Question: “Why would someone pay money for a financial adviser when you can just buy an ETF or a portfolio of ETFs consisting of healthcare and tech? You don’t have to pay adviser fees, so it’s very low cost compared with a mutual fund or paying a professional. Most advisers make you buy and sell over and over, so there’s additional cost on top of their fees. They make money while draining your account so you receive very little. Who can convince me otherwise?”
Answer: You pose a fair question — and you’re right, for some people, a portfolio of ETFs (though likely not just healthcare and tech) is a better answer than a financial adviser. That said, some people want more than just straight investing gains: they want a comprehensive financial plan, ongoing support, financial modeling, a sounding board and more. And for them, a financial adviser might be a good idea. You can use this free tool to get matched with fiduciary advisers, from our ad partner SmartAsset, or sites like CFP Board and NAPFA.
“A good fiduciary adviser can offer a multitude of benefits that extend simply beyond just investing,” says Scott Sturgeon, senior wealth adviser at Oread Wealth Partners. Adds Gary Watts, certified financial planner at Watts Advisors Family Office: “A comprehensive financial adviser should be providing a lot more help than picking stocks or funds. Risk mitigation, college planning, retirement planning, business planning and tax planning are also part of the job.”
In other words, if you’re just looking at investment gains less fees, an adviser likely won’t outperform a smart mix of ETFs. “If your goal is to outperform the market, most financial advisers probably aren’t going to be a great fit and if they’re trying to sell you on their ability to beat markets, it’s probably best to avoid them,” says Sturgeon.
Indeed, “there are reams of research that tell us you can’t consistently outperform the market. You may still need an adviser if you’re uncomfortable matching the plethora of ETF options to your investment risk preferences,” says accredited financial counselor Lisa Whitley, owner of MoneyByLisa, who says she loves a low-cost index ETF and frequently recommends them to her clients.
That said, if you’re looking for financial guidance and planning, that’s where a good adviser can actually add value. “For those who may have some amount of complexity in their financial situation, hiring an adviser can definitely be worth the cost,” says Sturgeon. “For high-income earners like doctors or business owners, there’s also an added element of whether diving into financial planning, tax strategies or investment management is something actually worth their time in the long run. If you feel like your finances are to a point where they’ve gotten so large you’re not sure what strategies to implement or if you’re missing out on certain solutions, working with a fiduciary adviser for some period of time could offer a ton of benefit over the long term.”
Furthermore, think of a financial adviser as a steady hand at the wheel when markets are volatile and client emotions are running high. “Advisers can keep clients from acting rashly and against their own best interests,” says Watts.
Additionally, working with a trusted, fiduciary adviser can mean finding ways to lower taxes, making sure your family is protected and taken care of and identifying ways to give to charity more efficiently among other things. “Creating an investment portfolio that’s aligned with the client’s needs is really important and some combination of ETFs, mutual funds, stocks or bonds could be used to do that,” says Sturgeon. “At the same time, an adviser’s value when it comes to investing is helping clients navigate difficult periods in the market and making sure they’re sticking to a financial plan regardless of what market or economic conditions may look like.”
Simply put: “When we get sick we see a doctor, when we get into a legal bind we consult a lawyer, but for some reason we believe that we can navigate increasingly complex financial waters on our own,” says Robert R. Johnson, chartered financial analyst and professor of finance at the Heider College of Business at Creighton University. You can use this free tool to get matched with fiduciary advisers, from our ad partner SmartAsset, or sites like CFP Board and NAPFA.
If you decide you don’t need an adviser, that’s great too. But beware of only investing in ETFs that focus on the healthcare and tech industries. The main concern here is concentration risk, so even though both healthcare and tech have strong long-term growth potential, it can put you in a vulnerable place just by the sheer fact that you’re not well diversified.
Furthermore, just because investors have access to low cost, somewhat diversified ETFs doesn’t mean they will achieve their goals. Too often, self-guided portfolios underperform because individuals believe they are able to time the markets, says Johnson. “People often sell low and buy high, contra to the old Wall Street adage. The greatest contribution of an adviser is to explain why a certain strategy is correct and to talk the individual off the ledge in times of market turmoil. That’s the biggest disadvantage of relying on self-guidance or a fintech application. Robo advisers can’t provide the same assurance,” says Johnson.
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