How to Find an Investment Advisor When You’re Not Rich

By Jeff Brown

These days it’s easy to go it alone with personal finances and investing. Play with a few online calculators and some money management software, pick a few broad market index funds and, well, that’s it.

Going it alone is suitable for people with a do-it-yourself bent, have enough time and can live with setbacks, says Tom Warschauer, financial services professor at San Diego State University.

“If the answer to those questions is yes, go for it,” he says. “Discount brokerages with some artificial intelligence-type robo-advisors make it much easier.” Those are calculators that use your inputs — assets, income, age, financial goals and tolerance for risk, etc. — to recommend a mix of investments such as mutual funds of various types.

For many people, though, financial management is daunting.

“If you’re not interested in considering tax-incentivized products, reweighting your portfolio, diversifying away from unintended concentrations in your portfolio or adjusting your investments over time as life changes and goals shift, then going it alone is a perfectly acceptable path,” says Min Zhang, chief financial officer of Totum Wealth Management in Los Angeles. “However, most people still find comfort in engaging with a human and want to rest assured that an expert is managing their wealth, rather than letting the proverbial buck stop with oneself.”

Think about why you might need a pro. The more complicated your finances, and the less you know about saving, investing, budgeting, taxes and insurance, the better the odds professional advice will be worth the cost.

You can limit the cost by hiring one or more experts for just those things you really can’t do yourself. If you have a straightforward retirement savings plan at work but are overwhelmed by your tax return, hire a tax preparer, not a soup-to-nuts financial conglomerate.

Also, if you have investments, your brokerage or mutual fund company may offer free or inexpensive advice. And you may be entitled to some free help from the firm that provides your 401(k) or 403(b) at work, though that’s likely to be general education rather than advice tailored to your specific situation.

Then, if a paid pro seems essential, consider what type suits your needs. Advisors, of course, must be paid, and each approach has pros and cons:

Commission-based advisors. The system used by traditional stockbrokers charges a fee for each transaction such as a stock purchase or sale, and the fee pays for the recommendation. This can be inexpensive if you have very few transactions — if you buy a set of mutual funds and just hold them for retirement, for example. The danger is that an unscrupulous advisor may “churn” the account, pressing you to buy or sell more than necessary to boost commissions. Deep-discount brokers — the kind that charge just $5 or $10 a trade — typically don’t offer investment advice but are a good choice if you hire someone else to devise a strategy you will implement yourself.

Asset-based advisors. These advisors charge an annual fee, such 1 percent to 3 percent of the value of the assets under management. This is fine if you need lots of advice and trade frequently, but it can be expensive if most of your holdings use a buy-and-hold strategy that requires little guidance after investments are chosen.

“No one is worth more than 1 percent of assets under management,” Warschauer says.

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