The Pros and Cons of Hiring a Financial Advisor

Are you considering hiring a financial advisor in Australia but unsure if it's worth the investment? While there are certainly benefits to enlisting the help of a professional, there are also some drawbacks to be aware of.

In this article, we'll explore the pros and cons of hiring a financial advisor in Australia so that you can make an informed decision about your financial future.

In short, hiring a financial advisor can provide you with valuable expertise and guidance on managing your finances, planning for retirement, and making investments.

They can help you navigate complex financial decisions and offer personalised advice tailored to your individual goals and needs. However, it's important to remember that financial advisors come with a cost and may not always have your best interests in mind.

So, what exactly are the pros and cons of working with a financial advisor in Australia?

We'll dive into the details, including the benefits of receiving personalised financial advice, potential conflicts of interest, and the cost of services.

By the end of this article, you'll better understand whether hiring a financial advisor is right for you. 

Let's get started!

The Financial Advisor Definition

A financial advisor is a professional you hire to provide financial assistance and management for a fixed fee or a proportion of the assets they handle for you.

Although it is highly likely that you are already aware of this information, just to provide some context, let us define what a financial advisor is.

In addition, they serve as an ongoing partner who assists you in navigating difficult financial situations and is accessible for any inquiries you happen to get anywhere along the way. Sound right? Awesome.

Key Considerations

• You are the only person who can make the decision about which financial advisor is best for your needs.

• Because there are many cowboys in the area, you will need to conduct your own investigation and exercise due diligence.

• Hiring a financial advisor with friends, family, or friends who have had successful experiences with them is a significant step in the right direction. Word of mouth is usually a major one.

Financial Counsel Is Not a Complex Science

It is quite possible that you would have the attention and diligence necessary to function as your own financial counsellor if you were good at keeping track of your spending, saving, and investing, as well as handling all of the debt you are carrying and top of everything else.

If you aren't, we would suggest that you likely need some assistance.

Before deciding whether you should engage a financial advisor or, hey, do I do this myself... there are three major questions that you need to answer as a starting place. It is imperative that you be really realistic when responding to these inquiries.

• Are you able to find the time, and maybe even more significantly, what is the value that you place on your time?
• Do you truly require a detailed strategy for your finances?
• When it comes to making significant choices concerning money, are you able to emotionally remove yourself?

Your responses to these three questions will provide you with a rather accurate indicator as to the direction in which you ought to go.

So, let’s discuss the advantages and disadvantages of seeking advice from a financial counsellor against becoming a do-it-yourselfer financial advisor.

Pros

1. Time

Employing a consultant can save you a lot of time that would otherwise be spent conducting research and learning about a variety of investing techniques.

At this point, you need to do a cost-benefit analysis of the situation. 

Take into account your available bandwidth. Keeping track of an investment portfolio on a consistent basis will require your attention on a regular basis, particularly when it comes time to file taxes. The type of investment plan you are interested in pursuing will determine this need.

2. Strategy

It's possible that a financial advisor might be better qualified to pick the investing approach that would be most beneficial to your long-term goals.

Investors over the age of 50 contemplating various accounts for retirement or tax purposes should keep this in mind as it is an essential factor to consider. 

When it comes to "asset management," what exactly does that mean? When dealing with more complicated investing issues, it may be prudent to obtain appropriate guidance.

3. Peace of Mind

The major benefit is that you are able to delegate the duty to a reliable third party, relieving yourself of the day-to-day stress associated with making important choices.

Managing one's emotions when making financial decisions is an important obstacle that many new investors face early on in their careers. 

By distancing yourself from the situation, you can remove your feelings and reduce the likelihood of making rash purchases or sales as the market moves.

If you decide to handle your own portfolio, it might be prudent to concentrate instead on getting financial counselling if you want to succeed.

Cons

1. Peace of Mind

This one has both positive and negative aspects at the same time. When you turn over control of your resources to another party, you no longer have the reassurance of knowing why there is a shift in the value of your money.

Even with the assistance of a reliable advisor, there is no such thing as "one hundred per cent guaranteed success" in the stock market. 

