Personal Finance

Do I need a financial advisor or should I go it alone?

Do you need a financial adviser? The answer depends on different factors: the complexity of your finances, your comfort with managing investments, where you are in your wealth journey and where you would like to be.

The advisor’s mission is to bridge the gap between your financial situation and where you would like to be. But there are costs involved and not everyone needs help.

Making a confident decision about whether to hire a counselor (or not) requires some information gathering, as well as a bit of self-reflection.

What does a financial planner do?

Effective financial planners provide advice that helps you achieve your financial goals. Investment management and strategy are an essential component of these orientations. You can call on an advisor for a complete investment strategy and more specific services such as:

  • Household Expenditure Review and Budgeting
  • retirement planning
  • College Tuition Planning
  • Insurance coverage assessment and recommendations
  • Consultation with estate planners, tax planners and other advisors

Financial planners are essentially personal finance mentors. They know your situation, advise you and guide you towards informed financial decisions.

Financial Advisor vs Financial Planner

The terms financial advisor and financial planner are often used interchangeably in conversation. Technically, however, they are not exactly the same thing.

Financial Advisor has a broader meaning than financial planner. The advisor also includes planners as stock brokers, insurance agents, real estate planners, bankers and accountants.

Work with a financial planner

Your role in the relationship with the advisor has three main components:

  1. You share your financial information and goals.
  2. You evaluate and then accept or reject the recommendations of your advisor.
  3. You fund recommendations that you accept.

Before choosing a financial advisor, think critically about your ability to handle these responsibilities. Are you comfortable sharing your financial information, speaking up when you disagree, and investing money according to your financial plan? Ideally, the answer is a resounding yes.

If you’re not prepared to be financially transparent and fund your choices, you may get limited value from an advisor.

When to Hire a Financial Advisor

One in three working adults and retirees currently consult a professional financial advisor, according to a 2022 retirement survey from the Employee Benefits Research Institute. Of those who don’t have an advisor today, nearly half said they intend to work with an advisor in the future.

The cue to hire a counselor is often a significant life event, such as a marriage or divorce. But there are also other prompts. These include increased financial complexity, lack of time or investment expertise, and even disagreement among household members over shared financial strategy.

Significant life events

Life events that change your financial situation or outlook include:

  • Wedding: Combining two sets of finances can get complicated. Messier can still be the process of setting shared financial goals.
  • Divorce: You may need help recasting your prospects with one income instead of two.
  • Become a parent: The kids change your household spending structure and add new financial goals, like paying for college.
  • Inherit money: You have lost a loved one and won a windfall. You might appreciate some outside advice on investing this bargain in this stressful time.
  • Assuming Caregiving Responsibilities for an Elderly Parent: Your income or expenses may change. You may need to reevaluate your retirement plan.
  • Start a business: Starting a business involves risk. You may need to balance this risk by becoming more conservative in other areas of your finances.
  • Selling a business: Selling a business redistributes your assets and likely changes your income. Both outcomes affect how you should manage money and investments in the future.
  • Starting a new job or getting a promotion: An increase in income unlocks more money to pursue your financial goals. You may need advice on how to invest this extra income effectively.

Note that financial advisors can provide one-off consultations, as well as ongoing advice. After a major life change, you may only need a short-term commitment. Typically, the result would be a financial plan that you could implement on your own.

For example, let’s say you just became eligible to contribute to your 401(k). You can choose a financial advisor to recommend initial investment choices suited to your age, risk tolerance and goals. Then it would be your job to activate those investment selections and monitor your performance.

More and more complex finances

Finances naturally get complicated over time, even without major life changes. You earn more, invest in your 401(k), contribute to an HSA, buy life insurance, etc. One day you may start to doubt your ability to handle it all.

Financial advisors are particularly helpful in this scenario. The good ones will take a holistic view of your assets and identify strategies to maximize your returns on investment, reduce your risk, or both.

Lack of time or expertise

Managing your money and your investment portfolio can be like a second job, a second job you may not want. If you don’t have the time to research and monitor your portfolio, you can hire an advisor to do it for you. Your advisor does the tedious work and you get involved when making a decision.

Likewise, you might not feel comfortable making investment decisions. After all, investing is a confusing topic. A good advisor can support sound decision-making and help you learn about best money management practices.

Family conflict over strategy

Nearly three-quarters of married or cohabiting adults admit to financial stress in their relationship. That’s according to a recent survey by the American Institute of CPAs.

Money conflicts can prevent you and your partner from moving forward with a wealth plan. You could retain the services of a financial planner to iron out these conflicts with objective expert advice.

How much money do you need to hire a financial adviser?

It’s a common question: do you need a certain net worth to work with an advisor? Generally, no. Some advisors apply net worth thresholds, but many do not.

That said, it probably doesn’t make sense to hire an advisor if you’re living paycheck to paycheck. But if you have $100 a month or $10,000 a month to meet your financial goals, you might benefit from professional advice. This advice could be a one-time consultation to define an investment strategy or it could be an ongoing relationship.

Advantages and disadvantages of working with a financial planner

There are clear benefits to working with a finance professional:

  • Your advisor saves you time. They can research investment options and monitor your investment performance so you don’t have to.
  • Your advisor is an expert. Depending on your investment expertise, you may see better investment results working with an advisor than managing your money yourself.
  • Your advisor can prevent you from making costly and emotional decisions. Emotion can be an investor’s worst enemy. Placing an advisor between you and your money can create the space you need to remain patient when the market turns volatile.

There are also downsides, including:

  • Advisors charge for their services. Some advisors charge commissions when you buy investments and others charge annual fees. In all cases, advisory fees reduce the net return on your investments.
  • Not all advisers are good advisers. Choosing the right financial advisor can be a process. Try starting with our Wealth Management Advisor Directory to find a financial advisor in your area. Interview several candidates and check their references. The best candidate is one who is financially savvy, of course, but also personable and trustworthy.

Big financial goals but no plan

Here’s what it’s all about: If you have money to invest, financial goals to pursue, but no definitive plan, it may be time to hire an advisor. The voucher can reduce financial stress, streamline your decision-making, and guide you to a richer future.

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