The short answer is that it really depends on your specific situation. After two decades of teaching personal finance to my students, the worst thing you can do is pay a flat fee for a financial advisor when most of you won’t ever need one.
In this post, I’ll explain my philosophy on DIY financial management, the specific situations that warrant considering a financial advisor, and where to find one that won’t rip you off.
Do You Actually Need a Financial Advisor?
Honestly, most people don’t actually need a financial advisor. You’re better off buying my NYT Best-Selling personal finance books; they’ll give you a solid head start.
The truth about DIY financial management
Here’s something the financial industry doesn’t want you to know: managing your money isn’t nearly as complicated as they make it seem. Most people don’t need a financial advisor–you can learn the basics through quality books, trusted online resources, and self-education. Every dollar you save on advisor fees is another dollar you can invest in your future.
I’ve seen firsthand how the financial services industry creates an artificial aura of complexity around money management. They use fancy jargon and complicated charts to make you feel like you need professional help. But strip away all that complexity, and you’ll find that the fundamentals of good financial management are surprisingly straightforward.
In fact, all you really need is a simple index fund strategy and basic financial principles. You don’t need expensive advisory services or complex investment strategies because here’s the truth that Wall Street hates: money, savings, and investing work best when they’re “boring.”
When you can handle it yourself (most people can!)
If you’re under 40, have a regular W-2 job, and have less than $500,000 in assets, your financial situation is likely simple enough to manage independently. Don’t let anyone tell you differently.
Think about the basic financial tasks most people need to handle, like contributing to retirement accounts, maintaining an emergency fund, and choosing low-cost index funds. None of these requires a finance degree or professional oversight. Better yet, the rise of user-friendly financial tools and robo-advisors has made DIY money management more accessible than ever before.
The best part is that getting started takes less time than you think. With just a few hours of learning and setup time, most people can create a solid financial foundation that will serve them for decades–no expensive advisor required.
Common myths about needing professional financial help
Social media has created a whole new world of financial misinformation. Scroll through YouTube, Instagram Reels, or TikTok, and you’ll find an endless stream of self-proclaimed finance gurus pushing complicated strategies and dire warnings. This creates “invisible scripts” about needing professional financial help – beliefs we follow without questioning.
Let’s bust some common myths:
- “Investing is too complicated for regular people to understand.” This is manipulative marketing designed to make you doubt your capabilities. The basics of good investing are simple enough to fit on a single page.
- “You need someone to protect you from market downturns.” Research consistently shows that even professional advisors can’t reliably time the market better than a simple buy-and-hold strategy. If they could, wouldn’t they all be billionaires?
- “Financial advisors have secret investment strategies.” In reality, the most reliable wealth-building approaches are public knowledge and well-documented. The real secret is that consistent investing in low-cost index funds usually outperforms fancy trading strategies.
These myths persist because they play on our natural insecurities about money management, but understanding the facts helps us make more confident financial decisions.
Even further, the constant portfolio adjustments many advisors push often lead to unnecessary trading and fees that eat away at your long-term returns. As Warren Buffett, an investment guru, once said:
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
When Professional Financial Advice Makes Sense
While I’m a huge advocate for DIY financial management, there are specific situations where professional guidance can be worth every penny. Let’s look at when you might actually benefit from hiring a financial advisor.
If you struggle with the psychological side of your investments
Investing isn’t just about numbers. It’s about emotions, too. Some people struggle with the psychological side of money management, and that’s perfectly normal. If you find yourself lying awake at night worrying about market movements, or if you’ve panic-sold during downturns in the past, an advisor might be worth considering.
Behavioral biases are real, and they can cost you serious money. Sometimes, smart people make terrible financial decisions during both market highs and lows. A good advisor acts as your behavioral guardrail, preventing you from making emotional decisions that could derail your financial future.
Decision paralysis is another common issue. If you find yourself sitting on large amounts of cash because you’re afraid of making the wrong investment choice, or if you’re losing sleep over market volatility, having a professional in your corner might give you the confidence to move forward.
If you have an unusually complex financial situation
Financial planning becomes significantly more complex when you’re juggling multiple investment types, alternative assets, private equity holdings, and intricate fund structures. This is worlds away from managing a simple index-based portfolio.
Here’s my advice though: don’t deliberately complicate your portfolio just because you can. Even large portfolios can be self-managed effectively if they maintain a simple fund structure–what many call “lazy portfolios.”
If you’d like to know more about lazy portfolios and how to build one, check out my article, 3+ Lazy Portfolio Recipes From Personal Financial Expert (Tips).
