Trying to decide whether or not you need a financial advisor? The short answer—it depends. There are a wealth of advantages to seeking financial advice and investment management from a licensed professional.
But whether or not you need to hire a financial professional depends on your goals, investment knowledge, and where you are in life.
Thanks to technology, financial planning is as accessible as ever. Read on to determine whether or not you should hire a financial advisor.
What Does a Financial Advisor Do?
Financial advisors help clients define and meet both short and long-term personal finance goals. They can create a comprehensive financial plan that spans decades or help you with specific financial decisions.
Here are a few services financial advisors typically provide:
- Budgeting and money management
- Investment strategy
- Investment portfolio management
- Tax planning
- Estate planning
- Retirement
- Wealth management
- Life insurance
When You Should Hire a Financial Advisor
A recent survey from Intelliflo and Harris Poll found that around 32% of Americans work with a registered financial advisor, while 59% say they need financial advice but don’t know where to access it.
There isn’t a magic age or income level that warrants hiring a financial advisor, but there are some scenarios that could call for working with a professional.
Here are seven signs you might benefit from financial planning services.
1. You Recently Experienced a Major Life Change
Major life changes can reshape your finances. If you’re facing one of the milestones below, it could be time to contact a financial advisor:
- Getting engaged or married: When you get married, you need to consider how you want to combine your finances, whether or not you need a prenup, and how to set new financial goals together.
- Going through a divorce: Splitting up your assets in the midst of a divorce and adjusting to a single income can be challenging. Advisors are equipped to help keep your financial life on track.
- Starting a family: When you have children, you’re faced with new financial goals and expenses, from saving for childcare to paying for college.
- Applying to grad school: If you decide to further your education, a financial advisor can help you determine the best way to pay for grad school.
- Launching a business: Starting a business comes with its own unique set of financial considerations. An advisor can help set you up for success.
2. Your Wealth Increased Significantly
If you get a major salary bump from a new promotion or job, start a side hustle, or if your net worth spikes from a big inheritance, for example, it’s a good time to start working with an advisor.
They’ll help you figure out the smartest way to handle your extra money, advising you on how much of it to spend, donate, and invest — and where to invest it.
If your pay increase puts you in a higher tax bracket, they can also help you find ways to save on your tax bill.
3. You’re Behind on Your Retirement Savings Goals
Do you feel unprepared for your golden years? Are you unsure how much money you need to last through retirement? Are you struggling to save enough?
If you don’t feel like you’re on track, an advisor can help with the decision-making process and get you where you need to be.
Retirement is a long-term goal that requires careful planning. It’s important to have a “retirement number” in mind, which depends on when you want to retire and what you want your lifestyle in retirement to look like, with a clear plan in place that will get you to that number.
If you need help with the planning process, consider hiring a financial advisor.
4. You Tend to Panic When the Market Dips
If you have an extremely low-risk tolerance and think about pulling your money out whenever there’s a downturn in the market, you need someone who will keep your emotions at bay, provide objective advice, and remind you to stay the course.
The stock market is prone to volatility. While declines aren’t fun to deal with, they’re normal—and there has never been a declining market that has not ultimately recovered. If you pull your money out of the market during a downturn, you may miss the recovery.
A solid advisor will help you remember that it pays to stay invested. It’s expensive to panic.
5. You and Your Partner Don’t See Eye-to-eye Financially
Money problems are a leading cause of divorce. If money is causing any levels of stress in your relationship with your partner, it’s worth it to hire a financial advisor. Without one, you could be arguing about money for the rest of your lives.
If you and your partner have completely different values and beliefs around money, an advisor can help you sort through issues and teach you how to work as a team, rather than separately.
6. You Continually Put Off Important Money Decisions
Maybe you know the importance of having an emergency fun but keep telling yourself you’ll build it up next month. Or you understand how compound interest can make you rich over time, but you’re at a loss when it comes to asset allocation.
Perhaps you have aspirations to buy a house but haven’t gotten around to setting up a savings account for the down payment.
If you tend to delay important money moves like these, it might be time to pay for an advisor who will not only encourage you to take action but will also help you make the smartest possible decisions.
7. You Need a Lesson in Finance
Managing your finances can get complicated, even if you aren’t facing major life events. Choosing the right financial products and deciding which investment accounts are right for you can be tricky.
Navigating your everyday finances can be challenging, too, whether you’re trying to save for college, pay off credit card debt, or understand the real estate market.
Making smart money moves takes time and research. If you don’t know the difference between ETFs and mutual funds, or you aren’t sure whether to invest in a Roth or traditional IRA, paying for financial advisory services could make sense.
