Of course, but anyone with basic financial acumen knows what these principles are. The financial advisor is not inventing these principles, so you cannot attribute the excess performance attributable to following these principles to the financial advisor.
You don’t say the mechanic who you employ to change the oil in your car is adding $10,000 of value just because an oil change will save your engine from destruction.
To each according to his taste: I am glad to have a financial advisor. They cost me 1% of my assets a year, I have trusted them with around 65% of my wealth. The rest, 35%, I manage myself, that costs me 0.68% of my assets as bank deposit fees p. a. (under the average in Germany for the usual banks, but much more than online accounts charge. I like being able to go to “my” bank branch where the people know me and I can talk to them, as opposite to waiting for a call centre to take my call when there is something urgent to do). So the real effective cost of the advisor is 0.32% for me compared with what a normal bank would cost anyway (and I can reduce my tax base by half of that cost, that is the law here, the other half is non deductible). I can compare what the advisor (a Swiss bank, in case it matters) yields with what I manage to achieve, and the advisor is usually better than me. I still want to take a part of my investments in my own hand, because I feel that I don’t lose touch with finances in general that way, keep myself informed, which is also good when talking to my advisor and understanding his arguments, and also because it has become a bit of a hobby. My investment strategy is riskier than his so I sometimes beat his performance. When I don’t it was still informative and entertaining: I assume more risks, but I am not reckless.
Long story short: do I need a financial advisor? No. But I think he has been worth it so far. He gives me peace of mind. Should anything happen to me I know that my wife, who does not like to dwell into financial matters, will be in good hands, her assets safe enough.
We have no children, we are realistically not going to live more than twenty years, we are set if there is no fundamental crisis (looking at you, Putins, Trumps, mullahs and Orbans, to name but a few). Other situations may require other arrangements. We are satisfied as it is. But we are just one data point, not generalizable or extrapolatable, if that is a word.
Yes, you could probably put your millions in an S&P index fund and sell off a reasonable amount forever until you die, paying capital gains tax after each transaction.
A financial advisor might be able to give you options for growing your wealth other than speculating on the market.
They might have advise on minimizing your tax burden.
They will also likely have advise on estate planning.
I think the key here is finding someone knowledgeable about accounting and tax law and financial products. Not expecting someone with a crystal ball who will tell you what stocks to pick. If these guys really knew that, they wouldn’t be working.
As has been emphasized, the investment part isn’t particularly difficult, the tax savings can be. Until I retired a few years ago, I did my own investing and taxes. A small tax fuck up on my part would cost me a small bit of extra tax paid.
Now that I am retired, I need to protect my assets and a small tax fuck up could cost me thousands of dollars because of the health insurance subsidy for example. I don’t want to learn about optimizing Roth conversions. They were able to show me the numbers to give me the peace of mind that I will outlive my assets and I could afford the expensive kitchen remodel. There are a number of other things but this will get long and boring if I go into them. I probably could learn these things but I am fucking retired and I don’t want to do it.
That more or less applies to me as well (except that I have no debt whatsoever). I haven’t won the lottery but about 18 months ago I did, in fact, consult a financial professional to assess my current set up.
Nothing earth-shaking happened, but he did make some suggestions that have paid off and it was reassuring to know I was on track for my planned retirement. If I’ll do that for my own modest means why wouldn’t I do that for a massive windfall?
If I ever do wind multi-million dollar jackpot (unlikely, as I seldom play) I’d consult one not so much because I’m a financial idiot (I’m not) but because that’s a different level of investing and I’d rather not learn things the hard way.
I may not need a financial advisor but I could probably use one to better optimize my results.
You bring up a good point that I don’t think has been mentioned. Most of us have been talking about active management where you are charged a (typically) 1% a year. You can also pay someone for a few hours of there time every few years for advice and then you take (or don’t take) their advice. I did do this every five years or so prior to retirement.
After doing my own investing forever, I finally got a financial advisor three years ago and realized I was dumb to have waited so long. And no, I’m not a millionaire.
Again, it’s not just about the investing. In fact, I probably spent 10% of my time with him discussing the investment side. Other things he helped with:
This thread is an example of why people would benefit from a financial advisor. Everyone is sure they know what they’re doing, it’s everyone else who needs help. And yes, maybe we’ve amassed a collection of financial geniuses here who know all this stuff. But maybe some of the people don’t know where their blind spots are.