If you have complex tax scenarios
Some financial situations demand specialized knowledge, particularly around taxes and estate planning. The tax implications alone can be mind-boggling if you’re managing multiple investment properties, running a business, or dealing with inheritance planning.
Business owners face unique challenges around succession planning, retirement accounts, and tax strategies. If you fall into this category, professional guidance can save you far more than it costs. Similarly, if you’re dealing with significant assets, blended families, or special needs dependents, the complexity of estate planning might warrant professional help.
If you’re a business owner
Business owners face unique financial challenges that go well beyond personal investing. If you’re running your own company, you’re not just managing your finances–you’re juggling business cash flow, employee benefits, retirement planning for yourself and your team, and complex tax situations all at once.
Succession planning alone can be incredibly complex. Whether you plan to sell your business, pass it to family members, or transfer ownership to employees, each option comes with its own tax implications and financial planning needs.
Retirement planning as a business owner is also more complicated than for traditional employees. You might be weighing options between a Solo 401(k), SEP IRA, or other retirement vehicles. You must also consider how your business equity fits into your retirement strategy. A qualified advisor can help you structure these benefits to maximize tax advantages while providing for your long-term security.
If you’ve come into sudden wealth
Receiving a large inheritance, selling a business, or gaining unexpected wealth can be overwhelming. Too many people make irreversible financial mistakes in these situations because they try to figure everything out on their own.
The emotional impact of sudden wealth can cloud your judgment. An objective advisor can help you create a solid plan before you make any major decisions. They can also help you navigate family dynamics, which often become complicated when significant money is involved.
The key to all these situations is to remember that needing an advisor isn’t a sign of financial incompetence–it’s about recognizing when professional expertise could genuinely add value to your financial life. The trick is knowing not just when to get help but what kind of help to get, which leads us to our next section about types of financial advisors.
The Best Financial Advisors – What Type Are They?
Now that you understand when you might need a financial advisor, let’s tackle something crucial: understanding the different types of advisors and how they get paid. This distinction can literally mean the difference between growing your wealth and watching it slowly drain away through fees and commissions.
Fee-only vs. commission-based advisors
How financial advisors get paid matters enormously. Fee-only advisors are compensated directly by you, their client, through flat fees, hourly rates, or a percentage of assets managed. This straightforward arrangement eliminates many potential conflicts of interest since they’re only getting paid by you, not by selling you products.
On the flip side, commission-based advisors make their money by selling specific financial products. While this might sound fine on the surface, it creates a problematic incentive structure. Think about it: if an advisor makes more money by selling you Product A over Product B, how can you be sure they’re recommending what’s best for you rather than what’s best for their commission check?
This difference in fee structures isn’t just about principles–it directly impacts your wealth. Over decades, the difference between fee-only and commission-based advice can add up to hundreds of thousands of dollars. That’s real money that could be funding your retirement or your kids’ college education instead of padding someone else’s pocket.
Understanding the fiduciary standard
A fiduciary is legally obligated to put your financial interests first, above their own profit motives or company relationships. This isn’t just a nice-to-have–it’s a legal requirement that can protect your financial future.
In contrast, non-fiduciary advisors operate under a “suitability” standard. This means they only need to recommend ” suitable ” products for you, which is not necessarily optimal. It’s like the difference between someone finding you the best house for your needs versus finding you any house you could technically afford–there’s a big gap between “suitable” and “best.”
This distinction becomes especially crucial when evaluating complex financial products or investment recommendations. The more complicated the financial product, the more important it is to have someone legally required to put your interests first.
Here’s a pro tip that may seem obvious but sometimes gets ignored: Ask potential advisors to confirm in writing that they will act as a fiduciary for all aspects of your financial relationship. If they hesitate or try to dodge this request, consider it a red flag and keep looking.
Why fee structure impacts your long-term wealth
The impact of fees on your wealth isn’t just about the money you pay today–it’s about how those fees compound over time and eat away at your future wealth. Let me show you why this matters so much.
Say you start with $100,000 and invest it for 30 years, earning an average 5% return annually. With no advisor fees, your money would grow to about $432,194. Now, let’s add a 1% annual management fee, reducing your actual return to 4%. With that seemingly small fee, your ending balance drops to $324,340. That innocent-looking 1% fee just cost you $107,854 in lost wealth. And this example doesn’t even account for ongoing contributions.
Hidden fees in commission-based products are even more treacherous. That loaded mutual fund or special insurance policy might have fees buried in the fine print that dramatically impact your returns.
For instance, a mutual fund with a 5.75% front-end load means that for every $10,000 you invest, only $9,425 gets invested–you’re down $575 before you even start. Add a 1.2% annual expense ratio, and you’re looking at significantly reduced returns over time.
