Do I Need an advisor?

My starting point is that people should strive for as much self-sufficiency as they can. Doing-it-yourself has several advantages:

1. It allows you to reduce the fees you pay for advisory services. These can significantly impact your nest egg over long periods of time.
2. It gives you greater control over your assets. You don’t have to worry that someone will initiate bad trades in your account.
3. You don’t have to worry about being victimized by advisors who may be inept, dishonest or conflicted.

I believe most people (and in particular passive investors) are capable of attaining self-sufficiency in what I call investing literacy. Investing literacy refers to the narrow function of allocating one’s wealth to asset classes, selecting investment assets within those asset classes, and executing actual trades. Investing literacy is a subset of financial literacy. Thus, financial literacy includes investing literacy, but it extends to other areas, such as balancing checkbooks, prudent use of credit cards, identification of appropriate insurance coverage, planning for children’s education funds, trusts, etc.

In my opinion people should continuously strive to improve their financial literacy, but there are practical limits to the levels of knowledge they can attain in certain highly specialized areas. These areas include estate planning (which call for legal knowledge), tax filing and planning (which relies on accounting knowledge), and selection of insurance (which relies on a specific understanding of insurance products—what is and isn’t covered). An individual may spend a lifetime gaining a wealth of accounting knowledge, but will still require expert assistance in legal or insurance matters. Similarly, a layer may have estate planning all figured out, but will still need help in assessing tax implications of certain investment transactions, or selection of insurance.

For these reasons, while a passive investor can put together and execute a very effective investing plan on his or her own, I do recommend that investors seek some advice from professionals who are able to take a comprehensive view of their financial needs. Comprehensive views encompass the broader financial planning objectives which include estate planning (legal advice), taxes (accounting advice) and insurance advice (covering health insurance, life insurance, property insurance, liability insurance, etc.). Professionals who are trained in provision of such advice are often referred to as financial planners. Certified Financial Planners™ (CFP®) in particular are certified by the Certified Financial Planner Board Of Standards, Inc.

Even in the event you feel you can manage your own financial planning, I strongly urge you to periodically touch base with a lawyer and an accountant.

Top