You are the one who must continue to suffer from significant losses. Who is your consultant? Less so. You should educate yourself to the point that you can effectively supervise any financial counsellor you consult.

Education is the only path that will lead to genuine mental tranquilly.

2. Conflict of Interest

When you are in the market for a financial advisor? Ask challenging questions. It is important to be aware of the candidate's financial history and current net worth. It is important to gain an understanding of how someone manages their own resources before entrusting them with your management of yours.

3. Costs and Fees

Because fees are often higher for smaller accounts, you may find that even a modest financial advisor fee will consume a larger proportion of your earnings if you are only depositing a small amount of money.

This is because smaller accounts tend to have higher charges. The greater the amount of capital you invest, the more likely your advisor costs will reduce. 

You may also discover that many offer fair pricing, which is not surprising given the heightened level of competition in this industry, both online and off.

Ask yourself: Will I attain my goals sooner, with or without an advisor's assistance, even after considering the associated costs?

While you are negotiating, offer them an incentive to reduce your rates if you raise the amount of money you invest or if you bring in other people to work with them.

Asking the Right Questions of Your Financial Advisors (Before Hiring One)

1. What Kind of Pricing Structure Do You Use?

A financial consultant ought never to avoid being forthright about the fees they charge.

Many firms will base their fees on a percentage of the assets they manage, but there are also firms that will charge a flat cost or an hourly rate.

According to the findings of a study conducted by Advisor Ratings, the cost of receiving professional advice has increased by more than 28 per cent in the past two years. 

The company hypothesises that this is due to elder planners exiting the business as a result of increased professional requirements being implemented.

According to research on investment trends, the average amount Australians are ready to spend for an initial consultation with a financial adviser ranges between $340 and $530, whereas financial advisers charge an average fee of $2,671 for a statement of advice.

2. Should I Include My Relatives in This Discussion?

It is anticipated that most of the instances will be handled on an individual basis, and families will not be required to participate. Nonetheless, this should be taken into consideration when dealing with older customers so that their families are informed of the location of their money. 

It's not a poor decision to engage family members, but you should ask the advisor what they believe to be the most effective course of action. It might be beneficial to bring older children along to a meeting, as it might motivate them to begin investing and asking for guidance at an earlier age.

3. What Happens if You Retire/the Company Is Acquired?

A significant number of financial counsellors are employed by relatively modest organisations or even on their own. Asking about the company's intentions for retirement or succession planning is something you should consider doing if your adviser is getting close to the age of retirement.

Although it shouldn't directly impact you, it is important to be aware of their plans just in case the consultant you consult and have developed a relationship of trust with has a chance.

4. What Is the Difference in Price Between One-Time and Continuing Advice?

Compare the price of continuous counsel against the cost of a one-time consultation. Each one has both positives and negatives to offer. If your savings are limited, continuing guidance could end up being quite pricey for you. 

A one-time consultation is useful for establishing goals, having conversations about inheritance, and reorganising your finances.

Advice that is ongoing might be helpful when planning for retirement, maximising income throughout retirement, and minimising the amount of taxes paid.

This is normally reserved for individuals with significant assets to invest.

Remember that you are not required to follow the advice or continue working with the company as an ongoing client. This is an important point to keep in mind.

5. In What Ways Can I Be Sure That My Cash Is Secure?

Your advisor needs to make sure that you are always aware of what will occur in the event that you are unsuccessful.

Even while there is no way to guarantee that you won't lose your money, there are ways to determine whether or not you were mis-sold an investment.

It is always a good idea to safeguard your cash, but it is your financial advisers' responsibility to urge you to diversify your investments.

6. Can You Invest in a Manner That Is Compatible With My Beliefs?

It's possible that, with the advent of specific thematic investments like Environmental, Social, and Governance (ESG) funds, you would exclusively like to invest in accordance with your philosophies and ideas.

If this is the case, you can do so with these funds. Make it a point to check if the advisors have the ability to accomplish this and can take into account your perspective. In the event that they are unable to, there will be those who can.

