This is one of the age-old questions in personal finance. There is countless wisdom on both sides of the argument as to why you should or should not employ help with investments. And like anything else, it boils down to your situation and your preference.
Historically, the financial industry was littered with heavy barriers to entry, basically requiring that you either get licensed yourself or hire a professional to get you access to the markets. Today, however, that is an antiquated approach. Technology has paved the way to putting the same information into the hands of common investors as the professionals.
There has never been an easier time in the history of mankind for someone to manage their own investment portfolio. So if it’s not a question of access, then why would someone hire a professional.
The typical investor may have access to markets, but does not have the time, the knowledge, the desire, or the discipline to manage his or her own portfolio. Those who do have all of those things generally do quite well for themselves, not incurring the added expense of an advisor. But for those who lack one or more of those qualities, the price of making a mistake far outweighs the price of hiring help.
Hired financial help lurks in many forms. Here are some considerations when it comes to hiring a financial professional:
Insurance products are poor investments, and therefore, you shouldn’t be hiring your insurance agent to manage your investment portfolio. If you do, your portfolio will be full of costly insurance products and will underperform over the long run.
Registered representatives are commissioned salespeople. They may or may not be good salespeople, but their scope of responsibility to you ends after the sale.
Investment advisors charge a fee for service. The difference between an investment advisor and a registered representative is that the former is compensated by the client, not the investment company. They are legal fiduciaries, which means they must act in the client’s best interest at all times.
Financial planners also charge a fee, but their fee is typically for constructing and delivering a financial plan to help clients achieve their life goals. Financial planners can offer single-use services, or ongoing planning services. Some advisors do planning only, and will not manage investments.
Full-service planners combine the planning and investment management into a bundled service, offering clients a one-stop shopping experience.
It will help your decision if you determine in advance what services you seek. That can help narrow the market and find you the right professional.
Beyond that, you will want to consider their experience, their credentials, their fees, and perhaps most importantly, their demeanor. Because your financial professional is typically a closely-held business relationship, it’s important that you like each other.
If you have in mind what you seek, just having an initial conversation with any potential candidates will usually reveal the correct choice.