I don’t trust financial advisers. I’m not entirely sure why but I inherently do not trust experts in any non-science field and I have my fraud radar on red alert if it has anything to do with money.
I separate financial advisers into two categories – those that help you plan and those that help you invest. I see some value in the ones that help you plan for the future. You sit down with the planner, list your financial goals, and come up with a financial plan that helps you achieve those goals. They provide another perspective on your situation and can give advice as to what has worked for others and what has not. While I’m sure that’s a simplification, that’s the basic idea.
Then there are those who help you invest. They can recommend a basket of investments to help you achieve your goals or they directly manage your money. The advantages of using an adviser like this is that you can stay hands off while they invest your money on your behalf. They can do the research, buy a diversified portfolio, and help you an area you may be weak in. Whether they’re fee only and provide only direction or commission, where they earn a percentage of assets, the end result is that you’ve outsourced the work.
So why do I not trust them? First, I don’t think I need someone to help me plan our financial future. While I’m certainly not an expert on the subject, I feel that sitting down and setting a plan with an “expert” isn’t going to be any better than if I sat down with a book on financial planning. As for giving my money to someone or taking the advice of an adviser for investing, I don’t see how that beats going with a mutual fund. Since they don’t have a crystal ball, are their recommendations going to beat a mutual fund managers? If I go safe with an index fund and opt for a lazy portfolio, will I really be that far behind? If the majority of actively managed mutual funds, staffed with the best and the brightest working on this 24/7, can’t beat the index… can an adviser?
Let me know what you think, hopefully I haven’t kicked over a hornet’s nest! (or maybe it’s good if I do, I don’t know what I don’t know so I’d love to hear another perspective)