Which kinds of investments do you prefer to make, and in which areas do you have particular expertise?

In most cases, financial advisers are going to have a taste for the kinds of funds in which they find it most appealing to put their clients' money. The discussion over whether one should be active or passive is still going on, and both sides of the argument have several advantages and disadvantages.

Find out where the preference lies, and ask yourself if you are okay with that, considering your investment objectives.

It is also a good idea to enquire about how the adviser intends to track and handle your investments and the frequency with which you will receive updates regarding your portfolio and its performance.

Some financial advisors focus on providing investment services, others concentrate on SMSF planning, and others provide overall guidance. Think about why you want guidance and then ask the person for whom you are seeking advice what sectors they concentrate in as well as whether or not the counsel they can provide is restricted in any way.

A Financial Service Guide for an advisor should also detail the services that the advisor provides.

7. Where Do You Currently Have Your Money Invested?

Addressing a financial adviser about their investment approach and the kind of assets they own in their portfolio is a perfectly acceptable and even encouraged question. For instance, several fund managers put their own cash into their own funds as evidence that they believe in their ideas. 

Because of this, it is almost definitely useful to question an adviser where they placed their cash to determine whether or not they have the confidence to act on their convictions.

Doing your own research on an advisor is something that is always a good idea, even though it is not a straightforward question to ask. For example, a service such as Advisor Ratings enables you to view the feedback left by other customers.

8. What Exactly Are Your Credentials?

Even while it may appear to be common sense that a person who advises you on your hard-earned cash ought to possess a college degree in the relevant field, the industry really hasn't traditionally insisted on this need. 

Nevertheless, more stringent educational requirements are on the horizon, and by the year 2024, all existing financial advisers will be required to maintain their licences by completing (at a minimum) an approved bachelor's degree programme and passing a course on the code of ethics.

Inquire with your financial adviser regarding their plans to comply with the new requirements and see whether they have any plans to do so.

You can also verify to determine whether your consultant has committed any errors by looking into it. It might involve an order from the Australian Securities and Investments Commission (ASIC) that disqualifies an expert from offering advice for a set length of time or even for life.

Before the meeting, you can look up the adviser's name on the financial advisers register to see if they are properly licenced to provide advice or if they are an authorised representative of a financial services licence holder. This can be done even if you have already scheduled the appointment.

Some More Questions That Are Valuable To Ask

• How will we conduct a consultation regarding the decisions concerning, or the alterations to, my investment strategy?

• How do you measure your level of accomplishment?

• In order to make informed judgements regarding your investments and the items you choose, what kinds of information and resources do you draw upon?

• What kinds of commissions and/or other incentives do you get from selling financial products?

Bottom Line

In conclusion, hiring a financial advisor in Australia has pros and cons. On the one hand, a financial advisor can provide expert advice and help you make informed financial decisions. They can also save you time and help you avoid costly mistakes. On the other hand, hiring a financial advisor can be expensive, and there is no guarantee that their advice will lead to financial success.

So, should you hire a financial advisor? The answer depends on your personal financial situation and goals. If you have complex financial needs, such as planning for retirement or managing a large investment portfolio, a financial advisor can be a valuable asset. However, hiring a financial advisor may not be necessary if you have a simple financial situation or are comfortable managing your finances.

What are some specific financial goals you have for the future and do you think hiring a financial advisor would be helpful in achieving those goals? Let us know in the comments below.

