What we'll cover
The role of a financial advior
Benefits of having a financial advisor
How hands-on investors can choose an advisor
Self-directed investing puts you in the driver's seat when it comes to building a portfolio. You decide when to press on the gas or hit the brakes, so to say, when buying and/or selling securities. You also get to determine which asset allocation model works for you. Managing your own trades and investment decisions can save money since you're not paying an advisor's fees.
But going it alone could also mean missing out on expert advice and insights... which might leave you wondering if you need a financial advisor and how you could work with one while still being a hands-on investor.
What is a financial advisor?
A financial advisor is a licensed person who helps you manage your finances based on your in-depth personal financial profile, accounting for multiple goals and varying time horizons. Financial advisors often have credentials that signal their expertise, including certified financial planner (CFP), chartered financial analyst (CFA) or personal financial specialist (PFS).
Some advisory services will advise you on your total wealth — meaning, the advisor will look at your full picture, not just the assets held by the firm — as well as help minimize your tax burden, depending on their expertise.
What are the benefits of having a financial advisor?
Financial advisors help their clients to create a comprehensive financial plan. That plan can include investing, retirement planning and wealth management, debt repayment and saving for college. Advisors can work with any level of investor to help them design a strategy to pursue their goals.
So what does that mean for you if you naturally gravitate toward a DIY investing approach?
Even if you're comfortable making your own investment decisions, you can still find value in having a trusted advisor on your side. An advisor can:
Evaluate your investment goals and your strategies for pursuing them
Offer an unbiased opinion of your financial plan
Give recommendations about investments based on your personal situation
Work with you to allocate funds — including setting aside an amount to continue investing according to your DIY spirit
Use their experience and expertise to help you avoid potentially costly investment mistakes
This last point is important when you're a self-directed trader because it's all too easy to let investment biases and emotional investing lead you astray. If the market is experiencing increased volatility, for example, you may be tempted to sell if you're worried about racking up losses.
Talking with your advisor can help you get some perspective on whether your concerns are justified and if so, how to manage your investments through volatility in order to minimize negative impacts. An experienced advisor has been through market ups and downs and understands the questions and fears investors might have.
How can a hands-on investor choose an advisor?
Finding the right advisor to work with starts with understanding what you need and want an advisor to do for you. If you're used to self-directed trading, you may prefer an advisor who primarily acts in a support role, helping to guide your investment plan but not define it.
A good advisor should take time to get to know you personally to understand your values, goals and the level of risk you’re willing to accept. They should also be prepared to analyze your current financial strategy and identify any roadblocks that may be keeping you from fully realizing those goals. And of course, it's also helpful to work with an advisor who's interested in your complete financial picture, including those treasured life milestones and everything in-between.
Aside from those considerations, you should also keep in mind:
How much will you pay in fees for advisory services?
Is the advisor a fiduciary?
Do you need a minimum level of assets to work with an advisor?
How will you be able to track your progress?
A typical financial advisor fee is 1% of the assets under management, but it's possible to find advisory services below that threshold. With Ally Invest Personal Advice, you will pay a blended annual advisor fee of 0.75% to 0.85%. Lower advisory fees mean more savings for you.
Paying an advisor's fee can be worth it if your advisor is able to spot areas where you may be wasting money. For example, they can analyze your mutual fund or ETF holdings to see if the expense ratios you pay are justified by the returns you earn.
Working with an advisor who's a fiduciary also matters if you want to ensure you're receiving advice that's tailored to your needs and situation. A fiduciary advisor is bound to act with your best interests in mind. That means you can be confident that they'll only recommend investment products or strategies that are designed to benefit you — and not themselves.
When choosing an advisor, consider the amount of assets you might need to get started. An advisor may require at least $100,000 in assets, for example, to use their services. If you've been investing for a while, you might have a decent-sized portfolio already.
Lastly, consider how you'll be able to stay in touch with your advisor, how often you’ll connect and how you’ll monitor your progress toward your goals. Working with an advisor online may be preferable if you're comfortable managing assets through a digital platform that allows you to see your financial accounts in one central location.
Working with an advisor doesn't mean giving up control.
Being a hands-on, active investor puts you behind the wheel and gives you a level of freedom and flexibility you can enjoy. But working with an advisor doesn’t mean you'll have to hand the keys over to someone else. It’s possible to get advice from a professional advisor without having to rethink your investment plans. The right advisor can offer straightforward, personalized advice at reasonable fees but ultimately, it's up to you to decide whether to follow that advice or not.
