The COVID-19 pandemic gave rise to a new wave of investors — who suddenly have more time and money on their hands, thanks to lockdowns and stimulus checks. The DIY investors have taken advantage of low trading fees and account minimums on relatively new platforms like Robinhood. In fact, a recent survey of 2,000 American adults conducted by eMoney Advisor found that 34% of respondents manage all of their investments on their own.
Despite the interest in DIY investing, financial advisors remain a trusted resource for Americans, as 38% of respondents to the survey said they rely on their financial advisor to manage all of their investments. However, the survey offers interesting insight into why many retail investors forego financial advisors. As a result, here are three reasons why DIY investors may want to rethink their decision to go it alone.
A financial advisor can help you manage your portfolio and plan for the future, including saving for retirement, creating an estate plan or saving for a child’s education. Find a trusted advisor today.
You Don’t Have to Give Up All Control
While the eMoney Advisor survey found that 33% of respondents said they are confident managing assets on their own, 30% said they simply don’t want someone else to be in control of their money.
Yet, working with a financial advisor does not automatically mean giving up full control over your finances. That’s because financial advisory firms distinguish between discretionary and non-discretionary asset management.
Discretionary management is when an advisor has full authority over trades within a client’s portfolio. Non-discretionary management is the opposite. The client ultimately has final say over individual trades, and the advisor facilitates those transactions. The advisor may make individual recommendations regarding trades, but the client must sign off on each decision.
Not all financial advisors offer both options, though. Discretionary asset management also may come with higher fees and minimums, since this type of service is more labor-intensive on the advisor’s end.
However, it’s important to remember that discretionary management doesn’t mean the advisor will make arbitrary decisions with your money. Most advisors will employ an investing strategy that aligns with your objectives, risk tolerance and time horizon.
You Can Do Both
The results of the eMoney Advisor survey also highlight the fact that managing your own investments and working with an advisor are not mutually exclusive. In fact, 23% of respondents reported employing a hybrid model that includes both working with a financial advisor and managing some of their own investments.
Some 27% of the people who do not want to work with an advisor said even if they did have one they would still want “some sense of control” over their finances by actively trading on their own. While financial advisors often have account minimums, which may require you to deposit all of your investable assets to qualify as a client, that doesn’t mean you can’t keep some of your assets in your own brokerage account to manage yourself.
Just under half of the respondents who said they both work with an advisor and manage their own investments reported splitting their assets between the two options.
Financial Planning Is Important Too
Financial advisors often do more than just investment management. Many offer financial planning services that include planning for retirement, making an estate plan, managing tax liability, saving for education and other financial needs. While DIY investors may be confident in their ability to pick and manage their investments, they may need more help integrating those investments into a holistic financial plan.
Even something as simple as writing out a financial plan can improve a person’s outcomes. Recent research from Hearts and Wallets found that 52% of households with written financial plans save at least 10% of their income for retirement. Meanwhile, only 36% of households without a written financial plan manage to save that amount.
DIY investors may consider hiring an advisor with the Certified Financial Planner (CFP) designation to help with financial needs beyond portfolio management.
An eMoney Advisor survey of 2,000 adults found that 38% said they work with a financial advisor and 34% prefer do-it-yourself investing. However, DIY investors don’t need to pick one option over the other. Many respondents said they both work with an advisor and manage some of their own investments.
For the percentage of respondents who reported hesitance about giving too much control to an advisor, non-discretionary asset management may assuage those concerns. Meanwhile, DIY investors might feel confident in their ability to manage their portfolio, but may still benefit from working with a financial planner on long-term goals like retirement and estate planning.
Tips for Hiring a Financial Advisor
- If you want a financial advisor but don’t know how to go about finding one, we can help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Advisor fees are an important factor when considering whether to hire one in the first place. While these fees can be charged in a variety of ways, many advisors base their fee on how much money they manage for you. The industry standard is 1%. So if your advisor manages $100,000 on your behalf, you’ll pay $1,000 in fees each year.
- If the costs or account minimums associated with hiring a financial advisor are prohibitive, consider opening an account with a robo-advisor. These digital platforms can manage your investment portfolio for you, from conducting trades and rebalancing to tax-loss harvesting.
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