Sometimes quiet, sometimes noisy, there is a debate going on in the financial advisory world. What is it about and why should you care?

In simple terms, the debate is this: are you better off managing your finances online by yourself, or with the help of a professional advisor?  As more people move toward retirement and aspire to financial independence, the significance of this question grows.  And the recent rise of “online-advisors,” many backed by significant investments from venture capitalists, complicates the question.  Do these services work?  Can they co-exist with personal financial advisors?  Most important, which approach serves you and your loved ones best?

What will it cost? 

The answers usually revolve around cost, so let's start there.  The facts are plain: when calculated purely by fees paid out of your pocket, the cost of "Do-it-Yourself (DIY)" money management is lower than those paid to a professional advisor.  It always will be.  DIY money management means little or no involvement by anyone other than you.  You go online to a bank, mutual fund company or online service, put in your data, and an algorithm punches out a suggested asset allocation, along with specific funds where you should invest.  The cost?  Usually about one third of one percent.  This is about one third the cost of hiring a professional advisor.  (It bears noting that if you need any legal or tax advice, you would have to contract with someone to help you in those areas, and pay the related costs.)

So why should anyone pay to have his or her finances managed by a professional?  Why would anyone pay up to three times more than they would by doing it themselves?

Let's look at things from the advisor approach (please see below for the relevant disclaimer).  First, a clarification of terms: by professional advisor, I mean a credentialed professional, one typically trained as an investment adviser, accountant, an attorney or Certified Financial Planner.  While bankers, brokers or insurance professionals can play an important role in the financial world, let's be clear: those who are compensated primarily by selling financial products have a difficult sell calling themselves “financial advisors.”

The professional financial advisor is trained to look at your entire financial picture, not just your investments.  He or she may identify additional opportunities to save taxes.  He or she should ensure that wills and trusts are up-to-date, and that your assets are titled appropriately for yourself and your family.  He or she will look at your spending and savings patterns, ideally guiding you to attain financial independence--or whatever financial goals you have.  Moreover, he or she should help you get out in front of any problems before they can derail your financial plan. Call this risk management.  If done proactively, you might save more than your annual fee simply by avoiding a potential problem in the first place. 

Simplicity or Complexity?

You pay for that advice.  You should, just as you would to a medical specialist or an expert contractor. But only pay for it if you need it.  And just who needs this type of personal, financial advice?  Instead of giving the typical answer about "minimum investible assets" I’ll suggest that the answer has to do with the complexity of your financial life: are you subject to high taxes?  Does your compensation involve equity in the company for which you work?  Is there more than one generation in your family which will be affected by your financial decisions?  I could list many more issues, but if your answers lean toward the affirmative, ask yourself this: how realistic is it for you to navigate this terrain by yourself, online, and without professional help—without, if you will, a financial sherpa?

So where does that leave us?  Cost should be only one variable in your assessment.  Many people are capable of going online and taking care of their finances without professional help, and serving as their own general contractor for legal or tax advice.  But again, let’s be clear: the "new, online approach" to wealth management is ultimately about a cleaner interface between you and your online accounts.  You must...are you ready?...Do It Yourself.   

I'll close with a story.  A man had a plumbing problem: the water would not flow.  He spent hours tinkering around under his sink, in his basement, trying to fix it.  He got wet, he got frustrated.  And after about three hours, he relented and called a plumber who had been recommended by a trusted friend.  The plumber spent 10 minutes looking around, took out a small hammer and gently tapped a pipe under the sink.  Water flowed smoothly.  "That will be $100," he told the man.  "$100?!  You must be kidding me!  You were here for 10 minutes!"  The plumber replied, "True, but I knew where to tap the pipe."

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Neil Goldberg is a principal with GW & Wade, an SEC-registered investment adviser.  Please see the “Contact Us” section of our website, www.gwwade.com, for information on contacting GW & Wade. 

The information provided above is general in nature and is not intended to represent specific investment or professional advice.  No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.  Financial advisory services are only provided to GW & Wade advisory clients pursuant to a written agreement, which prospective clients are urged to read and carefully consider in determining whether such agreement is suitable for their individual facts and circumstances. GW & Wade does not represent in any manner that the tax consequences described will be obtained or will result in any particular tax consequence.