Whether you’re a brand new investor, or you consider yourself an investing veteran, it may be worth pondering whether a consultation with a financial adviser could benefit your investment portfolio’s performance.
Let’s begin by looking at the value a financial adviser could bring to an investing novice. And then examine the unlikely ways in which an adviser could teach an old dog new tricks!
Would an adviser benefit an investing novice?
Financial advice is a costly affair – in the UK, you would struggle to receive a comprehensive assessment, recommendation, and execution of an investing plan for less than £1,000. And that’s at the budget end of the spectrum – costlier advisers could easily charge £4,000 – £5,000 depending on the size of your sum to invest.
It’s clear that if you only have £1,000 to invest, spending your entire capital on professional fees would not be an effective investing strategy! So where’s the happy medium? Well, it’s probably somewhere around £50,000. If you have £50,000 or more to invest, then the cost of financial advice will be quite trivial about your overall sum, particularly if you’re planning to invest for a long period.
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However, this isn’t to say that investors with less than £50,000 have nothing to gain from seeking financial advice. If you have very little insight into investing, and would otherwise only be able to place that money in a savings account yielding little, then the advice is probably worth it even with a lower sum. This is because the benefits of simply having your money invested in the right place are so vast that even sizable advice free of 5%-10% of your capital could be a good spend overall.
Depends on What?
This depends heavily on the time horizon of the investment you’re planning to make – are you locking this money away for ten years or more? The longer you will invest, the greater the benefits are of earning the average 5-7% stock-market return over the period. This will, therefore, justify a greater expense upfront.
Of course, there are alternatives to getting financial advice. You could seek out investing education and train yourself up on the science of diversification and the risks and rewards of investments. This will take an investment of time, however.
How could a financial adviser add value to an investing veteran?
The presumption is that an experienced investor has little to gain from paying a fee to ask a financial adviser to look into their financial affairs.
In theory, an investor who has been in the stock market for 15-20 years will have accumulated a wealth of knowledge about investing and should be more than capable of making sound investment decisions.
This isn’t necessarily the case
One advantage of using an independent financial adviser is that they will consider the whole market and really start from scratch when considering your financial needs. They may think ‘outside the box’ and give a much-needed challenge to your investing approach.
For example, a financial adviser may be able to suggest an insurance product which actually achieves your financial objectives better than some of your portfolio. (Life insurance can provide a great deal of financial security in worst-case family scenarios with a modest outlay per month).
Financial advisers are also experts at personal taxation and therefore could spot tax-saving opportunities that you had accepted as an unavoidable investing cost.
It might take a bit of courage to suck up your pride and ask for a second opinion, but it could unlock the next level of investment returns.
In conclusion, I cannot say for sure whether you would see a significant benefit from a financial adviser because I frankly don’t know your personal situation. Only you can make this decision. However, I hope that by reading the above, you have learned about the general situations in which a financial adviser could stand to add more value to your portfolio than in other situations.
After all, given a financial adviser will charge a significant price, you will need to be clear that the value to your investment portfolio will exceed this price, to justify spending such a sum in the pursuit of growing your wealth.