Mechanic: “I noticed while changing your oil that your Schliemann belt is rubbing against your floozle. If you don’t make an adjustment to the flargen node, you’ll be in big trouble.”
Me: “Shit, my floozle?! You just saved me $10,000.”
I think I’ve had that exchange at least twice in my life. I never pay attention to my Schliemann belt.
Sure, so predictable that you’d straw man that I said a mechanic is worth nothing.
To remind you, what I was disputing was your claim that a financial advisor is worth the entire value of the excess returns generated by following sensible well known good investment practice like staying in the market, not panic selling.
Past performance is no indication of future performance.
What was that you were saying about straw men? Good lord. I presented a white paper that paid out a number of metrics that show a number of areas in which an advisor provides value, and they estimate it at about 3% with a big disclaimer that much of it is subjective - you’re complaining that it’s subjective. Of course it is. Beats anecdotal.
To answer the OP, yes, you do need an advisor. As experienced as you may be, managing something like $200,000 or $2 million of personal assets or investments would be very different than managing $200 million.
If you look more carefully at the paper, what they try to estimate is the value of following well established disciplined investment strategies. If that were not the case, how could they possibly estimate the value? We’re not talking about secrets that only financial advisors know.
Hiring an advisor to help you follow these strategies in an effective and disciplined manner is certainly worth something, but it is not worth the entire value of these well known strategies. Just like hiring a mechanic to change your oil is worth something, but not the $10,000 that it would cost if you never changed your oil.
I have nothing much to add to the excellent advice that’s already been given. I’ll just say two things.
“Financial advisor” absolutely does NOT mean the so-called “financial advisor” who works at your bank, who was probably a former used car salesman or possibly a former loan shark for the mob, and is now incentivized to peddle the bank’s highest-profit (for them) and least-performing funds. These people are essentially thieves, but you can’t prosecute them, because it’s all perfectly legal. A real “financial advisor” means a reputable, independent one.
Index funds. Magic words, for the average investor. I was thrilled when I found out that my house had more than tripled in value in the ten years since I’d bought it, but then I checked how index funds have performed in the same time period. No, not better by any means, but somewhere around 70% of the appreciation. Although depending on where you live the tax implications may make a big difference. Where I live there’s no capital gains tax on a primary residence.
Why? I would follow a similar strategy with $2 million or $200 million, perhaps a little more conservative with the larger amount, and liquidity is not remotely a concern at that scale. The only minor difference is that FDIC insurance isn’t going to offer any significant protection on fixed income, so I would not use CDs.
The only thing I have to add this discussion is that I knew a couple who, years ago, won a $10 million jackpot in the lottery back about 30 years ago when $10 million was considered a massive payout. You may think you or I could live the rest of your life on $10 million. They couldn’t. In fact, they blew through it so fast, they had to go back to work while they were still middle-aged.
But that’s because that couple clearly had no financial acumen.
That story is no more relevant to the OP than if I were to tell you, a perfectly sober driver, before you drive your Corolla (or whatever car you own,) “Hey, be careful, years ago there was a drunken teen who wrecked his car with a blood alcohol of 0.29.”
The OP has monetary sensibility.
I think most people do not do these things. I certainly don’t. Though I’ve never had the funds to justify it.
Was anything left? I ask because an acquaintance got millions in a settlement and now lives in his mother’s basement with his wife. No one knows what they spent it on, and they refuse to discuss what happened (which, to me, sounds like they got scammed.
As for the original question, I’d start with a lawyer, who’d likely be able to point the winner to other wealth management resources.
That’s the one size fits all advice. But the typical lottery player/winner is living payday to payday or payday loan to payday loan. You have demonstrated financial responsibility and would at the least not be broke in 5 years.
You might not have as much wealth in 5 years as you would with the aid of a planner, but you’d do fine without one.
A financial advisor (paid by time, not by commissions) will first ask what you already have in place. Then they will ask what you want to be able to do.
Personally, I’d want a financial advisor so I could hand out their cards to anyone who wants to sell me an amazing opportunity. “I don’t do that. I have people for that.”