Mindfully Investing is predicated on the idea that individual investors can meet their long-term investing goals without paying an investment adviser.  I’ve also written that there’s nothing fundamentally wrong with using an adviser, just so long as you understand what they charge in fees and/or a cut of the returns, and you’re knowledgeable enough to critically assess their advice.  But that’s a pretty vague assessment.

Because many life events can impact our investment decisions, I wanted to provide more details about when to consider using an adviser.  Further, you’ve probably seen scary news, blog posts, and opinion pieces urging investors to seek professional advice lest they ruin their finances.  Unfortunately, these scare pieces can assert some pretty questionable reasons for using an adviser.

So, today I’ll present some “good” and “bad” reasons to hire an investment adviser, based on a critical review of some of the investment industry advice out there.  Below I describe some common reasons in bold and then briefly explain why I think they’re good or bad using the precepts of mindful investing.

Good Reasons

Good reasons to use an investment adviser that I’ve written about before include:

1. You need advice that’s more applicable to your specific situation than can be gleaned from generic books and websites.  But don’t reach this conclusion too hastily.  People like to assume they’re super special and need more tailored advice.  However, the content on Mindfully Investing suggests that the most useful investment tactics apply to the vast majority of investors.
2. You hate spending time selecting and tracking your investments and prefer to hire someone to perform this annoying task for you.  If you have no interest in something, you’ll likely do a bad job.
3. You need help beyond mindfulness to avoid emotionally charged or biased investing decisions (like panic selling in a crash).  If you have to call an adviser before you can “sell everything”, the adviser may be able to talk you out of it.

More Good Reasons

Other good reasons that I found on the internet that I’ve not written about include:

4. You need to sync up a simple investing plan with a more complex financial plan.  Mindful investing is surprisingly simple at its core, but financial planning involves an array of linked issues including, but not limited to: retirement planning, asset protection, estate planning, tax planning, Social Security decisions, and insurance planning.  However, you should make sure your adviser is taking a mindful approach to the investing side of the equation, which should involve holding a moderately diversified set of low-cost stock index funds for the long-term.
5. You’re old enough that declining cognition (like dementia) or other health issues could potentially cloud your thinking.  This one is pretty obvious.  If you can’t think straight, you need help with a lot of things, including investing.
6. If you intend to give investments to relatives (including a spouse after your death) that don’t share your interest in investing, an adviser can help make a smooth transition and advise your relatives once you’re gone.

Bad Reasons

Bad reasons that are often touted by the adviser industry include:

1. Using a professional ensures that the “job is done right”.  Put another way, they think you’re too stupid or unfocused to do it yourself.  Judging by all the adviser horror stories out there, using a professional in no way ensures a good job.  And you can’t assume that government oversight is catching most of the bad actors, as the recent scuttling of the Fiduciary Rule in the U.S. showed all too plainly.  When the adviser industry is investigated, they usually find way more malfeasance and incompetence than “anyone ever imagined”.  I guess most regulators have dismal imaginations.
2. Doctors don’t operate on themselves and good lawyers don’t represent themselves.  I could rebut this one all day, but I’ll try to keep it short.  Roughly 88% of the time, professional money managers fail to beat an amateur who invested exclusively in index funds.  I wouldn’t hire a surgeon who botched 88% of their operations or a lawyer who lost 88% of their cases against amateurs.  Enough said.
3. You won’t be able to “beat the market” by yourself.  But there’s no evidence that professionals can beat the market either, as I just noted.  Further, for the vast majority of people, there’s no need to beat the market to be a successful investor.  Most reasonable investing goals can be met by reaping the readily available market return.
4. Managing a sound investment portfolio well is a full-time job.  Personally, I see no evidence of this.  I’ve certainly spent a lot of time developing my investing strategy, but even at my peak level of effort, I was spending way less than 8 hours a day.  And now that my investing plan is set up, my “management” takes less than 20 hours per year.  And if managing one person’s investments is a full-time job, how can investment advisers manage dozens or hundreds of clients at the same time?
5. Retired investors seeking regular income may over-concentrate in tax-inefficient or risky investments, like trying to live off of dividends from high-yield stocks.  I find this reason confused.  Mindful retirement investing focuses on total-returns (not dividends or interest alone), and with today’s tax code, capital gains are taxed at a lower rate than dividends in most income brackets.  The concept of total-return income is so simple that I’m unsure why an adviser is needed to guide you to this mindful retirement strategy.
6. Because you’re managing your own investments, any losses will be felt much more acutely than if you used an adviser.  In my view, the opposite is truer.  I would feel the losses more acutely if I knew I had thrown away a bunch of money on an adviser that dropped the ball.  I could get myself into that same mess for free.
7. An adviser will be more removed from emotionally questionable decisions.  Again, the evidence regarding active management suggests that advisers are no better than lay-people at avoiding emotionally biased investing.  And advisers have to handle both their own emotions and the emotions of potentially irate or despondent clients.
8. The control you feel managing your own investments is false, given all the unpredictable things that can happen.  While true, that statement in no way proves that the adviser has any more meaningful control or a more realistic view of their lack of control.  And mindful investors don’t put much stock in feeling either in or out of control.  Any Buddhist will tell you that a sense of control in life is just an illusion.
9. Advisers have access to investment vehicles you do not.  When this is brought up, people are typically talking about institutional class mutual funds or certain ETFs that are only sold through advisers.  This is the “beat the market” reason in disguise.  The premise is that you might need something “better” than a vanilla index fund.  But for the vast majority of investors, simple index funds are all that’s needed to meet reasonable investing goals.
10. Once you are retired, the ball game is entirely different and more complicated than simply saving and investing when you were young.  Mindfully Investing covers two types of investors (young and old).  While I agree a mindful investing plan is more complicated for the older retired investor, it’s certainly not rocket science.

It’s hard to imagine anyone being convinced by some of these lame pitches.  But I took every one of these bad reasons from a blog or website of an adviser.  I didn’t provide links because I don’t want to start a useless debate with any of these advisers (not that any of them would pay attention to my opinions).

Conclusions

The four cornerstones of mindful investing (rationality, empiricism, humility, and patience) are the common theme that sorts the good reasons from the bad.  All the good reasons are fairly rational, supported by empirical data, and/or rely on a relatively humble and patient outlook.  Like most advertising, all the bad reasons try to press our emotional hot buttons.  Don’t you want to “do the job right” (fear button) or “beat the market” (greed button)?  And even worse, Bad Reason #6 about “acute feelings” and #7 about being “emotionally removed” are just emotional appeals to avoid emotional consequences.  They want you to fear, fear itself.  Interestingly, you can easily put every one of the Bad Reasons into either the category of greed (#3 and #9) or fear (all the other bad reasons).

Further, all my rebuttals are driven by the mindful investing cornerstones that best reveal the false rhetoric.  For example, the false rhetoric in Bad Reason #1 about “doing the job right” is revealed through a little rational consideration of some empirical data about the failings of the investment advice industry.  Likewise, Bad Reason #3 on “beating the market” is highly questionable from a humility standpoint, and backed up by copious empirical data on how hard it is for professionals to beat the market.

To avoid getting tedious, I’ll stop with these examples.  But feel free to play the cornerstones-of-mindful-investing game at home for the rest of these bad reasons to use an investment adviser.