Content Summary

• A financial advisor is a professional that you hire to provide financial assistance and management for a fixed fee or a proportion of the assets they handle for you.
•  Hiring a financial advisor with friends, family, or friends who have had successful experiences with them is a significant step in the right direction.
•  Before deciding whether you should engage a financial advisor or, hey, do I do this myself... there are three major questions that you need to answer as a starting place.
• It is imperative that you be really realistic when responding to these inquiries.
•  Your responses to these three questions will provide you with a rather accurate indicator as to the direction in which you ought to go.
• At this point, you need to do a cost-benefit analysis of the situation.
• Keeping track of an investment portfolio on a consistent basis will require your attention on a regular basis, particularly when it comes time to file taxes.
• The type of investment plan you are interested in pursuing will determine this need.
•  It's possible that a financial advisor might be better qualified to pick the investing approach that would be most beneficial to your long-term goals.
•  The major benefit is that you are able to delegate the duty to a reliable third party, relieving yourself of the day-to-day stress associated with making important choices.
•  By distancing yourself from the situation, you can remove your feelings and reduce the likelihood of making rash purchases or sales as the market moves.
• If you do decide to handle your own portfolio, it might be prudent to concentrate instead on getting financial counselling if you want to be successful.
• Even with the assistance of a reliable advisor, there is no such thing as "one hundred per cent guaranteed success" in the stock market.
• You should educate yourself to the point that you can effectively supervise any financial counsellor with whom you consult.
• It is important to gain an understanding of how someone manages their own resources before entrusting them with your management of yours.
•  Because fees are often higher for smaller accounts, you may find that even a modest financial advisor fee will consume a larger proportion of your earnings if you are only depositing a small amount of money.
• The greater the amount of capital you invest, the more likely your advisor costs will reduce.
• Ask yourself: Will I attain my goals sooner, with or without an advisor's assistance, even after considering the associated costs?
•  While you are negotiating, offer them an incentive to reduce your rates if you raise the amount of money you invest or if you bring in other people to work with them.
•  A financial consultant ought never to avoid being forthright about the fees they charge.
• According to the findings of a study conducted by Advisor Ratings, the cost of receiving professional advice has increased by more than 28 per cent in the past two years.
• According to research on investment trends, the average amount Australians are ready to spend for an initial consultation with a financial adviser ranges between $340 and $530, whereas financial advisers charge an average fee of $2,671 for a statement of advice.
• It might be beneficial to bring older children along to a meeting, as it might motivate them to begin investing and asking for guidance at an earlier age.
• Asking about the company's intentions for retirement or succession planning is something you should consider doing if your adviser is getting close to the age of retirement.
•  Remember that you are not required to follow the advice or continue working with the company as an ongoing client.
•  Your advisor needs to ensure that you are always aware of what will occur if you are unsuccessful.
• Even while there is no way to guarantee that you won't lose your money, there are ways to determine whether or not you were mis-sold an investment.
• It is always a good idea to ensure that your cash is safeguarded, but it is your financial advisers' responsibility to urge you to diversify your investments.
• Make it a point to check if the advisors have the ability to accomplish this and can take into account your perspective.
•  Which kinds of investments do you prefer to make, and in which areas do you have particular expertise?
• Find out where the preference lies, and ask yourself if you are okay with that, considering your investment objectives.
•  It is also a good idea to enquire about how the adviser intends to track and handle your investments and the frequency with which you will receive updates regarding your portfolio and its performance.
• Think about why you want guidance and then ask the person for whom you are seeking advice what sectors they concentrate in as well as whether or not the counsel they can provide is restricted in any way.
• A Financial Service Guide for an advisor should also detail the services the advisor provides.
•  Addressing a financial adviser about their investment approach and the kind of assets they own in their portfolio is a perfectly acceptable and even encouraged question.
•  Doing your own research on an advisor is something that is always a good idea, even though it is not a straightforward question to ask.
• For example, a service such as Advisor Ratings lets you view the feedback left by other customers.
• Nevertheless, more stringent educational requirements are on the horizon, and by the year 2024, all existing financial advisers will be required to maintain their licences by completing (at a minimum) an approved bachelor's degree programme and passing a course on the code of ethics.
•  Inquire with your financial adviser regarding their plans to comply with the new requirements and see whether they have any plans to do so.
•  You can also verify to determine whether your consultant has committed any errors by looking into it.
•  Before the meeting, you can look up the adviser's name on the financial advisers register to see if they are properly licenced to provide advice or if they are an authorised representative of a financial services licence holder.
•  In order to make informed judgements regarding your investments and the items that you choose, what kinds of information and resources do you draw upon?