DIY vs. Advisor Decision Framework
Why It Matters
Americans pay roughly $100 billion annually in investment advisory fees (Cerulli Associates, 2023). For a typical 1% AUM fee on a $500,000 portfolio, that's $5,000 per year—or $150,000+ over 30 years when you account for the forgone growth on those fees.
But the calculation isn't purely financial. Advisors provide behavioral coaching, tax planning, and peace of mind that have real (if hard to quantify) value.
The practical question isn't "advisor or DIY?" It's "which services justify the cost for my specific situation?"
Definition and Key Concepts
The DIY vs. advisor spectrum includes several models:
| Model | What You Get | Typical Cost |
|---|---|---|
| Full DIY | You do everything | $0 (trading costs negligible now) |
| Robo-advisor | Automated portfolio, rebalancing, tax-loss harvesting | 0.25-0.50% of AUM |
| Hourly/project advisor | Specific advice without ongoing relationship | $150-400/hour |
| Flat-fee advisor | Ongoing planning without AUM fee | $2,000-7,500/year |
| AUM advisor | Comprehensive management, ongoing relationship | 0.50-1.25% of AUM |
The durable lesson: The "right" model depends on your complexity, your time, your temperament, and your assets. A $100,000 portfolio and a $5 million portfolio have different optimal structures.
The DIY Capability Assessment
Before deciding, honestly evaluate your situation:
Factor 1: Technical Competence
Can you execute these tasks correctly?
| Task | DIY Difficulty | Stakes If Wrong |
|---|---|---|
| Opening accounts and transferring assets | Low | Low |
| Selecting asset allocation | Medium | High |
| Rebalancing quarterly/annually | Low | Medium |
| Tax-loss harvesting | Medium | Medium |
| Roth conversion analysis | High | High |
| Coordinating withdrawal strategy in retirement | High | Very High |
The test: If you can explain why you'd use a Traditional vs. Roth 401(k) for your income level, you likely have the foundation for DIY. If that question causes anxiety, an advisor may add value.
Factor 2: Behavioral Discipline
How do you react to market stress?
| Behavior Pattern | DIY Risk Level |
|---|---|
| Checked portfolio daily in March 2020 but didn't sell | Low |
| Sold some holdings during 2020 crash | Medium |
| Went to cash during a crash | High |
| Made multiple panic trades during volatility | Very High |
The data: Dalbar research consistently shows the average investor underperforms their own funds by 1-2% annually due to poor timing decisions. Advisors serve as behavioral circuit breakers—someone to talk you out of selling at the bottom.
The honest calculation: If an advisor prevents one panic sale that costs 15% of your portfolio, they've paid for decades of fees.
Factor 3: Time and Interest
How much time can you devote?
| Activity | Annual Time Commitment |
|---|---|
| Reading quarterly statements | 2-4 hours |
| Annual rebalancing | 2-4 hours |
| Tax-loss harvesting | 4-8 hours |
| Staying educated on rule changes | 10-20 hours |
| Comprehensive financial planning | 20-40 hours |
| Total for DIY done well | 40-80 hours/year |
The point is: DIY isn't free—it costs your time. At a $100/hour opportunity cost, 50 hours of DIY = $5,000. That's the same as a 1% fee on a $500,000 portfolio.
Factor 4: Situation Complexity
The more boxes you check, the more an advisor may add value:
- Multiple income sources (W-2, self-employment, rental, etc.)
- Equity compensation (RSUs, ISOs, ESPP)
- Multiple account types (401k, IRA, Roth, taxable, HSA)
- Assets in multiple states or countries
- Business ownership or partnership interests
- Recent or expected inheritance
- Divorce or separation in progress
- Approaching or in retirement
- Caring for aging parents or special-needs children
- Charitable giving goals
Rule of thumb: 0-2 boxes = DIY viable. 3-5 boxes = consider hourly/project advisor. 6+ boxes = ongoing relationship likely justified.
The Cost-Benefit Calculation
Scenario 1: Simple Situation, Low Assets
Profile: Single, age 30, $100,000 in 401(k) and Roth IRA, no complexity.
| Option | Annual Cost | What You Get |
|---|---|---|
| Full DIY | $0 | You manage 3-fund portfolio |
| Robo-advisor | $250 (0.25%) | Automated rebalancing, tax-loss harvesting |
| AUM advisor (1%) | $1,000 | Overkill for situation |
Recommendation: DIY or robo-advisor. An AUM advisor at 1% would cost you $30,000+ over 20 years (including foregone growth) for services you don't need.
Scenario 2: Moderate Complexity, Growing Assets
Profile: Married, age 45, $500,000 across multiple accounts, equity comp, approaching kids' college.
| Option | Annual Cost | What You Get |
|---|---|---|
| Full DIY | $0 | Requires 50+ hours of competent work |
| Robo-advisor | $1,250-$2,500 | Automation, but no planning |
| Flat-fee advisor | $3,000-$5,000 | Comprehensive planning, no AUM alignment |
| AUM advisor (0.75%) | $3,750 | Planning + implementation |
Recommendation: Flat-fee or AUM advisor. The equity comp decisions alone (exercise timing, tax implications, concentration risk) justify professional input.
