I have met literally hundreds of prospective clients in my 20 years in providing financial advice and planning services, and the topic of "Why you?" has come up in one way or another in every conversation. That question is usually followed up, sooner or later, with "What is your fee?" or "How Much Does This Cost?" These are great questions that no advisor should feel uncomfortable with, and they must give you great answers or you will move on.
Many advisors charge an assets under management fee (e.g. 1% on the first $1 million, 0.9% on the next $1 million, and so on) and most, but not all, also bundle financial planning services in that fee. Other advisors charge a flat fee for financial planning (e.g. $5,000 or $10,000), and don't provide investment management services. Still others work with younger investors with smaller investment balances and six figure incomes, and charge from $100 to $500 per month, or more, for financial planning and investment advice. Why should you pay an advisor, and what should you expect?
Let's begin by agreeing that no rational person would expect an auto mechanic to fix their car for free, anymore than they would expect legal, medical, or home improvement professionals to provide their services for free. Americans are accustomed to paying for services they receive. No valuable service is free. If we don't see a value or benefit, we won't pay for a service. If you believe that financial advice is not worth paying for, then you may believe that that you can handle any of the financial challenges life will present to you, or the advisor(s) you have met have failed to earn your confidence.
How about if we turn the question around and ask "What kinds of needs do you have?" If a financial advisor could help you pay little or no Federal taxes in retirement, and allow you to pass your assets to the next generation tax-free, all the while developing your retirement income plan and managing your investments in difficult markets, are they services that you want or need? If a financial advisor could help you plan to protect your family in the event you passed away, develop a college savings plan, and review your employee benefits and insurance coverages to ensure your financial safety, is that worth paying for? How about helping you choose the best investments in your 401(k) plan, counsel you on the best savings strategies, manage Roth Conversions and help you invest your Health Savings account?
If any of the above are wants or needs, then you have to determine what that is worth to you. Is the industry-standard 1% fee for up to a million dollar portfolio too much? How should you value your relationship with an advisor? Vanguard published a 2001 analysis of the impact of financial advice and determined that working with a financial advisor could potentially add 2-3% more in investment returns1. If the advisor could not only achieve potentially higher returns but also solve many of the other financial challenges you would face throughout your life, would that be worth paying for, and how much?
What is right for you, may not be what is right for your neighbor, but remember this: Cost is only an issue in the absence of value.
1 The Advisor's Alpha, Vanguard 2001, Excerpt: "Paying a fee to a professional who uses the tools and tactics described here can add value in comparison to the average investor experience, currently advised or not."