TL;DR: This blog explores how individuals can manage investments without a financial advisor, the risks involved, and when professional help becomes essential.
Main points:
- Many can't access financial advisors due to asset minimums and fees.
- Investing without one is possible but requires caution and self-education.
- Watch out for bad advice from unreliable sources.
- Understand advisor costs and know when expert help is needed.
- Choose fiduciaries for trustworthy guidance.
Not everyone can access a top-tier financial planner, but that doesn’t mean they have to fly completely blind.
It’s not unreasonable to want to make good financial investments. But you might wonder if you can invest without a financial advisor. Managing your money with a strong investment strategy is certainly doable, but there are some things you should keep in mind.
Why Many People Can’t Hire a Financial Advisor
Most top financial advisors only take clients with a minimum amount of investable assets. That might seem harsh. However, fiduciary advisors usually charge a fee that depends on a percentage of your investments. If your investable assets are low, the advisor won’t earn enough from your account to make it worth their time.
Many people could benefit from a top financial advisor but can’t get one. If that describes you, here are some tips to help you work your way toward working with a financial advisor.
Can You Invest without a Financial Advisor?
You can still invest without a financial planner, but you need to do a lot of independent research.
The first step is to understand not everyone is out to help you. There are many common sources of financial wisdom, from brokerage firms to social media. But there are two main problems with these sources.
First, you must figure out what’s good advice and what’s bad—mostly on your own. That’s hard without deep financial knowledge. Second, there’s often little to no gatekeeping for the people giving that advice.
Some social media influencers routinely give terrible advice such as claiming that 0% loans aren’t really debt. Even advisors working at mass-market brokerage firms are prone to give less-than-stellar advice. Why? They push products that earn money for their firms, even if those products don’t help the client.
A client making $40,000 per year has less ability to put money away than one making six figures. That means their advisors need to make more per transaction to pay their own bills. They may use expensive products with high commissions and fees, creating a cycle that’s very difficult to get out of.
To put it simply, there is a lot of groundwork that needs to be done if you want to invest without a financial advisor.
I’ve got a list of things to think about when you’re managing your own financial planning:
1. Throw Out the Old Rules!
For about twelve years, the United States had the best economy the world has ever seen. Markets soared, and it was almost child’s play to make money by investing. But that’s all changed. The coronavirus pandemic, Russia’s invasion of Ukraine and global supply chain issues make success in the markets much more challenging.
Even so-called “safe” investments like government bonds are performing poorly now. We’re in much more treacherous waters than we’ve been in since the ‘80s, and even the safe harbors have storms.
2. Carefully Consider Your Sources of Information
There’s a lot of free financial advice out there. Some of it is good, but a lot of it isn’t. Research the places you’re getting information from. Make sure they don’t have a reputation for giving bad advice.
3. Understand That a Little Knowledge Can Be Dangerous
The Dunning-Kruger effect explains how people often know a little but think they know more. A lot of people want to be financially savvy. However, they don’t learn enough about finance before they start acting on what they think they know.
A great example is cryptocurrencies. People invested a lot of money in them and saw tremendous growth until they suddenly didn’t. When the crypto market crashed, it caught a lot of people by surprise. They didn’t understand market risk as well as they thought they did.
If you don’t have a financial advisor, that doesn’t mean you should never invest in anything. But you do need to commit to learning as much as you can about financial planning. Stay alert so you don’t fool yourself into thinking you know more than you do.
4. How Much a Financial Advisor Costs
Financial advisors usually charge in one of three ways: a flat fee, an hourly rate, or a percentage of your assets. Some advisors work on commission, which can raise conflicts of interest.
Always ask how they earn money. Make sure you understand the full cost before signing anything. Knowing how much a financial advisor costs helps you decide if the service fits your budget and financial goals.
5. Know When to Hire a Financial Advisor
While it is entirely possible to invest without a financial advisor, sometimes you need expert guidance. These cases are when you need a financial advisor.
If you're a recent graduate, new business owner, or saving for retirement, a financial advisor can give advice based on your goals. They can help you create and adhere to a budget, understand investment options, manage taxes, and more. If you can invest without a financial advisor, then be wary of the risks.
If any of the following describe you, it probably means a financial advisor can help.
You Don’t Have Much Advanced Financial Knowledge
Having a financial advisor can be invaluable for those with limited financial knowledge or experience. A financial advisor can teach and guide you on money decisions. They help you manage your finances, plan for retirement, and invest wisely to reach your goals.
You Are Preparing for Retirement
Life during retirement years can be financially challenging if there is no proper plan. That’s why you need a financial advisor to help create, manage, and sustain a comfortable retirement lifestyle.
They can guide you on saving and investing to help you build a secure future in retirement. A certified financial planner can help retirees make a solid plan. That brings peace of mind because someone trustworthy is handling their money.
You Are a Busy Professional with Limited Time
Having a demanding career or business can make it difficult for you to manage your finances optimally. That’s when a financial advisor steps in to help manage your investments, financial planning, and other important matters.
This can help you to free up your time and energy to focus on your career. You can find a financial advisor that aligns with your goals and can give you the tailored advice you need.
You Have a Complex Financial Situation
People with multiple income sources, investments, or significant assets can benefit significantly from engaging a financial advisor. You need a financial advisor to manage your portfolio and help you make smart choices. They give you the knowledge and confidence to get better returns. With the right financial guidance, you can achieve your long-term goals with greater ease and efficiency.
You Have a High-Net Worth
High-net-worth individuals have unique financial needs. They require specialized advice to manage their wealth responsibly and efficiently.
You’ll need financial advisors who can give clear advice on taxes, estate planning, estate planning, and wealth management. High-net-worth individuals can protect their assets while also taking advantage of available opportunities to maximize their wealth.
Frequently Asked Questions About Needing a Financial Advisor
Here are some answers to common questions about needing a financial advisor:
Do you really need a financial advisor?
You don’t always need one, but it depends on your situation. If your finances are simple and you feel confident managing them, you might not need help. If you have specific goals, large assets or a complex portfolio, you can benefit from one.
At What Income Level Do You Need a Financial Advisor?
There’s no set income level. Some people with modest incomes benefit from advice on budgeting, debt, and saving. Others with higher incomes may need help with taxes or investments. If you’re earning enough to start saving and want to make smart decisions, it might be time to get advice.
How Do You Determine If You Need a Financial Advisor?
Ask yourself if you are unsure about how to invest your money. Do you feel overwhelmed by financial decisions? What are your future goals like?
You might be working toward buying a home or retiring. If you answer yes to any of these then you may need a financial advisor.
At What Net Worth Do You Need a Financial Advisor?
This varies and depends on the financial advisor. Some advisors work with people that have a minimum of $100,000. Others specialize in working with those starting out, and some only work with high-net-worth individuals. If your finances are growing and you want to protect and grow your wealth, it may be a good time to consider one.
Choosing the Best Path for Your Financial Situation
If you choose to invest without a financial advisor, be sure to do your due diligence. Many online resources are false or misleading. If you choose to go this route, be prepared to do a lot of independent research.
If you decide you need a financial advisor, look for a few important things first. First, find a fiduciary. A fiduciary is a professional with a legal obligation to manage your finances for your benefit, not their own.
You should also choose a financial advisor who is willing to be flexible and objective with your finances. We offer a wide range of services at Asset Preservation Wealth & Tax.
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Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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