I'm curious, how many here who are highly critical of financial advisors have actually used a financial advisor? If not, where did you form your negative opinion?I wouldn’t say I’m highly critical of FA’s, but I have used one and no longer do.I used Fisher Investments from 2003 to 2008. Until the crash of 2008 my returns, net of expenses, pretty much matched the MSCI World Index. So nothing spectacular but nothing horrible either.But I looked at Fisher’s take on returns, which seemed pretty reasonable and not out of line with what others would say, and I started questioning the rationale.What he says is that your rate of return on investments is about 70% based on asset allocation (stocks, bonds, etc.). 20% depends on sub-allocations (foreign vs. domestic, sectors, etc.). Stock picking, seemingly the toughest thing for individual investors, only accounts for 10% of your returns.So look at those numbers individually. If stock picking only accounts for 10% of your return, why even bother with it? Once you’ve picked a sector why not just buy the whole sector? Sure, you might get lucky and pick a real winner, or maybe you’re really good at it. Still, you run the risk of getting burned with a few bad calls. Furthermore, if you’re looking to earn, say 10% a year, what sense would it make to pay someone 1% of your portfolio to earn 1%?You can look at sectors the same way. It’s pretty easy to purchase a diversified portfolio using generic, off the shelf, low fee ETF’s. So the real question comes down to asset allocation, which determines the lion’s share of your returns.The problem, of course, is that you can find a financial advisor who believes just about anything. Some tell you to be 100% in stocks. Some tell you to have nothing in stocks. Some tell you pretty much anything in between.So it seems that by picking a financial advisor you’ve bought into his investing strategy and have already made the most important decision. The question, of course, is what exactly are you paying for?
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