Top 10 Ways A Financial Advisor Can Actually Help You

I’m pretty hard on advisors on this site.  That’s because most of them are sharks, or at best, uneducated salesmen.  My best estimate is that you shouldn’t take advice from 90-95% of those marketing themselves as financial advisors.  But that’s not to say that all advisors are bad for you, nor even that they don’t add value above and beyond their fees.  Here are the top ten ways they can actually help you.

1) Help You Develop a Reasonable Plan

This can be a do it yourself project.  But it will require reading a few books, spending some time on the internet on sites like this one, and probably bouncing your ideas off knowledgeable people, whether they are professionals or folks on the Bogleheads forum.  But I’d be kidding myself if I said to you that most docs want to do this, or even can given their current state of financial knowledge.  Nothing wrong with hiring someone to help you set up a reasonable plan.

2) Enforce Discipline

The best plan doesn’t do you any good if you sell out at market lows.  Studies show that investors routinely underperform the funds they are invested in.  This is because they pile in at market highs (or after strong performance), and flee the market at the lows.  The classic mistake of buying high and selling low.  While even some professionals make this mistake (especially those convinced they have the ability to time the market), it’s a lot easier to do it with your own money than with someone else’s since there are a lot more emotions involved.

3) Help You Avoid Stupid Investments

While many “advisors” actually push you into stupid investments like permanent life insurance, loaded mutual funds, bad business deals, and unfavorable limited partnerships, a good advisor will be quick to point out their flaws and keep you on the straight and narrow.

4) Recommend Other Professionals

You are likely to need an accountant, various types of attorneys, an investment manager, an insurance agent, and other professionals from time to time.  A good advisor can help you get in touch with knowledgeable, ethical folks.

5) Give You a Second Opinion on Your Plan

Even if you choose to manage your investments yourself, it’s nice to get a second opinion from time to time.  An advisor, particularly one who charges hourly, is ideal for this function.

6) Sell You Appropriate Insurance

You need to have an appropriate property, liability, disability, and life insurance plan and you pretty much can’t buy these products without some type of an agent being involved.  Many advisors can perform this function themselves, or refer you to an insurance agent who can do it for you.

7) Provide Education

A good advisor will teach you about financial topics.  The prepared mind learns a lot more, but even the unprepared mind is likely to learn something new from each encounter.

8) Perform Necessary Portfolio Tasks

Somebody needs to direct the new investments, rebalance the portfolio, tax-loss harvest, and perform other necessary tasks.  If this is too burdensome for you, there are many people out there willing to do it for you for a price.

9) Provide Encouragement

Many people find they not only need financial advice, but they need financial coaching.  An advisor can add a lot of value if he can get you to spend less and save more, or at least concentrate your spending on those things that will bring you the most happiness.

10) Be The Back-Up Plan

Many do-it-yourself investors have a spouse with zero interest in the topic.  Having a relationship with an advisor gives your spouse someone you trust that they can go to if you die or become disabled.

Despite my many negative comments about advisors, there are good advisors out there.  Some of them even charge reasonable fees.  The vast majority of doctors will use a financial advisor at some point in their lives and that’s okay.  Just remember that finance, like politics, is a contact sport.


Top 10 Ways A Financial Advisor Can Actually Help You — 17 Comments

  1. i dont think you are too hard on advisors honestly. In fact i think this post is too easy on them. I find they rarely accomplish the things you mentioned and even if a person can do those things, you cant identify who that person is from the rest of the pack that arent so good.
    1. I have yet to meet an advisor who’s reasonable plan for me didnt include selling me some permanent insurance. Since commisions bring much more money then flat fee planning, most will push at least some insurance products on you and hope you dont push back.
    2. i believe few actually enforce discipline except for commissioned products. If you are calling your advisor weekly bc of the stock market, they will put you in something else just to shut you up. They dont typically get paid for the call so they dont want to hear from you except when you are thinking about buying more products.
    3. ive never met a physician who purchased an insurance product that wasnt pushed on them. Almost all stupid investments are actually pushed by advisors.
    4. advisors frequently recommend other professionals where they get a kick back from either in the way of more business or actual cash. you have no idea what relationship they have.
    5. i cant fault a 2nd opinion per say if it was an honest 2nd opinion but the problem becomes the 2nd opinion will frequently involve products that arent good for you and you may not know this.
    6. if you know what insurance you want/need then great but otherwise look out. If you open the door to permanent insurance, expect the hard sell and you better read up ahead of time otherwise you will get fooled.
    7. unless you are paying by the hour, they only educate about what they want you to purchase and frequently avoid the pitfalls of whatever it is they are selling.
    8. it would be great if you could pay someone just for this part and it was some small fee. These people however dont want to be paid a secretary wage.
    9. ive not come across someone who provides encouragement. I dont think it would help me personally but i imagine there are people whom it would provide benefit.
    10. i think many of us are at serious risk once we die that someone will take advantage of our spouse financially. likely our spouses dont have the same level of knowledge and will be easy targets.