Common fee structures and what to avoid
As you can see, how your advisor charges you can make a massive difference in your long-term wealth, and some fee structures are better than others.
Here are the most common ways advisors charge for their services:
- Assets Under Management (AUM) fees: These typically range from 0.5% to 1.5% annually of your total portfolio. I hate AUM because the fees add up too fast–you pay a small fortune for basic services as your wealth grows.
- Hourly rates: Project-based work usually costs between $200 and $500 per hour. While this might sound expensive, hourly rates provide more transparency and control over your costs since you know exactly what you’re paying for.
- Subscription-based models: These newer services charge monthly or quarterly fees, making financial advice more accessible, especially for younger clients who are still building wealth.
Watch out for advisors who double-dip by charging both AUM fees and commissions. This practice can seriously erode your returns over time, and it’s a major red flag when evaluating potential advisors.
The truth about "free" financial advice
When it comes to financial advice, “free” usually comes with strings attached. When something’s free, you’re probably the product.
Most “free” financial advice comes from professionals who make their real money selling you expensive financial products. Think about those “complimentary consultations” offered by banks and insurance companies. They’re not doing it out of the goodness of their hearts–they’re using these sessions to sell you high-fee mutual funds, whole life insurance, or other products that generate substantial revenue for them.
One of the most common traps I see people fall into is attending “educational seminars” that are actually sophisticated sales pitches in disguise. These are especially prevalent in retirement planning, where advisors lure people in with free dinners only to pressure them into buying expensive annuities or other complex financial products.
That’s not to say you can’t find free financial advice out there. Just take a look at IWT, I have dozens of blogs, YouTube videos, and podcast episodes aimed at helping you take control of your finances. Sometimes, you just have to do a little more legwork to find the good free resources.
Finding the Right Financial Advisor
Now that you understand the different types of advisors and fee structures, let’s talk about how to actually find someone trustworthy to work with. Finding a good financial advisor is like finding a good doctor–you need someone qualified, ethical, and aligned with your needs.
NAPFA.org: Your starting point for fee-only advisors
NAPFA (National Association of Personal Financial Advisors) is the gold standard when finding a fee-only advisor. These folks don’t earn commissions, so they’re not trying to sell you stuff.
The search tool on NAPFA.org is particularly powerful because it lets you filter by location, specialties, and minimum investment requirements. This makes it much easier to find someone who matches your specific situation.
Pro tip: Look for advisors who work with clients similar to you in terms of profession, life stage, and portfolio size. You want someone who understands your unique challenges and goals.
Facet: A modern approach with flat fees instead of AUM
I’m excited about what Facet is doing to shake up the traditional advisor model. Unlike traditional advisors charging 1% of your assets, Facet offers a flat membership fee. This approach aligns perfectly with my philosophy of investing more of your money instead of paying high advisor fees.
What makes them different is that you get ongoing access to a team of CFP® Professionals (fiduciaries) plus tax and estate planning experts. There are no product sales, no investment management fees, and no conflicts of interest–they’re only paid to give you good advice.
It’s perfect for people who want professional guidance but hate the traditional percentage-based model. I genuinely like their approach because it keeps more money in your pocket where it belongs.
Essential credentials to look for (CFP®, etc.)
When it comes to credentials, not all letters after someone’s name carry the same weight. The CFP® (Certified Financial Planner) designation is what you need to be looking for. To become a CFP®, advisors must complete roughly 1,000 hours of coursework, pass a rigorous 6-hour exam covering everything from retirement planning to estate law, and complete 6,000 hours of professional experience. Only about 68% of candidates pass the exam.
A CPA (Certified Public Accountant) takes it even further on the tax side. These professionals must complete 150 hours of education, pass a challenging four-part exam (with only a 50% pass rate), and maintain strict continuing education requirements. Having both CFP® and CPA credentials is pretty rare. Having both means these advisors can offer uniquely comprehensive financial planning and tax strategy guidance.
Warning signs in advisor interviews and a real-life example
When interviewing financial advisors, there are classic red flags to watch for, like dodging questions about compensation, pushing products before understanding your situation, promising market-beating returns, and using high-pressure sales tactics.
Meet Jeff and Susan, a couple whose story perfectly illustrates how these warning signs played out in real life, particularly in how financial advisors target medical professionals. Their experience reveals the predatory tactics some advisors use to capture high-earning clients early in their careers, particularly doctors who are still in training and haven’t yet learned to spot aggressive sales techniques.
[00:19:44] Ramit: Is the primary disagreement about whole life insurance and your financial advisor? Is that what it is?
[00:19:53] Jeff: I think it is.
