Are Financial Advisors Worth It? Learn When the Fee Pays Off—and When It Doesn’t
Financial advisors can be extremely valuable when you have enough money or enough financial complexity to justify professional help. They can also become an expensive layer between you and your money if all they are doing is putting your investments into a standard portfolio and collecting an annual fee.
The real question isn’t simply, “Are financial advisors worth it?”
It’s “What am I getting for the money I’m paying?”
A good financial advisor should function as a strategic financial partner. Depending on the advisor’s qualifications and business model, that can include investment management, retirement planning, cash-flow planning, tax-aware strategies, Social Security planning, estate-planning coordination, debt management, risk management, and helping you make major financial decisions.
But their job isn’t necessarily to “beat the market.” Nobody can reliably promise that. Their value may instead come from helping you avoid expensive mistakes, coordinate different pieces of your finances, manage risk, control taxes, stay disciplined during market declines, and build a retirement strategy around your actual goals.
What Does a Financial Advisor Actually Do?
A comprehensive financial advisor may essentially operate like a personal CFO for your household.
They can help determine how much you need to save, how your investments should be allocated, when you may be able to retire, how much income your portfolio may reasonably support, when to claim Social Security, which accounts to withdraw from first, and how investment decisions interact with taxes and estate planning.
They may also manage investments directly.
The important word is may.
“Financial advisor” is a broad term. Different professionals have different registrations, licenses, services, specialties, compensation arrangements, and product access. Before hiring anyone, understand exactly what services the person and their firm provide.
How Much Does a Financial Advisor Cost?
One of the most common arrangements is an assets-under-management fee, or AUM fee.
Under this arrangement, the advisor charges a percentage of the assets being managed. Fees can vary substantially depending on the advisor, services provided, and amount of money being managed.
For example, an advisor could charge anywhere from around 0.25% to 2% annually.
That fee normally continues whether the market rises or falls.
This is why consumers should stop thinking only about investment performance and ask what else they receive for their advisory fee.
If you’re paying an ongoing percentage and receiving comprehensive retirement planning, tax coordination, investment management, income planning, Social Security advice, estate coordination, and regular financial reviews, you may decide the price is justified.
If the advisor simply allocates your money once and checks in occasionally, an ongoing percentage fee can become difficult to justify.
Fees also matter because seemingly small annual expenses compound over long periods and reduce the amount remaining in your portfolio.
The Main Ways to Pay for Financial Advice
| Model | How It Works | Pros | Cons |
|---|---|---|---|
| AUM Advisor | Charges an annual percentage of assets managed. | Continuous management and potentially comprehensive planning. | The fee continues during good and bad markets and becomes larger as the account grows. |
| Flat-Fee Planner | Charges a set amount for planning or an ongoing engagement. | Easy to understand and isn’t directly tied to portfolio size. | Can still be expensive, and investment management may cost extra. |
| Hourly Advisor | Charges for the advisor’s time. | Useful when you only need occasional advice. | You may need to implement the recommendations yourself. |
| Subscription Advisor | Charges a monthly or annual planning fee. | Predictable cost and useful for ongoing planning. | May not include full investment management. |
| Commission Professional | Compensation is generated when certain financial products are purchased. | You may avoid a separate planning or AUM charge. | Product compensation can create conflicts that should be understood before purchasing. |
| Hybrid Advisor | Uses some combination of fees and commissions. | Can address investments and insurance under one relationship. | Compensation can become harder to understand. |
| DIY or Robo Approach | You manage investments yourself or primarily through automated technology. | Usually inexpensive. | Less personalized help with taxes, retirement income, insurance, behavior, and complicated decisions. |
No compensation method automatically makes an advisor good or bad. The important question is whether you understand what you’re paying, who gets paid, how much they get paid, and what services you’re receiving in exchange.
Does Being a Fiduciary Mean the Advisor Is Better?
Being a fiduciary matters, but don’t treat the word as a substitute for doing your own due diligence.
A fiduciary generally has an obligation to act in the client’s best interest when providing advice covered by that fiduciary relationship.
That is meaningful consumer protection.
However, being a fiduciary doesn’t automatically mean an advisor has deep experience with every financial product.
The same applies to CFP® certification. CFP® professionals must meet education, examination, experience, and ethical standards.
Those are legitimate qualifications.
They still don’t tell you whether someone has spent 15 years designing retirement-income plans, specializes in stock portfolios, understands complicated annuity contracts, works with business owners, or handles advanced life and long-term-care insurance every day.
Credentials tell you something. Experience and specialization tell you something else. You should examine both.
Experience Matters More Than a Fancy Title
Ask an advisor what they’ve actually done.
How many clients like you have they worked with?
Have they helped clients retire during difficult markets?
What mistakes have they seen?
How do they handle a client whose portfolio drops significantly right before retirement?
What happens when a spouse dies?
