Personal Finance

'He keeps me from making poor investment decisions': Married couple worth millions is stuck wondering if their financial advisor is still worth it

David Beren

Published: September 28, 2024 5:36 am

24/7 Insights

• • Are financial advisors worth an annual percentage? 
  • This Redditor is unsure if he should keep paying the equivalent of a new car every year. 
  • There are some benefits to having a financial advisor that this Redditor may not be considering. 

Whenever anyone hits a net worth number that makes them feel comfortable, it begs the question of what to do next. For many years, the answer to this question has long been to seek out a financial advisor. These individuals specialize in helping to establish financial plans to grow your wealth, plan for an easy retirement, and generally make you more money. 

However, working with a financial advisor can have some downsides, as this poster in r/fatFIRE is learning. With approximately $4 million invested, they currently pay around $50,000 per year to this advisor, which the poster states is the equivalent of a new car every year. 

I love these posts because they strongly remind me that making money can sometimes cost money, but having a financial advisor isn’t for everyone. 

The Scenario 

What you have with this mid-50s male poster is a married couple with grown children with a net worth of around $8 million. Around $5 million of this worth is investable; the rest is cash or cash already invested in property and land. 

With $4 million invested with a fee-based financial advisor at a “top 5 international wealth management firm,” they also have $1 million invested in a 401K. The good news is that you have a financial advisor who consistently beats the market by 2-3% over the last several years. 

However, the biggest comment here is that the financial advisor has helped him avoid making poor investment decisions. While he takes 1.25% of all invested assets, he has helped create additional wealth for this family. 

So, here’s the question: we have two potential scenarios in front of us. The first is that you have OP investing around $1 million per year, so he wonders if he shouldn’t just focus on those earnings and “forget” about the $50K going to the financial advisor. The second scenario is he keeps working for another 8-10 years. During this period, he’ll be handing over roughly $500,000 to the financial advisor and growing his net worth to between $15 and $20 million. 

The Recommendation 

First, let’s talk about the benefits of having a financial advisor. The most important is that they can keep you from making bad financial investments, something that this Redditor has already pointed out. 

However, I think they may be overlooking that they may be precisely where they are today because they didn’t have to worry about this for themselves. It didn’t take much time out of his day to create a plan, learn about investing, or even worry about making bad financial decisions. In other words, this financial investor has created peace of mind, albeit with a cost. 

The ultimate answer here may be that the original poster already knows he has a good thing and needs some help recognizing it. This financial advisor has consistently beaten the market, helped him with “some unique things,” and created a specialized portfolio for this family. In other words, this FA is hands down earning the percentage. 

To be incredibly clear, my recommendation, with the caveat that I am not a financial advisor or someone who can give qualified financial advice, is that if it isn’t broken, don’t fix it. Why mess with a good thing? 

The Takeaway

There is no question that having a financial advisor isn’t for everyone. On the other hand, many people are now looking for flat-fee financial advisors to plan for this cost every year. You have a scenario where this person can transfer all his holdings into a self-managed account and keep going. 

However, my hunch is that this financial advisor didn’t just pick stocks, ETFs, etc., a few years ago and hasn’t done anything since. There may be room for negotiation around the percentage, though the company might say there’s no negotiation. However, there’s no harm in trying. 

The bottom line is that this person is successfully making money with this FA, among other things this advisor is helping with, so I say stay the course.