By Mark McLaughlin, Special to CNBC.com
NEW YORK (CNBC) -- The financial crisis left many investors blaming financial advisors for failing to shield them from deep losses or to explain the risks of the exotic yet highly profitable products they were sold."I didn't get a call during the market implosion and received no advice when my retirement funds were shrinking,'' says Tom Hoebbel, a photographer in upstate New York, who fdropped his Edward Jones advisor in fall 2008. Hoebbel is not alone. Forty-five percent of investors surveyed last January by ING Direct had reduced or eliminated their relationship with a financial professional. And fifty-seven said they could do just as well making their own investment decisions.
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Research firm Dalbar puts out an annual survey showing how actual shareholder returns lag market returns. The culprit is market timing as investors buy on the way up and panic sell on the way down. Emotions guide those decisions, according to behavioral economists who have identified the tendencies of investors to act irrationally.An advisor can act as a circuit breaker by removing emotion from investment decisions. Massimo says investing is like losing weight or stopping smoking--you need discipline and commitment to a long-term process. Having an advisor doesn't guarantee success, but investors who acknowledge they're prone to impulse decisions might benefit from a second opinion before pulling the trigger. Guidance Applies to More Than Just Investments Investment advice is just one of the services a financial advisor provides. Many are also trained in financial planning, estate planning and insurance. And if they don't have expertise in the areas you need, the good ones have access to accountants, attorneys and other experts that do. "A lot of advisors go from the first client meeting straight to buying investments,'' says Braddock. "Better advisors tackle education, develop a financial plan and propose an asset allocation before thinking about investments.'' Advice Can Be Affordable Investors don't have to carry six-figure balances to receive professional guidance. Most advisors charge commissions or a fee based on the assets they manage but some, like the Garrett Financial Planning Network, charge by the hour. For experienced investors, an annual checkup with this type of advisor may be sufficient. No-load, mutual-fund firms geared to individual investors are also branching into the advice business by offering access to CFPs and customized accounts. Investment minimums start at $50,000 and costs are comparable to those charged by fee-based advisors. Even if you see nothing but blue skies ahead for the markets, partnering with a financial advisor in 2011 may help you better prepare for the inevitable storm clouds to come. -- Written by Mark McLaughlin of CNBC