Can You Afford an Investment Advisor?

The question isn't whether you can afford an advisor, but whether the long term costs of an advisor are worth the money; which will be measured in hundreds of thousands of dollars.

AlgorithmicFIRE • 2026-01-17

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We recently had conversations with friends of the channel, one early in their FIRE journey and one late in their journey. Both are paying financial advisors, neither really understand the long term costs of their advisors. We will use this post, not to judge their choices, but to highlight the importance of understanding the long term costs of an advisor, which are substantial.

Why It Seems to Make Sense To Use an Advisor, Particularly Early in Your Journey

Early in your FIRE journey, it seems like an easy decision to use an advisor. You're not sure what to do with your money. There are many investment options; it seems complicated. But someone will do this for you, and charge about 1% of your assets per year. You do the math, that seems incredibly reasonable. (With $100K in your portfolio, that's $1000 per year; seems like a small price to ensure you are on the right path.)

Where The Decision Goes Wrong

There are a few issues with this decision.

Early in your journey, the decision is relatively easy. Buy-and-hold is the recommended strategy. But buy-and-hold what? The answer is buy the whole stock market via an ETF (Exchange Traded Fund). We'll cover this in the conclusion with a recommendation to read a book on the subject. (Don't worry, it is a short read.) If you pay anyone, any amount, to do this for you, you are paying too much.
Late in your journey, the decision is only slightly more complex. Now the answer is buy the whole stock market with a portion of your assets, and buy the whole bond market with the rest. Maybe you also add in some world-wide stock exposure. In all cases, you are buying ETFs with broad exposure. You can do this yourself, using just 3 ETFs. The same book mentioned above also covers this. Again, paying someone any amount to do this for you is paying too much.

What you will learn by reading the book is that few investors/advisors can outperform the market as a whole. You are generally better off buying broad index funds than paying for active management. If you are following that advice, buying the ETFs yourself is quite simple, and not worth the cost of an advisor.

Costs During Wealth Accumulation

Let's take a look at what a 1% annual advisor fee means for your wealth while you are building your wealth. (We'll use the defaults to our Portfolio Wealth Simulator; start with 0 balance, save $12K/year, growing savings contributions 3%/year, save for 30 years.).

The calculator performs a Monte Carlo simulation of 500 runs. Each run a different sequence of returns is generated to simulate returns you might experience if invested 100% in stocks. These returns are then applied to your savings to simulate your wealth over the 30 years. The result is a histogram of possible outcomes.

The first chart above is without the advisor, the second chart is with the advisor.

Median accumulated wealth without an advisor: $1.2M - $1.5M
Median accumulated wealth with an advisor: $1.0M - $1.2M

Over the course of a 30 years savings period, the advisor cost you, on average, $200K-$300K.

To be clear, this is not saying that you paid the advisor the $200K-$300K. It is saying that the advisor cost you $200K-$300K in terms of the returns you received. Compound interest is powerful, but you reduced the compounding from 7%/year to 6%/year; which is a significant drag on your returns.

Costs During Retirement

Now we'll use the same calculator to simulate retirement. We'll use the defaults to our Portfolio Wealth Simulator; except we'll start with $1.2M since that is near the median of the wealth accumulated in the previous simulation. The SWR (Safe Withdrawal Rate) of 5% means you retired with $60K/year of income.

Important point: This calculator is a fixed withdrawal rate calculator. That said, we ran the same analysis with a variable withdrawal rate, and the results were similar.

The simulation is again a Monte Carlo simulation of 500 runs, similar to above, but now we are withdrawing money from the portfolio. This time we will look at the time series of portfolio balance for each run, instead of histograms of final wealth.

The first chart above is without the advisor, the second chart is with the advisor. For the second chart, we adjusted SWR down to 4.4% to achieve a similar number of failures (zero balance) as the non-advisor simulation.

SWR without advisor: 5.0%
SWR with advisor: 4.4%

(Note that you don't have to reduce the SWR a full 1% to achieve a similar number of failures. The reason is because the expense amount gets smaller as you lose money, whereas the withdrawal rate stays the same. Therefore, you don't need to reduce your SWR 1-for-1 to compensate for the advisor expense.)

Over a 30 year retirement period, that 0.6% of your portfolio is > $200K, and compared to the 5% income you are receiving, represents 12% of your income.

But Wait, There's More (Or Less Depending On Your Perspective)

In the analysis above the SWR was adjusted such that the failure rate was similar between the two simulations. But, the resulting account balances at death were quite different.

The median final wealth without the advisor was $1.6M - $2.0M, with the advisor it was $1.2M - $1.5M. In this case you see the impact of the fixed 1% annual expense of the advisor truncate the results of the best case simulations

The impact to your final (legacy) wealth is $400K - $$500K. (Or, you can use a variable withdrawal rate to spend more while retired and pass on less wealth.)

Again - this is not saying that you paid the advisor the $400K-$500K. It is saying that the advisor cost you $400K-$500K in terms of the returns you received due to reduced compounding.

Conclusion

We modeled a savings plan that would result in a median final wealth of $1.0M - $1.5M; a typical target for FIRE.

The net cost of an advisor, using our assumptions, is:

$200K-$300K during wealth accumulation.
A lower SWR of 4.4% instead of 5% (no advisor); which results in lower income by $200K or more during retirement.
And $400K-$500K less at death. (Or the option to use a variable withdrawal rate to spend more while retired.)

In the title we said the advisor fees "will be measured in hundreds of thousands of dollars". It is really closer to $1M, and in best case investing scenarios, much more.

