Are Investment Advisor Worth the Investment?

This headline is from an Entrepreneur article by Doug and Polly White.

If you understand that “on average, you’re not going to bet the market“, then you may want to consider the aspects of your investment philosophy that you can control.

I would suggest that management fees are second only to your asset allocation or diversification strategy in importance.

The question is can your advisor generate consistent returns over time that justify their management fees. Actually an even better question might be just how much does my advisor earn and who else is getting a piece of the pie. This actually may not be as easy a question to answer as one would think and expect it to be – but that is a topic for another time.

Their article uses the example of the Dow averaging approximately 8 percent annually, which is probably a reasonable longer term return expectation. In their example, they refer to annual management fees of 200 basis points or 2 percent. That seems a little high but not totally unrealistic when you consider how many fees you could actually be paying.

But, 2% is actually 25% of your expected 8% annual return! How likely is your current investment strategy likely to exceed this expense?

An advisor can add significant value with their mentoring – coaching skills to get you on track and keep you there.

Nonetheless, if their service does not include providing you with reasonably priced investment options and depends on their investment selection skills beating the market by 25% on a consistent basis, it may be time to review your options.