions out of the equation. There are three ways to do this. The first is to replace commissions with an annual fee based on the amount being managed. I explained the pluses and minuses of that setup some time ago in the post, “Ask Stacy: Why Is My Investment Adviser Charging a Fee on Idle Cash?

The second way to take commissions off the table — and the better option, in my opinion — is to pay for your financial advice by the hour, the same way you do with an accountant or lawyer, by going to a fee-based financial planner.

The final option is to learn the ropes yourself and make your own decisions.

How to pick an adviser

Here’s how to go about picking the right adviser, however they get paid. These rules also apply to picking an accountant, lawyer, doctor or mechanic.

  • Ask your friends or co-workers for referrals. The most useful will be those sharing a situation somewhat similar to yours.
  • Check credentials. You don’t have to be a genius to pass the exams required to obtain securities licenses. Look beyond that and check out educational background and other professional credentials. The Certified Financial Planner (CFP) designation is a good one.
  • Ask about experience. Credentials and education are nice, but as with most things in life, experience is often the best teacher. If two professionals charge the same price, you’d certainly rather have one with 20 years of experience versus 20 months.
  • Ask them for referrals. Any professional in any field should be happy to provide them. Of course, only an idiot would provide referrals who would bad-mouth them, so don’t put too much weight on this one.
  • Talk to several before you decide. This is easily the single most important thing before hiring any service professional. Only after you talk with several possible candidates for the position will the positive attributes you’re seeking surface in one of them.
  • Ask how they get paid. If you read what I wrote above, this one should be obvious.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here. The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you’ve got some time to kill, you can learn more about me here.

Got more money questions? Browse lots more Ask Stacy answers here.

How to earn $30 in less than 30 seconds

Earn extra money by using Rakuten (formerly known as Ebates) — a site that gets you cash back at more than 2,500 stores. As a bonus for joining Rakuten between now and Dec. 31, 2020, you'll earn $30 when you sign up using our link and spend at least $30 shopping online through Rakuten within the first 60 days. Start earning cash back and claim a free $30 bonus today.

Read Next
11 Expenses to Cut Now If You Want to Retire Early
11 Expenses to Cut Now If You Want to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

20 Great Part-Time Jobs for Retirees
20 Great Part-Time Jobs for Retirees

Maybe you’re not ready to leave the workplace entirely.

7 Ways Coupons Waste Your Money and Time
7 Ways Coupons Waste Your Money and Time

Here’s why I hung up my scissors and quit clipping coupons.

9 Foods You Should Never Buy Again
9 Foods You Should Never Buy Again

Make the wrong food choices, and you can ruin your health — and possibly shorten your life.

Brace to Pay More for These 26 Prescriptions in 2020
Brace to Pay More for These 26 Prescriptions in 2020

More than 600 drugs — including these commonly prescribed meds — have seen price hikes so far this year.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

3 Ways to Catch the First Presidential Debate Without Cable
3 Ways to Catch the First Presidential Debate Without Cable

You don’t need cable — or even a TV — to watch the first presidential debate on Tuesday.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

10 Things That Really Are Free on Amazon
10 Things That Really Are Free on Amazon

These freebies are available to anyone — no Prime membership necessary.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

11 Disgusting Household Items You Should Toss Already
11 Disgusting Household Items You Should Toss Already

Never keep these items past their prime.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.