Should You Fire Your Advisor?

This may be one of those indicators that signals the top of the stock market, but I have recently been inundated with a slew of questions that boil down to this: Should I fire my financial advisor? Maybe investors think that it’s easy to rack up double-digit returns, because that’s what’s happened over the past 18 months. In 2022, which was an awful year for investors, very few asked about giving the axe to their financial pro, but there is also a case to be made that if you are paying someone to simply allocate your assets, there are a lot of cheaper alternatives.

If you are seeking a way to capture investment advisory fees, the easiest path is to do it yourself. Start by opening up an account at one of the big companies (Vanguard, Fidelity, Charles Schwab, Robinhood, T. Rowe Price, e*Trade (now owned by Morgan Stanley) that offer low-cost index mutual or exchange traded funds. Once you have transferred the money into the new account, define your time horizon, which is one component of establishing your asset allocation. The next part is to honestly appraise how you feel about risk. Think back to 2022 and ask yourself if you were worried or lost sleep over the drop in values. Conversely, if you reduced your risk after 2022 and now feel bad about missing the subsequent upside, pay attention to that too.

As Ben Carlson, the Director of Institutional Asset Management at Ritholtz Wealth Management recently wrote, “Investing itself is a form of regret minimization. Some investors regret missing out on the big gains while others experience more regret when they participate in big losses.” You need to be crystal clear about which regret causes you the most anxiety and then, take that into consideration as you think about putting your money to work. Many companies offer risk assessment tests, asset allocation tools, and lots of supporting content to help you out.

You may also want to educate yourself and indulge in some free advice from beyond the company itself. Just be careful to understand the motives of anyone preferring advice, regardless of the platform. As I noted in my book The Great Money Reset, when you seek advice on YouTube, Reddit, TikTok, or via podcasts, “you’re entering the mosh pit of investing, there are some super-smart people on there, some who have no idea what they’re doing, and others who have an agenda and are trying to hype one investment idea or another. Sift through what you encounter with a keen and skeptical eye.”

If you seek a middle ground between paying someone to manage your money and going it alone, check out the various automatic investment platforms (aka “robo advisors”). When using a robo, you will be prompted to answer a bunch of questions and then an algorithm will do the work of managing your investments. The cost of most robos is usually under 0.25 percent annually, which is a lot better than the 1-1.5 percent that full-service brokers charge. If you have over a certain amount of money invested with the robo, you may also have the opportunity to pay an additional small fee for financial advice.

So, who should pay up for customized financial planning? Anyone who has a more complex financial life, perhaps due to owning a small business, or those with a lot of income and no time, energy or interest in going it alone. Anyone going through a major financial event, whether good or bad, or who is considering a major financial move, like a career change, can also benefit from the advice of a Certified Financial Planner.