How do they coordinate guaranteed income with investment income?
How do they address long-term-care risk?
Experience through difficult markets can be especially valuable.
However, 2008 should not be treated as the only meaningful test. Advisors have also had to help clients through significant market declines and volatility since the Great Recession.
A better question to ask is:
“Tell me about the major market declines you’ve managed clients through and what you actually did during them.”
The answer may tell you much more than simply asking how many years they’ve been licensed.
Be Careful With Advisors Who Pretend to Be Experts at Everything
Financial services is enormous.
Someone can be excellent at portfolio construction and know very little about fixed annuities.
Someone can understand annuities inside and out but have no business selecting individual stocks.
Someone may specialize in tax planning, while another specializes in Social Security, Medicare, business succession, estate planning, or executive compensation.
There’s nothing wrong with having a lane.
In fact, specialization can be preferable.
The problem occurs when somebody who rarely works in a particular area recommends products as though they’re an expert.
This is particularly important with annuities and life insurance, where product design, carrier selection, underwriting, surrender schedules, riders, guarantees, and state availability can vary substantially.
If you’re purchasing insurance or an annuity, ask the professional:
“How many insurance companies do you represent? Which carriers can you actually offer me? Why did you choose this product over the alternatives?”
Being an independent agent doesn’t necessarily mean having access to every insurer, so ask specifically.
When an Independent Annuity or Insurance Broker Can Make More Sense
If your primary need is investment management, an investment adviser may be the appropriate specialist.
If your primary need is an annuity, life insurance, long-term-care insurance, or another insurance-based solution, consider comparing recommendations from an independent insurance agency or annuity broker that regularly works with multiple insurers.
That doesn’t mean blindly accepting the broker’s recommendation either.
Compare the carrier, guarantees, surrender period, liquidity provisions, riders, expenses, financial strength, product limitations, and alternatives.
A specialist should be able to explain why a particular contract fits your situation, not merely tell you that it’s the product their firm sells.
Who Could Benefit?
- Retirees looking for guaranteed lifetime income through a Guaranteed Lifetime Withdrawal Benefit (GLWB).
- Consumers comparing fixed annuities, MYGAs, or fixed index annuities.
- People who want to compare products from multiple insurance companies.
- Consumers concerned about protecting principal from market losses.
- Families evaluating life insurance or long-term-care coverage.
Who Might Not Benefit?
- Investors primarily looking for stock selection or active portfolio management.
- People who need comprehensive tax preparation rather than insurance planning.
- Consumers who already have sufficient guaranteed retirement income and do not need additional insurance protection.
Pros and Cons
| Pros | Cons |
|---|---|
| Can compare products from multiple insurance companies. | Not every independent broker represents every insurance company. |
| May have deeper experience with annuity and insurance contracts. | May not provide traditional investment management. |
| Can compare guarantees, riders, liquidity, and income benefits. | Insurance products can have surrender periods and other restrictions. |
| Usually does not charge an ongoing AUM fee for purchasing an annuity or insurance policy. | The insurance company may compensate the agent or broker when a policy is purchased. |
Who Probably Needs a Financial Advisor?
Financial advice becomes increasingly valuable as your finances become more complicated.
You may benefit from an advisor if you’re approaching retirement and don’t know how to convert your savings into income; have substantial retirement and taxable investments; own a business; have several old 401(k)s, IRAs, pensions, and investment accounts; are planning Roth conversions; have concentrated stock positions; are worried about taxes in retirement; need Social Security and Medicare coordination; have estate-planning concerns; or simply don’t have the interest or discipline to manage everything yourself.
An advisor may also provide substantial behavioral value.
A perfectly designed investment portfolio doesn’t help much if you panic and sell it every time the market drops.
Who May Not Need an Ongoing Financial Advisor?
Not everyone needs to pay an advisor indefinitely.
Someone with a straightforward financial situation, good financial discipline, a basic diversified investment strategy, limited tax complexity, and enough knowledge to manage their own accounts may be perfectly capable of doing it themselves.
You may also need advice without asset management.
For example, someone could hire an hourly or flat-fee financial planner for a retirement plan and then implement the recommendations independently.
The goal should not be hiring an advisor because wealthy people are “supposed” to have one.
Hire one because the advisor provides more value than the relationship costs you.
Financial Advisor Red Flags
- Uses fear as the primary reason you should move your money.
- Promises market-beating returns.
- Won’t clearly explain their compensation.
- Makes every client portfolio look almost identical regardless of circumstances.
- Claims expertise in investments, annuities, insurance, taxes, estate planning, Medicare, and every other financial subject without bringing in specialists.
- Pushes you to make a large financial decision immediately.
- Cannot clearly explain the disadvantages of the recommendation.
- Avoids discussing alternatives.
- Refuses to explain surrender charges, investment expenses, advisory fees, commissions, or conflicts.
- Criticizes every product they don’t sell while claiming everything they sell is superior.