Value calculation: Optimal RSU selling strategy vs. naive approach might save $10,000-$30,000 in taxes over a career. That's many years of advisory fees.
Scenario 3: High Complexity, Significant Assets
Profile: Age 60, $2 million portfolio, business owner, retirement in 3 years, estate planning needs.
| Option | Annual Cost | What You Get |
|---|---|---|
| Full DIY | $0 | Extremely risky at this complexity |
| Flat-fee advisor | $5,000-$7,500 | Planning, but no implementation |
| AUM advisor (0.75%) | $15,000 | Full service including coordination |
| Multi-family office | $20,000+ | Premium service, family governance |
Recommendation: AUM advisor or flat-fee + separate implementation. The retirement transition decisions (Social Security timing, Roth conversions, withdrawal sequencing) have six-figure implications.
Example value: Optimal Social Security claiming for a couple can be worth $50,000-$100,000 in lifetime benefits vs. claiming at 62.
The Hybrid Approach (Best of Both Worlds)
Many investors benefit from combining models:
| DIY Component | Advisor Component |
|---|---|
| Day-to-day investment management in low-cost index funds | Annual planning review (hourly engagement) |
| Rebalancing and tax-loss harvesting via robo | Complex decisions (Roth conversions, equity comp) |
| Simple tax situations | Retirement transition planning |
Example structure:
- Core portfolio: Self-managed 3-fund portfolio or robo-advisor ($0-$1,000/year)
- Annual check-in: 2-hour session with CFP ($400-$800/year)
- Project-based help: Retirement analysis, equity comp strategy, estate review (as needed)
Total cost: $1,000-$3,000/year vs. $10,000+/year for full AUM model on a $1 million portfolio.
How to Find the Right Advisor (If You Need One)
Red Flags to Avoid
| Warning Sign | Why It Matters |
|---|---|
| Commission-based compensation | Conflict of interest on product recommendations |
| Proprietary products required | Higher fees, limited options |
| Guaranteed returns mentioned | Either lying or selling something dangerous |
| High-pressure sales tactics | Not acting in your interest |
| No clear fee disclosure | Hidden costs will appear later |
Green Flags to Seek
| Positive Sign | What It Indicates |
|---|---|
| Fiduciary standard | Legally required to act in your interest |
| Fee-only compensation | No product commissions |
| CFP® certification | Baseline competency and ethics |
| Clear fee schedule | Transparency on costs |
| Specialization in your situation | Experience with your specific needs |
Questions to Ask Potential Advisors
- "Are you a fiduciary at all times, in writing?"
- "How exactly do you get paid, and by whom?"
- "What is your all-in cost for someone like me?"
- "What would you recommend I do myself vs. hire you for?"
- "How many clients like me do you work with?"
The test: A good advisor will honestly tell you what you don't need to pay for. If they push full-service when you only need project help, that's a signal.
Worked Example: The Decision Process
Situation: Karen, age 52, recently divorced. $750,000 in retirement accounts, $200,000 taxable, small pension from former employer. No investment experience (ex-spouse handled finances).
Assessment:
- Technical competence: Low (new to this)
- Behavioral discipline: Unknown
- Time available: 10-15 hours/year maximum
- Complexity: Moderate (divorce, pension, catch-up needed)
Options evaluated:
| Option | Annual Cost | Fit |
|---|---|---|
| Full DIY | $0 | Poor (lacks knowledge and confidence) |
| Robo-advisor | $2,375 (0.25%) | Partial (handles investing, not planning) |
| Flat-fee advisor | $4,000 | Good (planning focus, independent) |
| AUM advisor (0.80%) | $7,600 | Good if includes full implementation |
Decision: Start with flat-fee advisor for comprehensive plan, then evaluate ongoing needs.
Year 1 agenda:
- Divorce settlement review and asset allocation
- Pension analysis (lump sum vs. annuity)
- Catch-up contribution strategy
- Beneficiary updates and estate basics
Year 2+: Reassess whether ongoing relationship or annual check-ins suffice.
The Decision Checklist
Choose DIY if:
- Simple financial situation (few accounts, no complexity)
- You enjoy learning about investing
- You have 40+ hours/year to devote
- You can stay disciplined during market stress
- Your assets are under $250,000 (fee savings matter more)
Choose an advisor if:
- Complex situation (multiple income sources, equity comp, business)
- Life transition (retirement, divorce, inheritance)
- Limited time or interest in managing money
- History of emotional investment decisions
- Significant assets where mistakes are costly
Choose a hybrid approach if:
- Capable of basic investing but want expert input on decisions
- Want to minimize ongoing fees while accessing expertise
- Situation is complex occasionally, not constantly
The durable lesson: The best model is the one you'll actually follow. A perfect DIY strategy you abandon during a crash is worse than a "too expensive" advisor who keeps you invested.
Know yourself. Choose accordingly. Revisit as your situation changes.