Should You Use a Financial Advisor?

When it comes to achieving goals in life, having a coach or mentor can make the difference between success and stagnation.

This link is clear across a wide range of disciplines: athletes work with coaches to improve their skills, personal trainers help individuals get into shape, and even Pickleball enthusiasts benefit from working with an instructor. So why should managing your financial future be any different?

Just as a personal trainer customizes a fitness plan to fit your needs, a financial advisor can work with you to create a personalized roadmap for your financial well-being. Although investments are a large part of what most financial advisors do for their clients, it’s not just about investment strategies; a good financial advisor considers the whole picture—retirement planning, tax strategies, insurance coverage, estate planning and more. Their role is to help you make informed decisions, avoid costly mistakes, and stay on track to meet your long-term objectives.

The Value of Expertise and Objectivity

Managing finances can be daunting, and emotions often cloud judgment when it comes to money. Fear and greed, for instance, can lead to impulsive decisions, like panic-selling during a market downturn or chasing choices that don’t align with your risk tolerance. Financial advisors bring a level-headed, objective perspective to the table.
They act as a sounding board, assisting you in making informed decisions.

Moreover, financial advisors are equipped with technical experience that goes beyond surface-level knowledge. Whether it’s navigating tax implications, optimizing retirement contributions, or choosing the right insurance coverage, their advice can have a significant impact on your financial outcomes.
For investments alone, a financial advisor will provide guidance on Asset Allocation, Rebalancing and Tax Efficient Investing. That, combined with creating a portfolio that matches an individual’s goals and risk tolerances can add value in ways most don’t understand.

Quantifying the Benefits

You might wonder: Is a financial advisor really worth the cost? The answer, based on research, is yes. Vanguard, a leading investment firm, has conducted an annual study since 2001 that attempts to quantify the value financial advisors can add. Their findings suggest that, on average, working with a financial advisor may potentially lead to an additional 2% to 3% in returns each year compared to those who do not use an advisor.¹ This could potentially contribute to the growth of your portfolios over time.

This “advisor alpha,” as Vanguard calls it, doesn’t just come from investment management. Much of the added value stems from behavioral coaching—keeping clients disciplined and focused during volatile markets—as well as strategic tax and withdrawal planning.

Tailored Guidance for Every Stage of Life

Financial advisors aren’t just for the wealthy or those nearing retirement. They can provide valuable support for individuals at every stage of life. Young professionals might seek advice on budgeting, student loan repayment, or saving for a first home. Families in their prime earning years may need guidance on education savings plans or tax-efficient strategies for growing their wealth. And retirees can benefit from advice on sustainable withdrawal rates and legacy planning.

The key is to find an advisor who aligns with your needs and goals. Some advisors charge a flat fee, while others work on a percentage of assets under management or an hourly rate. It’s important to understand their fee structure and ensure it fits your financial situation.

The Bottom Line

For many individuals, the experience, objectivity, and peace of mind that an advisor provides can be beneficial, but it's important to consider the associated costs. Just as athletes, trainers, and coaches help people achieve their best in other areas of life, a financial advisor can play a crucial role in helping you build and secure your financial future.

¹https://corporate.vanguard.com/content/dam/corp/articles/pdf/putting_value_on_your_value_quantifying_vanguard_advisors_alpha.pdf

Investment advice offered through OneDigital Investment Advisors LLC.
This article is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.
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