Top Three Myths About Financial Advisors

Investors and consumers, both wealthy and not, have many erroneous views of todays’ financial advisors. These views were created by a number of factors including bad conduct that was prevalent decades ago, unbalanced media coverage, movies like “The Wolf of Wall Street”, and Ponzi schemes like the massive one perpetrated by Bernard Madoff.

In fact, todays financial advisors by and large provide highly valuable services, are trustworthy, and help their clients avoid significant mistakes. The peace of mind they offer as a result is especially needed in these uncertain times. Todays advisors help investors, people that have stocks, bonds or other securities. They also help consumers, those that do not have investments, but need guidance on some financial matter, be it one specific topic or an entire financial plan.

These incorrect views of advisors prevent families from getting the help they need, especially in turbulent times. Many myths exist about financial advisors, but here are the top three:

1. You have to be rich to have an advisor

This actually has not been true in over 30 years, but to be fair there were fewer advisors years ago catering to middle income families and those just starting out. Today, there are thousands of advisors that focus on those that are not rich, there are even entire organizations that cater to this demographic. There are even organizations that offer Pro-Bono financial planning services to those in need.

2. They just want to sell you something

While it was far truer that there was a significant sales culture in retail Wall Street 30 years ago, things are quite different today. New laws and market forces have been driving out those people that are just sales people from the industry, and they are very easy to spot these days. Most advisors today have a genuine interest in helping you, and will readily tell you that they cannot help if there is not a fit.

3There is no benefit

Respected industry research from firms including Vanguard, Morningstar, Financial Engines/AON Hewitt show that on average an advisor will deliver 3% net annually to an investor’s portfolio. These reports are available to the public so anyone can see the assumptions and caveats, but the important conclusion is that these regulated and well-known firms quantify the financial benefit of having an advisor. The converse is also true, that being completely self-directed the average investor will lose approximately 3% per year on average without an advisor.

Myths and misperceptions about any professional can harm a consumer, and this is especially true about financial advisors. However, these myths can have ramifications lasting years in the case of financial advice. Thankfully there are ample resources to help the investor get the help they need, regardless of their life stage or wealth level.

Related: Are Second Opinions a New Normal for Financial Advice?