Many people today feel a strong sense of desperation when it comes to building wealth. They turn to technology, thinking they can navigate their financial future on their own. With AI and the vast amount of information available online, it’s easy to assume that managing investments is a do-it-yourself task. However, studies suggest that professional financial advisors significantly impact long-term financial growth. So who actually builds more wealth in the long run?
A notable study conducted by Vanguard examined the difference between individual investors managing their own money versus those who use a financial advisor. Over a 25-year period, individuals who managed their own $500,000 portfolio saw it grow to just under $1.7 million. In contrast, those who worked with an advisor more than doubled that amount, reaching approximately $3.4 million. This stark difference raises the question: why do so few people—only 38% of Americans—choose to use financial advisors?
The Misconception That Financial Advisors Are Only for the Wealthy
One of the biggest barriers preventing individuals from seeking financial advice is the belief that they don’t have enough money to warrant professional help. Surprisingly, even those with two to three million dollars in assets sometimes feel embarrassed or ill-prepared to meet with an advisor. Many people underestimate their financial standing and assume they are further behind in retirement planning than they actually are.
Financial advisors often find that once they analyze a client’s financial situation—looking at assets, income needs, Social Security, pensions, and expenses—they are in a much better position than they initially thought. In fact, many clients who believed they couldn’t afford to retire discovered they had an 85-90% chance of success with a proper financial plan in place.
Addressing the Cost Concerns
Another major deterrent to hiring a financial advisor is cost. Many people believe financial advising is too expensive. Historically, the financial industry has been known for hiding fees, which has contributed to skepticism. However, there has been a significant shift from a “suitability” standard, where advisors could recommend high-fee products that benefited them more than the client, to a “fiduciary” standard, where advisors must act in their clients’ best interest.
For example, at fiduciary firms like Allied Wealth, advisors charge an asset management fee—typically around 1%. If a client’s portfolio grows, the advisor’s fee increases in proportion. This aligns the interests of the client and advisor, creating a win-win situation where both benefit from financial growth. Unlike commission-based models, fiduciary advisors have no incentive to push high-fee, underperforming investments.
The Trend of Declining Advisor Use
Despite the clear financial benefits of using an advisor, only 36% of Baby Boomers and even fewer younger individuals are choosing to work with financial professionals. This trend could be attributed to the rise of AI-driven investment platforms and robo-advisors. Younger generations, in particular, are leaning towards automated investment solutions. While these platforms may offer convenience, they often lack the personalized financial strategies and expertise that a seasoned financial advisor can provide.
As individuals accumulate wealth, they begin to see the value of professional guidance. Wealthy individuals understand that hiring experts in various fields—including finance—is a key strategy for success. Just as no one would perform their own heart surgery, those serious about financial growth should consider hiring a professional rather than navigating investments alone.
The Power of Professional Guidance
The wealthiest individuals consistently seek professional financial advice. When it comes to critical financial decisions—such as transferring business interests, selling a company, or planning for retirement—hiring the best professionals is a standard practice. The most successful CEOs and business leaders know their strengths and weaknesses. They hire experts in areas where they lack expertise and allow them to do their job effectively.
That doesn’t mean investors should hand over complete control. Staying engaged in the investment process, having regular conversations with an advisor, and maintaining a clear understanding of financial decisions is crucial. Effective communication between clients and advisors builds trust and ensures financial goals align with investment strategies.
Who Actually Builds More Wealth in the Long Run?
A separate Vanguard study further supports the argument for professional financial advice. It found that 8 in 10 people who work with an advisor have an 80% chance of financial success. The data is clear: those who seek professional guidance are more likely to build substantial long-term wealth than those who attempt to manage their finances alone.
The key takeaway is that financial advisors provide immense value, particularly for those serious about long-term wealth building. While DIY investing might seem appealing due to the availability of online resources, the numbers show that professional guidance leads to greater financial success. Those who invest wisely in professional advice position themselves for better financial outcomes and long-term security.
Also read: The Truth About Retirement Investing No One Tells You
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