It’s the kind of question that’s always answered with, it depends. What it can depend on is the value that you are receiving for the money you’re paying.
There will always be charges that you can’t avoid when giving your money to someone else to manage: Embedded management fees, administration fees and the spreads you pay when buying bonds or converting currencies.
These are just the realities of participating in an organized market. I know that some of you are saying, “Well I only buy GICs or leave my money in cash in a savings account,” but the truth is, you’re likely still paying fees. They’re just not as obvious.
The costs involved are the fees you pay directly to have your savings and investments managed by someone. These are usually direct costs, and you pay them on a regular basis, mostly calculated as a percentage of what you have invested.
The first thing to figure out is what you’re paying for. Most advisors today offer a number of different services that go above and beyond just your investments. These include financial planning, estate planning, business transition advice, and lifestyle management to name a few.
The industry has focused on charging fees, mainly because that was the only way they could do it efficiently. There are service providers out there who charge you each time they provide a service for you, but as a rule they generally don’t provide ongoing investment advice.
The issue with advisors charging for investment management these days is that it’s become commoditized. Between pooled mutual funds, asset allocation ETF models, and robo-advisor platforms, it is becoming easier for the individual investor to get decent returns without the advice of an advisor.
If that’s all there was to the decision, it would be straightforward. Take the cheapest solution possible as long as the benefits are similar.
What that last line of reasoning doesn’t cover is all the rest.
Are you disciplined enough to keep yourself in the market when things get crazy? Will you rebalance your portfolio regularly if the service isn’t provided? Will you change the risk in your portfolio as you become more risk averse?
Let’s not forget that you’re not likely to fire yourself. If your strategy isn’t working, will you do an objective analysis of your existing portfolio and potential replacements? Often people will simply let things lie, and accept whatever results their decisions deliver.
What about planning? Do you have a financial plan? Do you update it regularly to reflect changes in your life?
Then there’s estate planning. Are your wills up to date? Do you have powers of attorney in place? Do you have an advanced care directive in place? What about taxes, have you looked at all the alternatives in structuring your estate so that the money goes where it’s supposed to go, and not into the hands of the government?
The above explains what is done for the fees, but it doesn’t really answer the question, should you pay for advice. The answer, then, comes down to two things: What advice do you need, and what advice are you getting.
If you’re good at doing your own planning, and you have the time, why pay for it? If you manage your own investments with a disciplined approach and have had good results, why pay for it? The answer is simple: If you’re the best person for the job and you have the time, energy and interest, you shouldn’t pay for it.
On the other hand, if you need the advice, then the question to ask yourself is this: Are you actually getting the good advice you need? If your planning and investment needs are being met and you like the convenience and peace of mind it offers, then you should pay for it.
However, if you’ve left it in the hands of an advisor and you feel you’re not being looked after and getting all that you’ve been promised, you have another option: Go shopping, look around, see what’s available, and find out if there’s a better fit.
It’s your money. It is no different than any other purchase in your life, you need to make sure you’re getting the best value for it.
Remember though, value isn’t about getting the most for the least, it’s about getting all that you need, at a fair price.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.