  2. What you say is probably true about the vast majority of “advisors.” This particular post is discussing that relatively small percentage (perhaps 5-10%) of advisors who actually do the right thing for a fee. I’m pretty pessimistic, but I’m not so pessimistic to think there are no “good guys” out there. I agree with you that by the time you can identify who is good and who isn’t you probably don’t need much from the advisor anyway.

  3. It’s like trying to identify warren buffet ahead of time. He exists but how to find him reliably is tough to say the least.

  4. No, I don’t think it’s that hard (unless you expect an advisor to beat the market, which you’ll notice isn’t on my list of 10 things a good advisor can do for you.)

    In fact, you can make it 75% of the way there to choosing a good advisor just by learning how they’re paid. That eliminates the commissioned salesmen which are generally the worst advisors.

  5. Commissioned salesmen are not really advisors, they are commissioned salesmen. In order for someone to be considered an advisor, they have to know more than just one or two products otherwise they can’t actually advise you. While you’ve attached the title advisor to every finance person out there, I just don’t think/feel that it is accurate.

    To add to WCI comment, part of finding the right advisor is also asking the right questions and looking for the right signs. For example:
    – If the retirement or investment plan your “advisor” helps you establish requires a medical exam, tread lightly and get a second opinion. It probably involves WholeLife, regardless of what they call it.
    – If your “advisor” tells you that your income is too high for Roth IRA contributions, he/she clearly is not very knowledgeable. Probably not someone I would consider to be an advisor.

    The list of warnings can be lengthy but perhaps would be the more helpful topic for physicians reading this – rather than just stating how terrible “advisors” are, Rex.
    Could even be a good idea for a blog post if it hasn’t already been tackled.

  6. it isnt my definition of an advisor thats important. They are allowed to call themselves financial advisors even if all they do is sell life insurance. There is no law or regulation of that title. Every insurance agent ive ever met has that title.
    One has to realize that the great great majority of people who call themselves advisors work under commissions/and or AUM fees. They do this since flat fee planning rarely provides the same level of income.
    You arent going to be able to come up with a degree or accrediting agency title to look for in order to know you got the right person. I wish such a situation did exist. I dont doubt your approach would sniff out many of the bad apples for you but for most people these folks are pretty good at selling and can skate around a lot of stuff. Ive been to a lot of advisors and it took me years to figure it out and unfortunately ive lost a lot bc of it.

  7. I appreciate this post and the comments!

    I feel you are very hard on the majority of advisors and rightly so. Most do not have our best interest at heart and many don’t have the training necessary to be quality advisors. I also appreciate that you point out that good advisors do exist! Keep in mind that at a time when the state of health care in the US is under a microscope, much of the public is just as hard on us as physicians. Not all all advisors are good at what they do, and not all physicians are good at what they do. We give advise in our areas of expertise (medicine), and need to be humble enough to be able to accept advice beyond our areas of expertise (finance). The key is that all physicians need to be exposed to the type of information that is disseminated on this site in order to be able to distinguish between the good and bad advisors. As physicians, in our current standard coursework we are not formally taught business or personal finance. If we don’t take the initiative to learn these concepts and yet at the same time hold on to the misconceptions of the “right” to high consumption as physicians, we will end up regretting it come time for retirement…and sometimes before retirement!

    I propose that the concepts presented on this site and in the recommended books be required coursework in medical school and/or residency. Have you considered contacting medical schools to lobby for coursework in these areas? I think you should. I feel lucky to have started my finical investment education in college and residency by happenstance. I was also lucky to have come across quality books and information.

    The right advisor can be extremely helpful if his/her incentives are aligned with the physician’s. I agree that first step in finding “the right advisor” is finding one that is fee only.

  8. There is so much to learn already in med school and residency, there is little room to shove in extra. But with just a little time, some high-yield concepts could be presented.

    I’m planning to do at least an occasional presentation at my local med school, and occasionally am invited to go out of state to speak to various groups. The problem is that it’s hard to get information that is focused at docs, high-quality, AND relatively free of conflicts of interest for any kind of a decent price.

  9. I agree with many of your points and think investor due-diligence is the one subject I would have also included here. How do you know if that advisor your co-worker or family member referred is actually a good fit for you?