[00:19:54] Susan: I think so. Yeah, I think so. I have questions about the loan against the whole life policy. I have questions about money for the kids. I have questions about some other things that are, yeah, big like that too.
[00:20:11] Ramit: I have questions about how you got into these products. That’s what I want to know. So let’s start–
[00:20:18] Susan: These people come to the hospital, and–
[00:20:20] Ramit: Oh, they love doctors.
[00:20:21] Susan: And they look for doctors.
[00:20:23] Jeff: Young doctors.
[00:20:24] Ramit: They love them.
[00:20:24] Susan: Look for the doctors in residency that are only making 60,000 a year.
[00:20:29] Ramit: Let’s just talk about why every financial services company loves doctors. I have doctors in my family too. So first off, we should all acknowledge that doctors have a reputation as being the worst profession in the country with money. Let’s talk about the dynamics here. So you have some 30-year-old doctor who’s a resident.
[00:20:49] They’ve been in school forever. All their friends are making good money for the last 10 years. They’re sitting here making $40,000 a year, and they live in a cramped little apartment, and they work 18 hours a day. And they’re told that someday they’re going to make money, but they never even think about it.
[00:21:06] And suddenly, somebody comes knocking on their door with a free lunch, and they go, oh, this is so cool. We’d love to help you organize so that– you’re the specialist at this. We specialize in that, and you do what you do best, and we do what we do best. Jeff, any of this sound familiar?
[00:21:21] Jeff: Absolutely.
This targeting of young medical professionals is just the beginning. The real impact becomes clear when you look at the long-term cost of the high-fee investments and products these advisors sell. During our conversation, we calculated the true cost of their advisor’s seemingly modest 1.24% fee and it was a shocking amount:
[00:50:59] Ramit: That’s the fee that this person’s charging you. And then we’re going to compare it to just 0% because technically, you can effectively pay close to zero through any brokerages. So let’s go ahead and calculate it. All right. So the difference is? Can you read that number out loud to me, Jeff, that I’m highlighting here?
[00:51:22] Jeff: $863,170.21.
[00:51:27] Ramit: Yeah. 863,000 in fees is the difference. What do y’all think about that?
[00:51:37] Jeff: Susan feels victorious.
[00:51:39] Susan: No, I’m glad we know now versus 10 years down the road. That’s the thing. The best time to have done it was 10 years ago. Now’s the best time again.
Jeff and Susan’s story is a powerful reminder that even highly educated, successful professionals can fall prey to these sales tactics. The advisor who approached Jeff during his residency ultimately sold them multiple products, including whole life insurance, an annuity, and managed accounts with high percentage fees. This pattern shows how one seemingly small decision about financial advice can snowball into hundreds of thousands in lost wealth over time.
Key questions to ask before hiring a financial advisor
You wouldn’t marry someone without asking important questions first, right? The same goes for financial advisors. Here are the four most critical questions to ask before signing anything:
- “Are you a fiduciary 100% of the time?” Get this in writing–it’s non-negotiable. If they hesitate or give a complicated answer, that’s a red flag.
- “What is your total fee structure?” Make them break down everything–including fees for any products they might recommend. Watch out for advisors who gloss over their fee structure.
- “What’s your investment philosophy?” Look for advisors who focus on low-cost index funds and long-term strategies. Run if they talk about market timing or picking hot stocks.
- “How often will we meet, and what’s included in your service?” You need to know exactly what you’re paying for and how accessible your advisor will be.
Take detailed notes during these conversations. A good advisor will welcome these questions and answer them clearly and directly. If they get defensive or vague, keep looking–there are plenty of qualified advisors who will respect your due diligence.
Understanding service agreements
Now here’s something most people skip but absolutely shouldn’t: the service agreement. Get everything in writing and keep organized documentation of all of it. This includes fees, services, meeting frequency, and communication expectations. Know exactly what’s included and what costs extra (again, while keeping documentation).
Pay special attention to understanding the cancellation terms and any lock-in periods before continuing. It’s too easy to get stuck in bad relationships with advisors because you didn’t read the fine print about how to end the relationship.
The DIY Approach to Personal Finance: Setting Up Your Own System
Most people can handle their own finances with a simple, automated system. Let me show you exactly how to set this up, step by step, so you can manage your money confidently without paying expensive advisor fees.
Set up a basic, automated financial system
On payday, your money should automatically flow to your various accounts without you having to think about it.
Use a high-yield savings account for your emergency fund–it takes just 20 minutes to set up, and the difference in interest is worth it. Automate your bill payments to avoid late fees and maintain a good credit score.
The key is keeping things simple: one checking account, one savings account, and one investment account unless your financial situation requires more. This streamlined approach makes tracking your money and maintaining control of your finances much easier.
