Do I Need a Financial Advisor?

Key takeaways

• Financial advisors can help you reach your financial goals through services like investing, retirement planning, debt management, tax planning, insurance guidance, and estate planning.

• You might benefit from a financial advisor during major life changes, when you start investing, or when your finances become too complex to manage on your own.

• Advisors typically charge flat, percentage-based, or commission-based fees, so ask about costs upfront.

• Choose an  advisor who acts as a fiduciary, meaning they’re legally required to put your interests first. Many robo-advisors are registered investment advisers held to this standard and may cost less.

A financial advisor is a professional who can help you move toward your financial goals. Whether or not you need a financial advisor depends on your situation. Below, we'll cover what financial advisors do, how much they cost, and how to choose the right one.

What does a financial advisor do?

A financial advisor helps you manage your money and build strategies to reach your financial goals. They can support many parts 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 investments based on your risk tolerance.

• Debt management: If you need support managing, reducing, or consolidating debt, an advisor can share 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 retirement accounts that fit your profile.

• Tax planning: Financial advisors may help prepare your taxes and develop tax-efficient strategies to reduce your tax liabilities 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 asset transfers and minimize estate taxes.

Signs you might need a financial advisor

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 can help build wealth over time and help you reach long-term goals, but it can feel overwhelming without the right knowledge. A financial advisor can help if you're ready to start investing but don't know where to begin.

If you already have an investment portfolio, an advisor can help you diversify to reduce risk. For example, if your portfolio leans heavily on riskier industries, they can rebalance it to lower the chance of major losses. Diversification doesn’t ensure a profit or protect against loss.

Complex finances

Your finances might need professional help when you're juggling multiple income streams, running a business, co-managing money, or dealing with complex tax issues. An advisor can create a plan designed to help manage taxes and risk, and work toward your goals.

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 to take and help keep you on track to reach these milestones.

Pros and cons of hiring a financial advisor

Like any financial decision, hiring a financial advisor has both benefits and drawbacks. 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.

How much does a financial advisor cost?

Financial advisor fees can vary, but they typically fall into a few main categories. Knowing what to expect can help you budget accordingly.

• Flat-fee advisors charge a flat fee for financial planning, either one-time or annual. A one-time comprehensive plan typically costs around $3,000.

• Assets Under Management (AUM) advisors charge a percentage for managing your investments. You'll typically pay around 1% per year, generally ranging from 0.5% to 2%, with lower rates for larger balances.

• Hourly-rate advisors are a good fit if you don't need ongoing services. Expect to pay between $200 and $400 per hour.

• 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%.

Chime Invest^™ builds this kind of automated investing right into the Chime^® app, and eligible members can start with as little as $1. (see disclosure 1) ¹ You can choose Managed Portfolios that fit your goals, timeline, and risk tolerance, or pick individual U.S. stocks and ETFs yourself.

How to choose the right financial advisor

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

1. Clarify your financial needs and goals

Start your search by identifying your financial objectives. Here are some considerations to help you narrow it down:

• Financial goals: Define your short-term and long-term goals, whether that's retirement planning, debt reduction, or wealth accumulation.

• Risk tolerance: If you're hiring an advisor for investment advice, determine your risk level beforehand, since different advisors may cater to different risk profiles.

• Budget and fees: Decide how much you can pay for advice and whether you prefer fee-only or fee-based advisors.

• Complexity: Consider how complicated your finances are, including multiple income streams, business ownership, or intricate tax filings.

• Communication style: Decide whether you prefer regular in-person meetings, phone calls, or virtual video-based support.

Once you know your goals and preferences, you can start your search for an advisor who can provide the 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. Look for one who operates under a fiduciary duty, meaning the law obligates them 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 your best interest.

• 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 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 so you understand the commitment period and how to exit if necessary.

• Reporting and communication: Clarify how often you'll receive updates and reports on your financial progress.

• Client responsibility: Understand any actions your financial advisor expects you to take to 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.

Financial advisor vs. financial planner

You'll often hear these two titles used interchangeably. They overlap, but they differ in scope.

• Financial advisor: A broad term for professionals who can guide areas like investments, insurance, or taxes.

• Financial planner: Someone who takes a holistic view and builds a comprehensive plan, often holding a Certified Financial Planner, or CFP, designation.

Here's the part that trips people up. Neither title is regulated on its own. So a person's credentials and fiduciary status can matter more than the label they use.

Start with what you want to achieve. Your goals can point you toward the kind of help that fits your situation.

Do I really need a financial advisor?

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 finances are straightforward and you can manage them effectively. Calling in a professional may be a smart move if your finances are complex or too difficult to handle on your own.

Making the financial advisor decision

Before hiring a financial advisor, take the time to evaluate your goals, understand your financial abilities, and consider how you could benefit from professional help. 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.

If you decide to manage your finances on your own for now, start with tools that can help you organize everyday spending, build savings, and work toward your financial goals. Chime is a financial technology company that offers online checking and savings accounts through its partner banks. These accounts can support the day-to-day foundation of a financial plan, but they don’t replace personalized advice from a qualified financial, tax, or legal professional.