    Start your research on where you can not only get 3rd party information on an advisor’s conduct, experience and professional designations, but you can also ask your financial questions to registered advisors, all for free.

    Best of luck, ask many questions!

  10. I’m surprised you actually had anything positive to say about Financial Advisors! :-)

    The NY Times had an article last Saturday about how Financial Salesmen are free to put any title they want on their business card.

    Rex, instead of looking for a financial advisor, look for Registered Investment Advisor Representative. This will be mentioned on the business card instead of Wealth manager or finacial advisor or ‘your personal CFO’. This refers to a securities license series 65, and not the series 7 – These people are usually fiduciaries, as opposed to salesmen, and are often fee-only.

  11. I wasn’t aware of any connection between passing a series 65 and being a fiduciary, nor with passing a series 65 and being fee-only. My understanding is these things are completely unrelated.

    The series 65 appears to my untrained eye to mostly cover regulatory issues, rather than any actual training in financial matters. In fact, this study guide for the series 65 test specifically states this about fees:

    “There are few specific restrictions on fees within either the Investment Advisers Act of 1940 or the Uniform Securities Act. The advisory fee must not be “unreasonable,” which means that it generally should be in line with what other advisers charge. Under the Uniform Securities Act, the following types of fee arrangements are permitted:

    Fees based on a percentage of assets under management
    Flat annual dollar amount for services agreed upon
    Brokerage fees on trades made for clients
    Wrap fees that combine all services (asset management and transaction fees) into a single annual fee

    As mentioned above, performance-based fees are generally prohibited.”

    The test also seems to focus a lot on a “suitability” standard rather than a “fiduciary” one.

  12. WCI, let me clarify.

    First, let me explain some confusing terms – Registered Investment Advisors (RIA) are firms. They employ advisors with the series 65 called Investment Advisor Reps (IAR).
    Passing the 65 allows you to charge for investment advice – it doesn’t allow you to get commission from the sale of investment products. (You need the series 7 for that).
    Brokers are holders of the series 7 securities license.

    IARs cannot charge commissions simply because they don’t have the series 7 license. So they must be fee-only (by definition).

    RIAs & their reps (IARs), are required by law to provide prospective clients with a document called an adv-2.
    This comprehensive document lists how they get compensated. If they hold themselves to a fiduciary standard, they will proudly point this out in this document.
    If they take commissions, soft dollars and wrap-fees they must disclose this here as well.

    They are in fact held to a higher standard than brokers.

    Please see
    “Fiduciary Duty
    The anti-fraud provisions of the Investment Advisers Act of 1940 and most state laws impose a duty on investment advisers to act as fiduciaries in dealings with their clients. This means the adviser must hold the client’s interest above its own in all matters. Conflicts of interest should be avoided at all costs. However, there are some conflicts that will inevitably occur, such as a person being licensed as a securities agent as well as an adviser. In these instances, the adviser must take great pains to clearly and accurately describe those conflicts and how the adviser will maintain impartiality in its recommendations to clients. The SEC has said that an adviser has a duty to:

    Make reasonable investment recommendations independent of outside influences
    Select broker-dealers based on their ability to provide the best execution of trades for accounts where the adviser has authority to select the broker-dealer.
    Make recommendations based on a reasonable inquiry into a client’s investment objectives, financial situation and other factors
    Always place client interests ahead of its own.”

    Further down in the document it explains what examiners look for. Examiners are cracking down on Investment Advisors because of all the fraud that’s been emerging in the recent past.

    “The examiner will view perceived conflicts from the point of view of the customer; was the disclosure or lack of disclosure a factor in the client’s decision to use an adviser’s services or ratify an adviser’s recommendations? Was the customer misled? Was the customer placed at a disadvantage or taken unfair advantage of as a result of the conflict and the adviser’s compliance with disclosure requirements? The burden of proof lies with the adviser.”

    Oh the other hand, brokers are just held to a suitability standard. Is the product suitable for the client? Yes? Then you’re good to go!

    Brokers hold the series 7 and can charge commissions. Sometimes they take the series 63, and then can call themselves IARs too – this now makes it complicated :-)

    Using you can determine if someone is a broker or IAR. If they are a broker, there is a very high probably they will sell you commissioned products. If they are both, there is still a high probability they will sell you commissioned products. The ADV-2 will tell you exactly what they’re doing. If they don’t provide you with one (strange because they must by law, but it still happens), you can usually find it online.

    Hope this helps clear things up a bit.

  13. Looking for that title is also worthless.

    Contrary to your statement, they are not usually fiduciary and are not required to hold such a standard. They just claim they were operating under their insurance license and then finra has no jurisdiction over them.

    Finra is way too weak on their members who push insurance products as investments.

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