Do I Need a Financial Advisor?

A financial advisor is a professional who assists people with creating long-term strategies to achieve their financial goals. These professionals can help you with services like planning for retirement, coming up with a life insurance plan, or managing your investment portfolio.

Most financial advisors will have credentials or designations depending on their profession— some are more rigorous than others.

For instance, the most well-known is the Certified Financial Planner (CFP) designation. Created by the Certified Financial Planner Board of Standards (CFP Board)¹ in the United States, only those who pass a rigorous exam and agree to abide by certain ethics and standards can be certified. CFP professionals also need to meet continuing education requirements in order to maintain their certification.

Some other credentials and designations include the Chartered Financial Analyst (CFA), and Chartered Financial Consultant (ChFC). Investment professionals get the CFA designation to work in the investment industry. A ChFC works with clients on most aspects of financial planning, like tax, retirement, and wealth management needs.

Financial advisors can help with various aspects of your financial life, including:

• Checking your financials, budget, and investments to ensure you’re on the right track as you’re nearing retirement
• Making financial plans and decisions as a single person, whether you’re divorced, widowed, or got out of a long-term relationship
• Helping sort out complex taxes
• Teaching you how to merge or manage your finances as a newly married couple
• Offering guidance on how you can help your elderly parents manage their finances, especially if health issues prevent them from doing so
• Giving you a second opinion on a plan another financial advisor gave you
• Reviewing your DIY investment portfolio
• Advising on what to do with a financial windfall, like a recent inheritance
• Going over life insurance options with you, and helping you purchase one
• Helping you learn about different options to invest for your child’s college education or other major purchase, like buying a house

In general, it’s best to hire a financial advisor when a financial situation feels too complex to navigate. There are also several scenarios when it may be a smart idea. The following are some questions to consider when you’re wondering when to hire a financial advisor.

Am I close to retiring?

If you’re within a few years of retirement, it may be time to seek the advice of a financial advisor. Managing an investment portfolio in retirement tends to be different from when you are working.

Since you’re going to be taking distributions (making withdrawals) from these accounts, you’ll want to make sure your portfolio has the right balance of risk and return for you.

Working with a financial advisor could mean looking at various portfolio scenarios and coming up with a realistic plan on how to proceed. That way, you can increase your chances of earning a steady stream of returns from your portfolio while safeguarding the money you’ve already invested.

Is my tax situation complicated?

For most people, using DIY solutions like tax software may be enough. However, there may be some situations where it may require more guidance, like if:

• you recently purchased a small business
• you received an inheritance
• you need to file taxes for a relative that passed away
• you worked overseas for part of the year
• you want to lower your taxable income

A financial advisor can offer services like showing you other ways to invest beyond your employer-sponsored plan, or looking over your tax paperwork and referring you to the right tax professional as needed.

Did I go through a major life transition?

Life events like marriage, divorce, or having children can affect your finances, whether that’s changing your budgeting strategy, or updating your retirement accounts.

Other major changes include getting a large inheritance or finding out that you’ll most likely need to help manage your elderly parent’s finances. Both may require some professional guidance, especially if you feel too overwhelmed or tend to make decisions based on emotion.

Do I need help diversifying my portfolio?

Diversifying your investment portfolio can help avoid volatility and prevent your investments from fluctuating too much.

Working with a financial advisor can help you align your current portfolio with your goals. For example, if your portfolio is heavy on industries that are riskier, and your goal is to have more stability, your financial advisor can help move some investments so that your portfolio is at less risk of major dips.

If you decide to work with a financial advisor, look for someone who has the expertise you are looking for.

Consider working with a fiduciary.^³ These professionals are legally required to look out for your best interest and not theirs. If this person were to suggest investment securities, they should align with your goals and not give the financial advisor the largest commission.

You can also consider looking for someone who specializes in the type of help you need. Some financial advisors work with couples or people who have elderly parents. Some help with more complicated situations, like running your own business or working overseas.

Also, think about whether you want to meet with a financial advisor face-to-face or online. You may want to interview a few before deciding on the right fit. Many financial advisors usually have a free consultation session where you can ask questions to help you make your decision.

The fees you’ll pay will depend on a few factors, like the types of services you want and whether you want a one-off meeting or long-term assistance. Some may set a flat fee depending on the service, some by the hour, and some may get paid through commissions for products they sell you. Or, you may be charged a percentage of the value of your investments annually.

As pricing can fluctuate, it’s best to first determine what kind of advice you’re looking for, and the type of professional relationship you want. When interviewing a few financial advisors, make sure to ask for their pricing structure to see if you can afford the costs.

Some pros of hiring a financial advisor include:

• Helping you remove the emotions of making financial decisions
• Relying on years of professional expertise
• Saving you time and money, especially when putting together a plan for complex financial situations

Some cons of working with a financial advisor include:

• Paying your financial advisor for investment products that have potentially high fees
• Working with a professional that isn’t the right fit
• Following advice from a professional that ends up costing you more

There are benefits to both going the DIY route and working with a financial advisor. Even if you have a fairly solid plan, it may make sense to seek professional advice. When you feel like you need help navigating a financial situation, consider hiring a financial advisor.

Are you trying to improve your financial habits? Figure out how much you should save each month.