Financial Advisor vs. Self-Investing

Self-investing means managing your own investment decisions without the guidance of a financial advisor. While this approach may save on advisory fees, it could come with hidden costs, including missed opportunities or increased risk. Financial advisors can help optimize returns, manage risk and improve tax efficiency. We’ll explore the key differences between financial advisors and self-investing, and how to decide which approach is right for you.

A financial advisor can help you create a plan for reaching your financial goals.

Self-Investing Basics

Self-investing means that an individual invests money into the stock market making their own investment decisions. This is the way most people decide to go, especially those that do not have a high net worth.

According to recent data from The Harris Poll for Intelliflo, fewer than one-third (32%) of people regularly went to a financial advisor for advice. A somewhat larger number (38%) said they currently worked with a financial advisor when asked for a poll of 2,300 people that Harris did for Northwestern Mutual.

Instead of using paid financial professionals, investors cited a number of other no-cost sources they went to for information, advice and guidance in making investing decisions. A survey of financial advisors conducted by SmartAsset found that free online financial content was the most popular source of information used by their clients. This was also true of people who weren’t working with paid advisors.

Investors questioned in the Harris polls listed several specific sources of information used for investing, including:

Themselves
Family members
Spouses and partners
Social media
Blogs
Podcasts

Using a financial advisor may be getting more popular. The Northwestern Mutual-sponsored survey found that 15% of respondents said they didn’t have a financial advisor before the pandemic. However, they were now working with or planned to start working with one.

The trend may be most pronounced among younger people. The Intelliflo survey found 71% of Gen Z respondents and 72% of Millennials strongly or somewhat agreed that there were financial topics they wanted advice on without knowing where to turn.

Financial Advisor Basics

An advisor and client discuss using a financial advisor vs. self investing.

Financial professionals who advise individuals on investing may go by a number of titles. These include financial advisor, investment advisor, wealth manager and financial planner. They may or may not have specialized training and certifications attesting to their expertise.

According to recent data from the Bureau of Labor Statistics, about 257,200 people work as personal financial advisors helping people manage their money and plan for their financial futures. Their work involves meeting with clients, discussing their goals, assessing their risk tolerance, explaining investment options and recommending or selecting investments. Advisors may also help with planning to pay for education or retirement. They can also help monitor and adjust investment portfolios to reflect life changes or market evens.

Personal financial advisors median annual earnings amounted to $94,170, according to BLS. Fee-only advisors are paid only by the clients they advise. Fees often are calculated as a percentage, typically 1% percent, of the value of the client’s assets they are managing. Other advisors may charge clients nominal or no fees. They instead get part or all of their compensation as commissions or other payments from providers of investment products, such as mutual funds and annuities.

Using a financial advisor tends to offer significant benefits, including higher investment returns on average. Studies by Vanguard and Fidelity found investor-advised portfolios generated 3% and 1.8% percent more per year, respectively, after accounting for the costs of hiring an advisor. SmartAsset’s survey also found advisors were helpful in increasing diversification, reducing risk, managing taxes, planning for retirement, estate planning and, most important of all, creating a holistic financial plan.

Self-Investing: Pros and Cons

Self-investing appeals to many individuals who prefer a hands-on approach to managing their finances. According to an Intelliflo survey, one of the top reasons people avoid hiring a financial advisor is the belief that they don’t have enough assets to justify the cost. However, trust is also a major barrier; many investors are simply hesitant to let someone else manage their money.

Pros of Self-Investing:

No Advisory Fees: You won’t pay management or planning fees, which can save money over time, especially with lower balances.
Full Control: You maintain direct control over all decisions, giving you the freedom to choose investments that reflect your goals, interests, or personal values.
Satisfaction and Learning: Many self-directed investors enjoy the learning process and take pride in managing their portfolios.

Cons of Self-Investing:

Time-Intensive: Monitoring the markets, rebalancing, and staying up to date on financial news can require a significant time investment.
Lower Average Returns: Research shows that DIY investors often underperform professionally managed portfolios due to emotional investing or poor diversification.
Lack of Tax Expertise: Without professional guidance, you may overlook tax-saving strategies, like tax-loss harvesting or asset location.
Risk Exposure: Without a formal risk assessment or plan, your portfolio may be exposed to more volatility than necessary.

Working With a Financial Advisor: Pros and Cons

Although financial advisors offer a wide range of services, many Americans still choose to go it alone. This may be due to perceived high costs or uncertainty about finding a trustworthy advisor. That said, data shows that professional financial advice can improve portfolio performance and enhance overall financial well-being.

Pros of Using a Financial Advisor:

Improved Returns: Studies have found that individuals who work with financial advisors often achieve higher long-term returns due to disciplined investing and portfolio optimization.
Comprehensive Planning: Advisors offer more than just investment advice — they can help with budgeting, debt management, insurance needs and retirement planning.
Tax and Estate Planning: A good advisor can help minimize tax liability and create a legacy strategy that aligns with your estate planning goals.
Risk Management: Advisors can assess your risk tolerance and create a diversified, balanced portfolio that aligns with your financial objectives.

Cons of Using a Financial Advisor:

Loss of Control: You may have to relinquish some decision-making authority, which can be uncomfortable for those who prefer a DIY approach.
Fees: Depending on the advisor’s compensation model, you may pay a percentage of assets under management (AUM), a flat fee or hourly rates. These costs can add up.
Trust Concerns: Some investors are cautious about transparency or potential conflicts of interest, especially with commission-based advisors.

Bottom Line

An investor considers using a financial advisor vs. self investing.

While most investors don’t use financial advisors and practice self-investing, going to professionals for investment advice is becoming more common. Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions. Be sure to weigh using a financial advisor vs. self investing before deciding on your financial plan forward.

Tips for Investing

If you’re not sure you’ll make the wisest investment decisions on your own, a financial advisor can help put your mind at ease. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The best approach may be a combination of self-investing and using a financial advisor. That is, hiring an advisor to help you plan and make sure all bases are covered, while also making an effort to educate yourself and continuing to learn about investing so you can personally and capably oversee your investments.