The solution: Don't use an advisor. Buy the ETFs yourself, and save the money. If you don't know how to do this, we will recommend a starting point: The Little Book of Common Sense Investing

This book is a quick read, two hundred and some pages, in a small format. It is a great starting point for understanding the basics of investing. Here is a description:

"Wiley's describes The Little Book of Common Sense Investing by John C. Bogle as a guide for long-term wealth building using low-cost index funds, advocating for a simple buy-and-hold strategy that captures market returns by minimizing fees, avoiding market timing, and understanding that costs erode long-term gains. Bogle, founder of Vanguard, argues that trying to beat the market is a "loser's game" and his book offers a proven, simple path to investing success for all levels of investors."

Full Disclosure - the above is an affiliate link and we will receive a small commission if you purchase the book.

Addendum - Other options

If you use an advisor, once your portfolio is larger than $1M, you should start inquiring about reducing the fee structure, as some advisors will offer a discount for larger portfolios.
Use a prebuilt portfolio, a target-date fund, or a robo-advisor.
- Example: ETrade has prebuilt portfolios. These are available as: aggressive, moderate, conservative, and income. Each has a small number of ETFs, designed to fit the portfolio description. You select your account, select the portfolio, and they populate an order to buy the ETFs for you.

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View Video Transcript

All right, let's get right into it. We are going to tackle a question that, you know, seems pretty simple on the surface, but it has absolutely massive implications for your financial future. We're going to pull back the curtain on the true cost of that seemingly tiny 1% investment fee. So many of us have asked this exact question, right? Investing can feel super complicated. And let's be honest, getting a professional to help seems like the smart thing to do. But what if what if that's the wrong question entirely? And that is the heart of the matter. See, it's not about the fee UK this year. It's about the absolutely colossal impact that fee has compounding year after year for decades. This is really a story about hidden costs that can literally add up to hundreds and hundreds of thousands of dollars. Okay, so first things first, let's break down why paying 1% feels like such a reasonable deal to begin with because it really is an easy mental trap to fall into. Just imagine for a second you've worked hard, you've saved up a solid $100,000. You're feeling good about it, but you're also, you know, a little nervous about how to manage it. Then an advisor comes along and says they'll handle everything for you for just 1%. The math on that seems incredibly simple, right? A,000 bucks a year for professional help, for peace of mind. I mean, that feels like a bargain to make sure you're on the right track. But believe me, this is just the very, very tip of the iceberg. So, let's jump into the first major phase of your financial life, the accumulation phase. This is when you're saving and growing your wealth. And this, my friends, is where the real damage actually begins. What you're looking at here tells a really powerful story. No words needed. On the left, that's your potential wealth after 30 years of saving with no fee. On the right, that's with a 1% fee. Do you see how that entire graph is shifted over to the left? That is a picture of your money just vanishing. So, let's put a hard number on that disappearing act. On average, over a 30-year savings period, that small fee costs you somewhere between $200 and $300,000 in lost growth. Wow. That is the first massive hidden price tag. But here's the crazy part. The cost doesn't stop when you stop working. Oh, no. In fact, it continues to squeeze you all through retirement, which is exactly when you need every single dollar the most. Okay, so what we're looking at now are a bunch of simulations for a 30-year retirement. Those scary red lines, those are all the times your money runs out completely. To avoid that happening, the person paying that 1% fee has no choice but to withdraw way less money every year just to feel safe. And it all boils down to this thing called your safe withdrawal rate. It's just a fancy term for how much of your savings you can spend each year without a high risk of going broke. Look at the difference here. Without an adviser, you can safely take out 5% a year. But with that fee, it drops all the way down to 4.4%. Now, that might not sound like a huge gap, but it completely changes your lifestyle. Think about it like this. That tiny little difference translates into a permanent 12% pay cut from your own retirement income. I mean, that's a pay cut you take every single year for the rest of your life. It adds up to over $200,000. It's just gone. And unbelievably, it doesn't even stop there. Let's talk about the final stage, the final impact. This is about the wealth you get to leave behind for your family, for your community, for causes you care about. And again, the visual story just repeats itself. These graphs show what your final balance might look like after 30 years of retirement. And that fee on the right, you can literally see how it just chops off the best case scenarios. It slashes your ability to create real generational wealth. The median difference, the typical difference in the legacy you leave behind is somewhere between $400 and $500,000. This is the final jaw-dropping cost of that simple 1% fee. That is a lifechanging amount of money. Okay, I know that was a whole lot of bad news, but here's the really good news. There is a simple, proven, and way, way cheaper path. You can absolutely do this yourself and keep all that money working for you. So, the solution is about as direct as it gets. Just don't use an adviser. You can take control of your own investments. And honestly, it's become more straightforward and accessible today than it has ever been before. And here's the basic game plan. It's not rocket science. I promise. You can build this amazing globally diversified age appropriate portfolio with just a few lowcost funds called ETFs. You buy the whole stock market. As you get older, you add some bonds, maybe some international stocks. The whole thing can be done with like three funds. It's that simple. And look, this isn't some weird fringe idea. This philosophy comes straight from John Bogle, the legendary founder of Vanguard. His whole mission in life was basically to prove that keeping costs super low and just buying the entire market is the winning strategy for everyday people like us. So, let's just put it all together one last time. You're losing a few hundred,000 while you save. You're losing another couple hundred,000 in retirement income and then you lose half a million in your final legacy. I mean, when you start adding this all up, the total hit from that reasonable 1% fee gets dangerously close to $1 million. So, the real question isn't whether you can afford an adviser. The real question is this. What would you, your family, and your future look like with an extra million dollars?