"Can advisers add enough value to justify their fees?"

That was the provocative question posed by a reader recently in an email. He noted that most of his friends with financial advisers seemed to be satisfied with their experiences. But he considers himself a sophisticated individual investor; would an adviser add enough to his bottom line to offset the fees?

The answer is, of course, it depends. But what exactly does it depend on? To my mind, there are five key factors, some of them easy to quantify and others a lot squishier.

1) The level of fees

In the category of easier to quantify: How--and how much--is the adviser charging for services? That’s obviously the hurdle the adviser’s services will have to overcome to make the engagement worthwhile. For that reason, it’s mission-critical that anyone who’s considering hiring an adviser understand how that person is charging for services and translate that into dollars and cents.

2) The breadth of advice on offer

This is a huge swing factor. Advisers tend to fall into one of three buckets: Those whose primary focus is managing a client's investment portfolio, those who focus primarily on financial planning, and those who emphasise both areas. An adviser who’s exclusively or primarily focused on your investment portfolio will tend to have fewer opportunities to add value than one who is focused on your investment portfolio and matters such as budgeting, retirement planning, and insurance. The more touchpoints the adviser has into your financial life, the more opportunities he or she will have to overcome his fees. On the other hand, the level of fees may be higher to begin with if the adviser is offering comprehensive financial and portfolio planning, which is why it’s so important to understand how and what you’re paying.

3) The adviser’s skill level

It’s pretty intuitive that an adviser offering a broader range of services will have more opportunities to add value than one with a narrower focus. Trouble is, many if not most advisers today say they offer a broad range of financial planning services. Given that, how do you sort among them to know which ones are truly skilled in a gamut of areas and which ones are merely paying lip service to the idea of being holistic and comprehensive? Here, larger firms may offer an advantage in that they might have a broad range of experts on staff, including tax specialists, investment experts, estate planners, and so forth. If you’re attracted to the idea of a smaller firm or a solo practitioner rather than a big shop, the certified financial planner credential is a signal that the adviser has completed and been tested on a course of study that touches on a broad range of financial planning issues.

4) The investor’s skill level

A related question is, 'How well would the investor do on her own, without the aid of the adviser?' That comes down to how educated the investor is about investments as well as financial planning. If the answer is not at all, the adviser would have more room to add value above and beyond what the investor might do on her own. On the other hand, if the investor is very investment- and planning-savvy, hiring an adviser may provide less of a benefit.

Be sure to keep a couple of things in mind when making a self-assessment. First, it’s human nature to overrate our attributes, whether our appearances or our driving abilities; at least some of us are apt to overrate our financial acumen as well. In other words, it’s possible you’re not as good at this stuff as you think you are. In addition, upon self-reflection you may decide that you’re knowledgeable about some aspects of the financial planning process, such as investments, but that you have blind spots in other areas, such as tax planning. If that describes you, it might make sense to pick off financial advice with an adviser who specialises in your weak spot and charges on an hourly or per-engagement basis.

Finally, remember that there can be a disconnect between knowledge and action. Investors who know better still do dumb things with their money, whether living beyond their means or making emotional investment decisions. If, after a thorough accounting, you know you’ve made lots of financial decisions you later regretted, you may derive a huge benefit from hiring an adviser who will help you enact change. Indeed, many advisers say they add as much if not more value as behavioural coaches than they do by providing nitty-gritty financial planning guidance.

5) Life stage

Life stage is an important consideration when deciding whether hiring a financial adviser can add value for you. While solid financial advice can be incredibly valuable early in life to ensure that a plan gets off on a solid footing, it's arguably even more important for older adults. While older adults are often topnotch investors because they have a lot of experience under their belts, my view is that they, perhaps more than anyone, have a need for a second set of eyes on their plans. For one thing, retirement portfolio planning is inherently more complicated than portfolio planning during our accumulation years. In addition, cognitive decline is a risk factor as we age. My dad experienced dementia later in life, and I was glad I could be there to serve as his financial manager. But if you don't have a trusted adult child waiting in the wings to take over when necessary, or if you decide you're just not enjoying it anymore, finding an adviser you trust is a prudent step.