- Has a regulatory or disciplinary history that they cannot reasonably explain.
A good professional should be able to discuss what could go wrong, not merely what could go right.
Research the Advisor Before Giving Them Your Money
Do some homework before hiring anyone.
You can research brokerage professionals through FINRA’s BrokerCheck and review investment advisers through public investment-adviser databases.
Look at employment history, registrations, licenses, and any disclosures involving customer disputes, disciplinary actions, criminal matters, or financial events.
A disclosure doesn’t automatically mean someone did something wrong, so read the details and ask questions.
Also search the advisor’s name online. Consider searches such as:
- Advisor’s name + lawsuits
- Advisor’s name + complaints
- Advisor’s name + criminal history
- Advisor’s name + disciplinary action
- Advisor’s name + city and state
Then ask the advisor about anything concerning that you find.
Don’t Forget the Insurance Side of Financial Planning
Investment management is only one part of protecting a financial plan.
Depending on your circumstances, you may also need other types of insurance.
Life Insurance
Life insurance can help if a spouse, children, business, or other beneficiaries would suffer financially after your death.
Disability Insurance
Disability insurance can protect your income if an illness or injury prevents you from working.
Long-Term-Care Insurance
Long-term-care insurance, hybrid life insurance, or an annuity with long-term-care benefits may help protect retirement assets from being depleted by nursing home or assisted living costs, as well as preventing Medicaid from taking your assets.
Health Insurance and Medicare
Health insurance and Medicare coverage can help manage healthcare expenses that could otherwise consume a significant portion of retirement savings.
Property, Casualty, and Umbrella Insurance
Property, casualty, and umbrella liability coverage can protect the assets you’ve accumulated from large liability claims and property losses.
You don’t need every type of insurance merely because it exists. Insurance should address a financial risk that you either cannot afford or don’t want to self-insure.
Are Financial Advisors Worth It?
Yes, for the right person and the right advisor.
A knowledgeable financial advisor can be worth substantially more than their fee when they help coordinate investments, taxes, retirement income, Social Security, estate planning, and major financial decisions while helping you avoid expensive mistakes.
But don’t pay thousands of dollars every year just to have someone rebalance a basic portfolio if that’s the only value you’re receiving.
And don’t assume that “fiduciary,” “CFP®,” “financial advisor,” “wealth manager,” or any other title means the person is automatically an expert in everything involving money.
Look at the person’s experience, specialty, fees, regulatory record, and product access.
Then determine whether their expertise matches the problem you’re actually trying to solve.
How The Annuity Expert Can Help
If you need investment management, work with an investment professional whose primary expertise is managing investments.
If you’re trying to compare or buy annuities, life insurance, long-term-care insurance, or other insurance-based retirement solutions, specialization becomes especially important.
At The Annuity Expert, we’re an independent annuity broker and insurance agency serving consumers across the United States. We can compare available insurance and annuity options based on your goals, state, age, financial situation, and coverage needs.
Contact The Annuity Expert today for free quotes and comparisons. There is no cost or obligation.
Questions From Our Readers
How do financial advisors make money?
Financial advisors usually make money through fee-only arrangements (flat, hourly, or percentage of assets under management) or commissions paid by insurance and investment product companies.
Why do you need a financial advisor?
Financial advisors provide guidance, objective expertise, tax coordination, and emotional discipline for complex financial decisions and retirement planning.
Who needs a financial advisor?
Individuals with complex portfolios, business owners, or pre-retirees navigating Social Security, pensions, and withdrawal strategies benefit most, though DIY investors can manage simpler situations independently.
What services do financial advisors provide?
Financial advisors provide investment management, retirement planning, tax-aware withdrawal strategies, estate planning, risk management, and cash-flow guidance.
What is a CPA vs. financial advisor?
A CPA specializes in tax filing, accounting rules, and tax compliance. A financial advisor focuses on broader financial planning, investment strategies, risk management, and long-term retirement goals.
What are the three types of financial advisors?
The three primary compensation models for financial advisors are fee-only, fee-based, and commission-based.
Is it better to purchase an annuity through a commission-based advisor rather than a fee-based advisor?
For an annuity purchase, we generally prefer an independent commission-based broker who can compare multiple insurers. We want a clear reason to pay an ongoing advisory fee beyond selecting the contract. Compare total costs and contract benefits; an insurer-paid commission does not make the product costless.
Do financial advisors earn commissions from selling annuities?
Yes, licensed insurance agents and financial advisors can earn commissions from insurance companies when selling annuities. Always ask for full transparency regarding how your representative is compensated.
Why do some financial advisors dislike annuities?
Some fee-only investment advisors dislike annuities because annuity assets move out of their managed portfolio, eliminating their ability to charge an ongoing annual AUM fee on those funds. Additionally, annuities involve contractual guarantees rather than liquid stock trading.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.