First Person: 3 Reasons to Avoid Professional Investment Advice

While perusing the November 2010 issue of "Registered Representative," I came across a shocking statistic: according to Lisa A. Cohen, chief executive of Momentum Partners, LLC, the average retail investment adviser spends 20 to 25 hours a year managing a client's investment account. Think about it: that's just a little over 2 hours per month, 30 minutes per week, or under 5 minutes a day!

How can someone "professionally manage" a portfolio on 30 minutes a week? It probably takes you longer to read the Sunday paper's business section. Clearly, for retail investment account management to work, an adviser must utilize the economies of scale where many "unique" client situations translate into standard "cookie-cutter" accounts that are managed in bulk, but the question in my mind is: can YOU do better yourself if you spend just one hour a week managing your money?

People have plenty of reasons why they think they can't do better themselves, but how valid are those reasons? Or, to put it differently, how much harm do they inflict on you financially?

"I don't have the time."

An adviser obviously cannot afford to spend more than 30 minutes a week on an account if he wants to stay in business, but it's your money we are talking about. Nobody cares about it more than you do. You may not know much about finances and you work 60-hour weeks, but let me ask you this: how much time did you spend buying your last refrigerator or HDTV? I bet more than 30 minutes. I also bet that you didn't know much about refrigerators or HDTVs either but you went online and did some research before whipping out the credit card, didn't you?

"I don't know much about investing."

But does the adviser? He does not spend just 30 minutes per week on your account because the rest of the time he is watching the markets or searching for the next big winner. He is either managing other accounts or prospecting/selling. Financial advisers don't know much more than you do about the markets but they do know investment products and how to sell them. Is that what you want to pay for?

"Financial advisers can provide objective advice."

That's probably the most valid argument: financial advisers are impartial observers who can prevent you from making emotional decisions that can hurt you financially. Except that what they really do is motivate you to act, and keep you fully invested at all times so that they can collect the asset management fee. Just ask your adviser what you should do if interest rates rise or when would be the right time to sell a stock and see what he has to say.

More from this contributor:
Bond Funds: Do Professional Management and Diversification Matter?
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