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Several postings on this forum and many other online resources seem to indicate that there may be some value in hiring a financial consultant to help manage our personal finances, with the intent that the professional can help the consulted BETTER manager and grow his/her finances.

In this, I assume it means they can help formulate a better investment plan that considers pros and cons of different assets and comes up with an optimal plan that the consulted would feel comfortable with.

However, what is not clear to me is

(a) financial consultants are not tax experts, so while they may have certain knowledge in personal taxes, by definition, they are not as knowledgeable as tax experts.

(b) many investment books talk about choosing index funds-based investment over managed investment, as indexes often (definition?) outperform managed investment. If correct, there seems to be little value in hiring a fees-based financial consultant for his/her opinion in managing our personal finances.

Thus,for a commoner, what is the added value, if any, in using a financial consultant to help manage our personal finances ?

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financial consultants are not tax experts,

They are generally expected to understand basic tax law so far as it applies to investments. If you have complicated tax situations (more than just capital gains/dividends) then a CPA would be beneficial as well.

many investment books talk about choosing index funds-based investment over managed investment, as indexes often (definition?) outperform managed investment. If correct, there seems to be little value in hiring a fees-based financial consultant for his/her opinion in managing our personal finances.

This is a topic of growing debate. There have been theories published that active management cannot, in general, outperform the broad market over long periods of time. You might find asset managers that outperform the market most of the time, but theoretically those would be statistical anomalies, not necessarily attributable to skill. That said, there is still a great deal of active management in the market, so either people are willing to pay fees in the hopes of "getting lucky" or just don't realize that they could be getting better results for less fees.

However, more than just picking stocks or funds, portfolio managers can add value over self-serve passive investing. They can help you understand your risk tolerance (not just how much risk you're willilng to take, but how much risk you are able to take), offer suitable investments, help with rebalancing, etc. tHey might also have access to or knowledge about alternative investments that "a commoner" might not be aware of.

It's similar to car maintenance. Many people are skilled enough to be able to change their own oil and do other routine maintenance items. Others are willing to pay to have someone else do that for them. If you are confident enough in your own abilities and skilled enough to choose appropriate investments, then you can save some money by not hiring a professional advisor.

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Benefits of a financial adviser:

  • They have a greater knowledge of various investments and money management than most people

  • They can help you with savings strategies, managing debt, achieving short term goals and offer customized retirement and estate planning

  • They can help with tax issues

  • They can save you time with research as well as managing your portfolio for/with you

  • They can reassure you if you need hand holding

Disadvantages:

  • Not all have your best interest in mind.

  • Fees can significantly cut into your returns (flat fee, percentage of assets, hidden fees, higher commissions, load funds, etc.)

  • Their advice can be bad

  • Their accessibility may be limited once they have roped you in

While I have never used one, if I needed one (not going to happen), I'd get a referral from family members or from one of your trusted professionals (accountant, lawyer...) who have benefited from such services.

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