I’m considering paying a 1% management fee for my investments – is it worth it for peace of mind?

I’ve spent the past 10+ years writing about personal finance — everything from planning for retirement to buying the right insurance to investing. So I’m pretty confident in these arenas.

In spite of that, I have a financial advisor I’ve been working with for a good number of years. And I don’t regret that decision, despite the fact that it costs me money.

In this Reddit post, we have someone who’s inherited $250,000 they want to invest. They acknowledge that they aren’t financially literate, so they’re thinking of hiring a financial advisor. However, they’re not sure if it’s worth paying their 1% management fee.

I have some thoughts that could apply not just to this poster, but anyone else who’s not sure if a financial advisor is worth the money.

You’re getting more than financial advice

I don’t necessarily need a financial advisor to manage my money. A big reason I use one is that I like to have a sounding board to bounce ideas off of. And also, I like the peace of mind that comes with knowing there’s a professional managing my money and preventing me from potentially making silly decisions.

Years back, I had too large a percentage of my portfolio in bonds for peace of mind. My financial advisor gently explained that I was a bit over-invested in that area and helped me find ways to earn a better return on my money while still getting peace of mind.

Plus, at times, my financial advisor has helped me steer clear of certain investments I thought made sense, but actually would’ve turned out horribly.

And keep in mind that I’m someone who is financially literate. The poster above admits that they are not. So I especially think it’s important for someone who doesn’t know much about investing and financial planning to get an advisor’s help.

Coming to terms with a financial advisor’s fee

The 1% fee the poster’s financial advisor is quoting them is pretty much an industry standard. That doesn’t mean it isn’t negotiable, though.

One thing the poster may want to do is pay someone a fixed fee for one-time advice. The poster may, for example, decide to put their money into broad market index funds. A financial advisor doesn’t really have to manage that type of portfolio.

Now the good thing is that financial advisors who charge a fee as a percentage of assets under management are incentivized to help your portfolio grow. The more it does, the more money they make.

So while you may not love the idea of a 1% fee, if a financial advisor helps your portfolio grow 3% more per year than you would’ve achieved on your own, then the fee may be worth it.

And remember, financial advisors, like all people, have to make money. And they have overhead to account for. My financial advisor, for example, has office space to meet with clients, an online portal that no doubt costs money to maintain, and other such expenses.

So all told, before you write off the idea of paying a financial advisor, think about the value you might be getting. You may find that their fee is more than worth it.

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