Do I Need a Financial Advisor?

A financial advisor helps you manage your money and build strategies to help you reach your financial goals. They can help with various aspects of your financial life, including:

• Investing and portfolio management: This includes creating an investment strategy that aligns with your goals and timeline, and helping you choose the right investments based on your risk tolerance.
• Debt management: If you need support managing, reducing, or consolidating debt, an advisor can provide strategies to help you pay down loans or other debts efficiently.
• Retirement planning: A financial advisor can help you estimate your retirement needs, create savings strategies, and recommend the best retirement accounts for your profile.
• Tax planning: Financial advisors may help prepare your taxes and develop tax-efficient strategies to reduce your tax liabilities, potentially saving you money on taxes over time.
• Insurance guidance: Financial advisors can often assess your life insurance needs and recommend policies that are right for you.
• Estate planning: Some advisors can help you create a well-structured estate plan, including wills and trusts, to streamline the transfer of assets and minimize estate taxes.

If your financial situation feels too complex to navigate on your own, hiring a professional might be the best solution. Consider the following scenarios if you’re wondering when to hire a financial advisor.

Significant life changes

Certain life events can create financial complexity. The following situations may call for professional financial advice:

• Marriage: Combining finances, updating beneficiaries, and planning for a future together
• Divorce: Splitting assets, adjusting budgets, and rebuilding financial independence
• Having kids: Planning for education costs, updating insurance, and adjusting long-term goals
• Receiving an inheritance: Managing a lump sum, minimizing taxes, understanding inherited debt, and investing wisely
• Starting or selling a business: Handling complex taxes, retirement planning, and cash flow management

Setting up or managing your first investment portfolio

Investing builds wealth and helps you reach long-term goals, but it can feel overwhelming without proper knowledge. A financial advisor can help if you’re ready to start investing but don’t know where to start.

If you already have an investment portfolio, an advisor can help you diversify to reduce risk. For example, if your portfolio is heavy on riskier industries, they can rebalance it to decrease the likelihood of major losses.

Complex finances

Your finances might need professional help when you’re juggling multiple income streams, running a business, co-managing finances, or dealing with complex tax issues. An advisor can create a custom plan that reduces your tax burden, manages risk, and helps grow your wealth.

Specific financial goals

Major goals like buying a home, retiring early, or starting a business need structured planning. An advisor can map out the steps you need to take and keep you on track to reach these milestones.

Like any financial decision, hiring a financial advisor has both benefits and drawbacks. Here are the main advantages:

When deciding whether to hire a financial advisor, weigh these pros and cons to determine whether their services align with your financial needs and goals.

Financial advisor fees can vary, but they typically fall into three main categories. It helps to know what to expect so you can budget accordingly.

• Fee-only advisors charge a flat fee for financial planning. The fee can be one-time or annual, depending on whether you need ongoing advice. This type of advisor typically charges between $1,000 and $7,500.
• Some advisors charge Assets Under Management (AUM) fees for managing your investments. You’ll typically pay a percentage – between 0.5% and 2% per year – of the amount they manage. Generally, the more assets your financial advisor manages, the lower your percentage.
• If you don’t need ongoing services, look for a financial advisor who charges hourly rates. Expect to pay between $150 and $300 per hour for these services.
• Commission-based advisors earn money primarily through commissions when you buy financial products like insurance or mutual funds.

If you’re working with a smaller budget, consider a robo-advisor. They typically charge a monthly or annual subscription fee or a percentage of your managed assets. The median cost of a robo-advisor is 0.25%. Always ask about fees upfront so there are no surprises later.

Hiring a financial advisor can feel overwhelming, but we’ll guide you through the essential steps of choosing the right one. To make the best choice, consider the type of expert that best aligns with your financial needs and goals.

1. Clarify your financial needs and goals

Start your search for a financial advisor by identifying your financial objectives and goals. Here are some considerations to help you narrow your search:

• Financial goals: Define your short-term and long-term financial goals, whether those are retirement planning, debt reduction, wealth accumulation, or something else.
• Risk tolerance: If you’re hiring a financial advisor for investment advice, determine your risk level beforehand, as different advisors may cater to different risk profiles.
• Budget and fees: Decide how much you can pay for financial advice and whether you prefer fee-only or fee-based advisors.
• Complexity: Consider how complicated your financial situation is, including multiple income streams, business ownership, or intricate tax filings.
• Communication style: Do you prefer regular in-person meetings, phone calls, or virtual video-based support

Once you know your personal goals and preferences, you can start your search for an advisor who can provide the financial support you need.

2. Determine the type of financial advisor you need

There are many types of financial advisors, and the type you choose will depend on your goals. Regardless, look for one who operates under a fiduciary duty, meaning they are legally obligated to put your best interests first.

Here are the main types of financial advisors and what makes each one different:

3. Prepare your questions to ask a financial advisor

Ask these questions to vet potential advisors:

• Are you a fiduciary? This confirms they’re legally required to act in a way that benefits you financially.
• What are your qualifications? Look for credentials such as CFP, Chartered Financial Analyst (CFA), or Certified Public Accountant (CPA) that show expertise and ethical standards.
• How do you get paid? Fee-only advisors don’t earn commissions on products, making them more transparent.
• What’s your investment philosophy? Make sure their approach matches your risk tolerance and goals.
• What services do you offer? Confirm they provide the specific help you need, whether that’s retirement planning, tax strategy, or investment management.

Asking these questions will help you understand the financial advisor’s expertise, ethics, and whether they’re a match for you.

4. Review the agreement before committing

Review the agreement carefully before you sign. Here’s what to check:

• Services and scope: Make sure you clearly understand the advisor’s services and the scope of their responsibilities.
• Compensation: Review the fee structure and payment terms. Look for potential conflicts of interest, such as commissions on product sales.
• Duration: Check the agreement’s duration or termination clauses to understand the commitment period, terms, and how you can exit the agreement if necessary.
• Reporting and communication: Clarify how often you’ll receive updates and reports on your financial progress and how they’ll share this information with you.
• Client responsibility: Understand any responsibilities or actions they expect from you to help you get the most out of the partnership.

Take your time reading the agreement, don’t hesitate to ask questions or suggest changes, and keep a copy for your records.

There’s no one-size-fits-all answer – the decision depends on your personal goals, the complexity of your financial situation, and how comfortable you are making financial decisions.

You may benefit from a DIY approach if your financial situation is straightforward and you can manage it effectively. However, calling in a professional may be a smart move if your finances are complex or too difficult to manage on your own.

Before hiring a financial advisor, take the time to evaluate your goals, understand your financial abilities, and consider how you could benefit from professional assistance. That way, you’ll make an informed choice that empowers you to take control of your financial future – whether you opt for a DIY approach or hire a professional.

Read more about creating a financial plan as you consider hiring a financial advisor.