Thinking of hiring a financial advisor but not sure if it’s worth it to your net worth? Different financial advisors charge different fee structures and many specialize in working with lower or higher net worth clients.
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As you explore hiring a financial planner or advisor, keep the following pros and cons in mind.
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Average customer net worth
I work for a financial advisory firm with approximately 1,500 households and $2.7 billion in assets under management, explains portfolio manager and Chartered Financial Analyst (CFA) Nathan Winklepleck. Our average customer has $1.8 million, but this is skewed by larger accounts, such as one with $150 million. I will say the average net worth is more than $1 million.
Jay Zigmont, a Certified Financial Planner (CFP), specializes further. At Childfree Wealth, we work with childless people with a higher net worth. Our customers tend to average more than a million.
As CEO of BlueSky Wealth Advisors, I have had the privilege of working with a wide range of clients, says CFA David Blain. We work with everyone from those just starting their financial journey to high net worth individuals. On average, my clients’ net worth ranges between $1 million and $10 million, although we also serve ultra-high net worth families with much larger portfolios.
Chad Willardson, founder of Pacific Capital and longtime CFF (Certified in Financial Forensics), serves an even wealthier clientele. At Pacific Capital, we work exclusively with those with a net worth of eight and nine figures or more.
When should you hire a financial advisor?
Despite these averages starting at $1 million at some firms, remember that they are just that: averages. Half of the clients are likely to have six-figure net worths.
In my opinion, anyone can benefit from hiring a fee-only financial planner, especially when they’re young, says Winklepleck. This helps ensure that they are saving on taxes and making wise investment choices. However, low net worth clients (somewhere under $100,000) should almost always go with a robo-advisor or some other low-cost investment custodian, such as Vanguard.
Why? You’ll pay little in investment advisory fees, so you’ll get almost nothing in the service. If you do get service, that means you’ll likely pay a lot more than a standard 1% fee that can be hidden in poor investment products, such as annuities and other insurance products. And, almost always at this level, the only advisors who will work with you are those who are just starting out; you should try to connect with someone who has at least five years of experience; ideally, more than a decade.
Blain adds his two cents: In my opinion, it’s worth considering a financial or investment advisor if your net worth is around $500,000 or higher. At this level, financial decisions become increasingly complex and professional guidance can provide significant benefits in optimizing investments, tax strategies and financial planning.
For those with simpler financial situations or smaller portfolios typically below this threshold, a robo-advisor may be a more cost-effective solution. Robo-advisors are great for offering diversified investment strategies with minimal fees, which can be especially useful for new investors or those with straightforward financial goals.
The pros and cons of hiring a consultant
Hiring a financial planner or advisor comes with one obvious hurdle: paying their fee. However, you can pay a flat fee for help with planning, rather than an ongoing percentage for managing your investments. More on that soon.
What other pros and cons should you consider before hiring an advisor? The advantages lie in personalized financial advice specific to your needs and in building a trusted relationship with a professional experienced in wealth management, Willardson explains. There’s usually no downside, but it’s important to make sure you’re working with a fiduciary who puts your interests first, not a broker who’s just looking to make commissions by selling you investments that aren’t right for you.
Blain adds that Advisors offer personalized strategies tailored to your unique financial situation, something I have implemented through personalized tax strategies, investment optimization and financial planning and estate planning services. However, disadvantages include higher fees and potentially minimum asset requirements. Human advisors may also have conflicts of interest depending on their compensation models, unlike robo-advisors that operate on a fixed fee structure.
Beyond choosing and managing your investments, advisors can also rebalance them and practice tax loss harvesting to minimize your taxes. Perhaps most importantly, they can push you away when you try to panic sell during a market downturn.
Starting with a flat fee model
Many investors start asking about hiring expert help after they reach a net worth of $250,000 or $500,000. They question whether the benefits outweigh the costs.
Fortunately, you don’t need to hand over all your money to professional management (and pay attendant fees). You can pay a flat fee for periodic advice and help plan long-term financial goals.
You may be able to just check with a CFP to identify what works and what could be even better, Zigmont suggests. We offer a child-free wealth check for $500, for example. In our control we collect a lot of information about your current situation, life and goals. We then identify areas for improvement, areas where working with a professional can help, and areas where you can do it yourself.
Willardson notes that having an experienced wealth advisor is important at any income level. If you are at the beginning of your financial journey, having a plan is much more important than having someone manage your investments.
This is a theme that Zigmont also emphasized. Your money mindset and behaviors tend to have a bigger impact on your financial success than the numbers themselves.
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You don’t need a seven-figure net worth to get expert help. You only need a few hundred dollars to pay for a few hours of an expert’s time.
This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here’s the Average Net Worth of My Clients
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