Why You Should Not Use a Financial Advisor: Unnecessary Expense, Conflicting Interests, and More

Introduction

Using a financial advisor can be tempting, especially when you’re looking for advice on how to manage your money or invest your savings. However, there are many reasons why you should not use a financial advisor. From unnecessary expenses to conflicting interests, it’s important to understand the potential drawbacks of using a financial advisor before making any decisions.

Unnecessary Expense

One of the biggest reasons why you should not use a financial advisor is the cost. According to a survey by the U.S. Securities and Exchange Commission, financial advisors typically charge “advisory fees” that range from 1% to 2.5% of your total assets per year. This can add up quickly, especially if you have a large portfolio. For example, if you have $100,000 invested, you could end up paying as much as $2,500 in advisory fees each year.

Conflicting Interests

Another reason why you should not use a financial advisor is because they may have incentives to recommend certain products or investments that are not necessarily in your best interest. According to a 2013 study published in The Journal of Financial Planning, financial advisors may receive “kickbacks” or commissions from investment companies for recommending their products, which can lead to conflicts of interest. It’s important to be aware of this potential conflict of interest before deciding to use a financial advisor.

Lack of Expertise

Financial advisors may also not be as well-informed about the latest developments in the financial world as you are. A 2016 survey conducted by TD Ameritrade found that only 45% of financial advisors felt confident that they had the knowledge and skills to provide advice on emerging technologies, such as blockchain and cryptocurrency. This means that they may give you outdated advice that is not tailored to your specific needs.

Limited Access

In addition, financial advisors may not have access to the same resources and tools that you do. For example, many online investment platforms offer powerful tools and features that allow you to track your investments and make more informed decisions about your finances. Financial advisors may not be able to take advantage of these tools, leaving you with limited options.

Limited Support

Financial advisors may also not provide the level of support you need when making decisions about your finances. According to a 2017 survey conducted by the Investment Company Institute, only 20% of financial advisors said they provided “extensive” support to their clients. This means that you may be left to your own devices when it comes to making decisions about your money.

Lack of Transparency

Finally, financial advisors may not always disclose all the details about how they are compensated for their services. According to a 2015 report by the Consumer Financial Protection Bureau, some financial advisors may receive additional compensation from third parties, such as mutual fund companies, that they do not disclose to their clients. This lack of transparency can make it difficult to determine whether a financial advisor is working in your best interests.

Too Much Control

Financial advisors may also try to take control of your finances, leaving you feeling powerless. According to a 2019 survey conducted by the National Endowment for Financial Education, nearly 40% of respondents said they felt their financial advisors were too controlling. This can be especially problematic if you don’t agree with the advice being given or feel like your finances are being managed without your input.

Conclusion

As you can see, there are many reasons why you should not use a financial advisor. From unnecessary expenses to conflicting interests, it’s important to be aware of the potential drawbacks before making any decisions. Ultimately, it’s up to you to make informed decisions about your finances, so be sure to do your research before committing to a financial advisor.