From avoiding basic red flags in your finances to making major investment decisions, an advisor could be worth your while if you’re inexperienced when it comes to finance.
INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
How Much Money You Need to Work with a Financial Advisor
Part of the reason so few people choose to hire a professional is because of the cost barrier that’s been created in the wealth management industry.
Historically, financial services companies were designed to work with people who have a lot of money—usually hundreds of thousands or millions of dollars in investable assets.
But thanks to technology, financial planning is starting to become more accessible to mainstream America.
While some financial advisors have a steep minimum net worth requirement, others are more reasonable. For example, if you’re just looking for investment management, you can get started with some of the best robo-advisors with little to no account minimums.
Advantages of Working with a Financial Advisor
Hiring the right financial advisor is one of the smartest ways you can spend your money. The benefits that come from working with an expert are vast. Here are some of the biggest advantages:
1. You can reach your financial goals faster.
Many advisors will provide you with a personalized financial plan that can help you reach all of the money goals you haven’t started chipping away at yet. Over time, as you build a relationship with your advisor, they’ll further understand your dreams and ambitions and can help you achieve them.
2. It’ll save you time and stress.
Money is complex, and most of us aren’t taught enough about personal finance in school. An advisor can help you navigate complex financial situations and tough money conversations with family.
They’ll advise you on everything from estate planning and tax laws to retirement planning and how to start investing, which will give you peace of mind and save you the time of researching everything yourself.
3. An advisor will help you avoid costly mistakes.
Besides ensuring you follow through with your financial plan, the right advisor can help you avoid major money mistakes, like panicking and selling your investments when the market goes down suddenly. They can also prevent you from making risky investments that could derail your financial future.
Types of Financial Advisors
If you fall into one of the categories above and need to hire a financial advisor, it’s important to understand that you have several options to choose from. The right one for you depends on your budget and financial needs.
Here’s a quick breakdown of some of the most common financial advisors you have access to:
- Robo-advisor: The most inexpensive option on the list, robo-advisors are digital platforms that create and rebalance your portfolio using an algorithm that accounts for your investing goals, timeline, and risk tolerance. While you won’t get a comprehensive financial plan, it’s a simple solution if you need basic investment advice and portfolio management.
- Registered investment advisors: RIAs are individuals or firms who buy and sell securities for their clients and provide investment advice. As fiduciaries, they’re required to act in their client’s best interest. These advisors are registered with the SEC or state securities regulator and typically charge a fee based on a percentage of your assets under management.
- Financial planners: Financial planners typically have the Certified Financial Planner (CFP) designation. They’re highly educated and experienced fiduciaries who offer comprehensive financial planning services and undergo continuing education requirements to stay up-to-date on the finance industry.
- Wealth manager: Wealth managers help high-net-worth clients set and execute on financial plans and investment strategies. Wealth managers help with topics like estate planning, charitable donations, retirement, and taxes.
Learn More:
How to Find a Financial Advisor
Just because someone claims to be a financial advisor doesn’t mean they’re qualified to manage your finances. To find the right advisor, follow the steps below:
- Check their credentials: Make sure you choose a reputable financial advisor who is properly licensed. You can find advisors in your area through The National Association of Personal Financial Advisors, The Financial Planning Association, and The Certified Financial Planner Board of Standards. You can look deeper into each advisor’s background BrokerCheck, a site run by FINRA.
- Ask questions: When you meet with prospective advisors, ask important questions. Find out about their certifications, specialties, and investment philosophy. You should also ask how each advisor charges for their services.
- Choose a fiduciary: It’s essential to work with an advisor who’s looking out for you first and foremost. Fiduciaries are required to be transparent with you and inform you of any conflicts of interest that come up. If you don’t work with a fiduciary, your advisor could make investment decisions based on commissions, even if isn’t the best move for your finances.
Financial Planning Is an Investment in Your Future
It’s important to think about hiring a financial advisor as an investment in your financial future.
According to Brent Weiss, certified financial planner and co-founder of Facet Wealth:
“Finding someone who is going to give you quality, personalized, unconflicted advice, is an investment you’re making in yourself today and your future self.”
The key cost, he emphasizes, is the cost you incur by putting off financial planning: “If you don’t pay down your debt soon enough if you don’t start investing if you don’t understand budget and cash flow, there’s a cost to that — and if you wait a couple of years, it can dramatically change your financial path in the future.”
Bottom line—if you fit any of the scenarios in this guide, hiring a financial advisor could be a smart move that enhances your financial life today and far in the future.
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