If a financial advisor can’t do better than an index fund, why bother?  But how do you know you’ll get value for the fee?

The advisor’s fee should pay for itself.  You should get better performance plus financial planning. Financial Advantage Inc provides these tips:

• Get performance figures for real clients over different market cycles. How has the advisor done in both up and down markets? If the broker or advisor just shows you several mutual funds in the proposal that means little.
• Are client funds managed consistently? If the advisor says that performance can’t be measured because each client’s money is managed differently, be skeptical.
• Will you receive both money management and financial planning advice for one fee? Most fee-only advisors charge a percentage of assets under management-usually around 1% annually-for inclusive financial planning and money management. But many advisors who are topnotch planners aren’t qualified to manage stock portfolios. If you can’t find an advisor who’s good at both, consider hiring separate advisors. Just because an advisor is fee-only and compensated based on assets under management does not mean it is qualified to manage your nest egg.
• You probably don’t need to pay an upfront planning fee. Many advisors charge an extra fee for upfront planning in the first year, but some do not. If your needs are not out of the ordinary, you should be able to find a good advisor that won’t charge separately for planning.
• Beware of the cookie-cutter approach. Some money managers sell everything you own and put you in their portfolio. That’s fine in a retirement plan, but selling your legacy holdings can have a big tax impact-so the advisor should customize its approach for you.
• Look for an objective fee-only manager that will build your portfolio to suit your needs, not to beat an irrelevant benchmark.  People often have portfolios that assume more risk than their lifestyle dictates.  Seek an advisor who will take the time to get to know you and assess your goals before making any decisions about your portfolio.