How do you know if you need a financial adviser or not?
Getty Images
Question: I’m considering quitting working soon. I invested in Tesla early on and 100x-ed and am at a very low eight-figure value now. I see several funds claiming to return around 10% annually, but I am afraid considering Madoff had similar return schedules. However, the alternative of financial planners only offering 3-4% seems unimpressive, especially considering inflation these days. Don’t financial advisors return very little? What is a realistic return I can expect if I want to preserve my principle and live off of interest so I can leave that to my children so they don’t have to struggle like I had to?
Looking for a new financial adviser? This tool matches you with a financial adviser who might meet your needs.
Answer: First of all, congratulations on your good fortune and becoming a member of the so-called “Teslanaires” club. The first thing you want to do — financial adviser or not – is diversify your holdings if you haven’t already done that, pros say. “Do not risk your future financial security on the fortunes of one stock, especially now that you’ve accumulated enough wealth to consider early retirement,” says Greg McBride, chief financial analyst at Bankrate. You can use this MarketWatch Picks guide to learn how best to diversify, and this adviser matching tool can help connect you to an adviser who might meet you needs.
Considering hiring a financial adviser or have an issue with your current one? Email picks@marketwatch.com.
The next thing to know: Keep your expectations at bay. “One thing to bear in mind is that the capital preservation is consistent with lower rates of return, like 3% or 4% annually, not 10% or 11% annually. Earning 10% annually is just not a realistic aspiration if your goal is to generate income and preserve the principal,” says McBride.
Rates of return depend primarily on the investments you have. “While the financial adviser’s fees will come out of the returns, and thus you want to be very mindful of what you’re paying and what you’re getting from it, it isn’t like the financial adviser is confined to a pool of lower return investments,” says McBride. What’s more, if they’re telling you a 3% to 4% rate of return is what they can do, that’s because those lower returns are consistent with the goal of capital preservation rather than a growth-above-all-else strategy that would be needed to generate annual returns of 10% or more, says McBride.
Looking for a new financial adviser? This tool matches you with a financial adviser who might meet your needs.
That said, the question remains: Do you need a financial adviser, or can you simply do this yourself? This MarketWatch Picks guide can help you figure that out, as well as what you might pay for an adviser’s services. If you’re a confident and informed investor already, you may not need an adviser, and as Alana Benson, investing spokesperson at Nerdwallet, points out, an advisers’ fees “can significantly cut into your bottom line.” But she adds: “Online financial advisers may offer similar services at a lower price.”
As for what advisers return, well, that depends on the adviser, and the clients wants and needs. Like picking a doctor, picking an adviser can help you earn more, or it could cut into returns you could have gotten investing on your ow.
*Questions edited for brevity and clarity