Is Wealth Management Worth it? The Benefits and Potential Pitfalls

By : Jeremy Sorci | April 21, 2020

Ever wonder about the pros and cons of paying for wealth management services? Many investors do; in fact, we’re asked about them all the time.

Jeremy Sorci is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyIs wealth management worth it? Obviously, we’re all for it – but with a few caveats, of course. Those wealth management fees are only worth it if you’re receiving efficient, effective advice. Expense ratios for the average actively managed mutual fund range from 1.3 to 1.5% per year.

In contrast, the average index fund and structured asset class portfolio hover at about .3%. You can reallocate those savings and put them toward true, value-added service and investment management.

Read on to discover the benefits and potential pitfalls of paying for wealth management.

Best Wealth Strategies: Does a Professional Wealth Advisor Add Value?

Disclaimer: We’re strong believers in the value of professional guidance. Though, of course, common sense dictates that not every situation calls for professional advice, when considering an important decision, situation or dilemma, seeking the advice of an experienced professional is often invaluable.

Perhaps the most significant benefit of professional investment guidance lies in the fact that’s simply an efficient way to access information. After all, we live in the (appropriately named) “Information Age,” and professional advice ups the efficiency factor of information consumption.

Consider that you simply don’t have time to learn all there is to know about every field, whether it’s the law, skiing, accounting, neurolinguistics, quantum physics or investing. Taking advantage of wealth advisors’ years of education, training and experience simply makes sense. It’s called the division of labor – and you should use it wisely to your advantage!

For instance, do you do your own tax returns without the help of a trained CPA? Similarly, Tiger Woods may be the world’s best golfer, but he still relies heavily on his coach.

Plus, as Aesop put it long before the Information Age, “Better to be wise by the misfortunes of others than our own.” There’s no need to re-invent the (investing) wheel; professionals add value because they’ve witnesses and learned from others’ mistakes and misfortunes.

Wealth Advisors Take the Emotion Out of Investment Planning

Jeremy Sorci is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyWhile emotions don’t generally come into play in matters related to taxes or the law, they definitely can, and often do, influence investment decisions. Professionals can provide an objective, disinterested perspective that’s free from common issues that plague investors such as hindsight bias, over-confidence and regret avoidance.

As economic guru Rex Sinquefield puts it, “Even though many sophisticated investors eschew advisors, it’s a rare individual who shouldn’t have a good advisor in some capacity. If nothing else, they keep you from doing something stupid, from giving in to impulses to make unwise investments.”

Choosing the Right Wealth Advisor for Your Needs

Now that we’ve established the value of working with a wealth management advisor, the next step is finding competent advisors that are right for you. Consider the time and effort you spend on this goal. It’s an investment with a high rate of return.

Look for a wealth advisor that:

  • Will develop a long-term working relationship with you built on trust and knowledge of your situation and objectives
  • Meets with you face-to-face, saving you the frustration of the faceless advisor on a website or a 1-800 number
  • Works on a fee-only basis, rather than for sales commissions which can create potential conflicts of interest
  • Advocates passive, rather than active, management – because an indexed based approach is better than trying to beat the market

So, while it may be a good habit to think of ways to save money — doing so comes with peril.  The guidance you receive from a trusted and competent financial advisor can make all the difference between achieving your financial goals or falling short. Choose wisely.

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