Buyer beware: There's no shortcut for getting proper financial advice
Free financial advice might not be as detailed as you need.
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Dear Fix My Portfolio,
Should I work with my financial institution's advisers, or a private financial adviser? The advisers at my brokerage don't charge a fee, whereas a private financial adviser does. Both will suggest many investments that will charge fees. What are the benefits and negatives of each?
Cautious Investor
Dear Cautious,
I think my biggest pet peeve with the way our financial industry is set up is that customers think that the advice they get along the way is free because they aren't cutting a check at the time of service, like you would for a washing-machine repair.
My second-biggest pet peeve is a corollary to that - which is that you'd think the person you ask for advice at these places is bound to give you a good answer for your situation, but most of the time they are not.
There's no shortcut for getting proper advice for your specific financial situation. If you want a qualified professional to look at your accounts and help you make a tailored plan, then you have to engage them for that purpose and they have to be paid in some fashion for their work. I say that last part conditionally, because it doesn't necessarily have to be you who pays for the services. Your workplace may offer a perk where they contract with a provider for a certain amount of advice for employees - but even if that's free for you, the adviser is still getting paid.
So right off the bat, that changes the calculus in your question. Your choice is not between free advice from your brokerage and paid advice from a private adviser; it's between paid advice from the brokerage or paid advice from a smaller firm. And yes, both will suggest investments that will charge fees.
Some people may object and say they have indeed received free advice from their brokerage - they have called up and talked to a representative, or met with somebody at a local branch. All the major retirement-account custodians offer this level of service, but it's not the same as what you're looking for in terms of an ongoing, personal relationship.
Take a look at the service tiers of the big three retirement custodians: Fidelity, Vanguard and Schwab $(SCHW)$. They do not charge for customer-service calls, so if you need to know what buttons to push to execute a trade, somebody will be there to walk you through it. If you want to make your annual Roth IRA contribution, they will facilitate getting the money from your checking account into their hands.
You won't likely get the same person on the phone twice, though. And once you ask what specific fund you should put the money into, you'll start hitting the upsells.
The basic tier for investing advice usually involves just automated computer models - call it AI-enhanced or robo advice. You'll answer some questions about your timeline and purpose for the funds, and you'll get back a suggested allocation of the funds, which you can then execute on your own.
Schwab's tier for this is called Intelligent Portfolios, and you can access this without a service charge. If you want human advice, you'd have to upgrade to their wealth-management services, which charge an advisory fee. In the Fidelity universe, that robo level is called Fidelity Go; under $25,000, there's no fee, but then it goes up from there, all the way to their top wealth-management and family-office level.
At Vanguard, which has historically had a very DIY approach, advice is now taking on more importance. The company just announced it acquired Altruist, a fintech platform that supports advisers. Vanguard's current offerings are price-tiered per $10,000 invested, starting at $15 to $16 per year for that first level and up to $30 per $10,000 by the time you hit $5 million and above ($15,000 per year).
Other providers abound - Betterment, Robinhood (HOOD) and so forth - where you can get both robo and personalized human advice. From independent advisers, you will mostly get just the top service tier, and can either pay a percentage of assets under management or, if you search wisely, a flat-fee or hourly-fee planner to set things up for you. But you will find that all of them work on the same general model that requires engagement and payment for advanced personal attention.
Who can you trust?
I think what you're really asking when you're talking about choosing an adviser from a brokerage or an independent is who you can trust. Is the brokerage adviser conflicted and are they just going to try to promote their own products? Is the independent adviser more concerned about their own bottom line than yours?
The answer to these questions is easy. If you choose a fiduciary adviser at either place, they are professionally bound by a legal and ethical duty to work in your best interests; it shouldn't matter what kind of business they work for or who pays the overhead for the office. When you present your situation to this kind of adviser, they should listen and help you develop a plan that works for you. Yes, the investments themselves will likely have fees, but you should trust that the fees are the most reasonable ones that suit your needs. That's the service you're paying for, and that's what you should insist on getting.
The main difference between the adviser at the brokerage and an independent will be the level of support they have in the back office and the level of attention you get. The brokerage will likely win on resources with their teams of analysts and logistics specialists. That's not to say that independents aren't well supported; most of them align in some way with a larger custodian for those sorts of things. A smaller firm may make you feel more like a VIP because they have a smaller volume of clients, but that's also a function of how much money you are paying and the personality of the adviser.
The right adviser for you is one that makes you feel like you're the most important client in the world to them, and that they are taking very good care of your needs. You should develop trust in them and understand the choices they are guiding you to make. If you're not feeling it, then you should find a different adviser.
You have complete control over what you pay and to whom - but if you want personalized advice, you're going to end up having to pay something, one way or another.
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-Beth Pinsker
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