Start with essential accounts
Here’s exactly what you need to get started:
- Start with a solid emergency fund in a high-yield savings account (3-6 months of expenses)
- Max out your 401(k) if your employer offers one–at least up to the match
- Open a Roth IRA if you qualify (or backdoor Roth if you make too much)
- Keep your old 401(k)s tidy–either roll them into your current 401(k) or an IRA
Think of these accounts as the foundation of your financial house–you need all of them working together to build long-term wealth. Don’t skip the emergency fund, thinking you’ll just use credit cards in a pinch–having that cash buffer will give you the confidence to invest more aggressively with your other money.
Use simple investment strategies that work
A single target date fund and a small set of index funds are all you need–everything else should be less than 10% of your overall portfolio. Use a simple asset allocation: 90% stocks/10% bonds if you’re young, shifting more to bonds as you age.
I recommend Vanguard’s Total Stock Market Index Fund (VTI) or similar options for low-cost index funds. Rebalance once a year, and don’t try to time the market or pick individual stocks–you’ll probably not beat the index.
Other tools and resources for easy self-management
You might think you need fancy software or expensive apps to manage your money, but that’s just not true. The best tools are often the simplest ones. Your bank’s automatic bill pay system will handle most of your regular expenses without you lifting a finger. Pair that with a solid rewards credit card (I love the Fidelity 2% Cash Back card because the rewards add up to something meaningful), and you’re already ahead of most people.
For investing, stick with the big three: Vanguard, Fidelity, or Schwab. They’ve been around forever, charge microscopic fees, and won’t try to upsell you on products you don’t need.
Building your financial knowledge base
You don’t need to become Warren Buffett, but you do need to know enough to spot BS when you see it. Start with 1-2 solid personal finance books (like my NYT Bestseller, I Will Teach You To Be Rich and Money For Couples) that give you actionable advice, not get-rich-quick schemes.
For every legitimate piece of financial advice, there are a thousand TikTok “finance bros” telling you to mortgage your house to buy cryptocurrency. Focus on time-tested principles that have worked for decades: consistent investing, low-cost index funds, and living below your means. The boring stuff works–that’s why it’s boring.
Trust me, once you’ve read a couple good books and set up your basic accounts, you’ll know more about personal finance than 95% of people out there. The key is to keep it simple and stick to strategies that have proven themselves over time.
Making Your Decision About a Financial Advisor
After understanding all the options available, it’s time to make an informed choice about whether to DIY your finances or work with an advisor. Let’s break down the real costs and benefits of each approach to help you decide what’s right for you.
Real cost comparison: DIY vs. advisor
After understanding all the options available, it’s time to make an informed choice about whether to DIY your finances or work with an advisor. Let’s break down the real costs and benefits of each approach for a $500,000 portfolio:
- Traditional Advisor (1% Fee): Requires $5,000 annually with minimal time investment on your part. You receive full portfolio management and financial planning services.
- DIY Basic Approach: Costs just $50-100 annually plus 10-15 hours of your time each year. This covers your core index fund fees and gives you complete control over your investments.
- DIY + Premium Tools: Costs $200-300 annually and requires 20-30 hours of your time each year. Includes index fund fees plus access to premium apps, courses, and books for deeper learning.
As you can see, even a fully equipped DIY approach costs a fraction of what you’d pay an advisor. The $4,700+ difference is money that could be growing in your portfolio instead. Plus, that 10-15 hours annually breaks down to just about an hour per month–probably less time than you spend scrolling social media in a week.
Hybrid approaches to consider
Not everything in your financial life has to be all or nothing. Many successful investors take a hybrid approach to get the best of both worlds. Use a fee-only advisor for an initial plan, then manage it yourself.
This is a great option if you lack confidence in yourself initially and can’t afford to risk your investment. You can handle your investments, but consult professionals for specific tax or estate planning needs. You might even start DIY and add professional help as your situation becomes more complex.
When to reevaluate your approach
Major life changes often signal it’s time to reconsider your approach to managing money. Marriage, kids, divorce, or inheritance can all dramatically shift your financial needs and goals. Your portfolio growing beyond your comfort level for self-management is another clear signal that you might need to adjust your strategy.
As your financial situation becomes significantly more complex, you may want to bring in additional expertise. And if you’re within 5-10 years of retirement, it’s especially critical to reassess your approach–this transition period often benefits from professional guidance to ensure you’re on track.
You can start with my NYT Bestselling book, I Will Teach You To Be Rich, to learn the fundamentals. From there, you can decide if and when you need to bring in additional help based on your specific situation.
