Do I Need a Financial Advisor?

Smart decision-making is crucial if you want to realize your goals. However, it’s tough to know if we’re making the right choices when it comes to money, especially with tasks like investing, planning for retirement, and taxes. Hiring a financial advisor can help take the pressure off of your shoulders and ensure you’re being decisive.

While hiring a professional is useful in many ways, it can also be expensive. For this reason, you may be asking yourself “Do I really need a financial advisor?” In this article, we aim to answer this question for you. We’ll look at what these experts do, how to assess your situation, and when you should consider hiring one.

What Financial Advisors Do

Financial advisors are experts that assist clients with their short- and long-term goals. Technically, this can be any professional who assists one with their money. Legitimate ones should be highly educated and have a wealth of experience that they can use to serve you.

Typically, they offer a wide range of services for their clients. However, one may offer a more specific area of expertise. Examples of common services that advisors offer include:

• Developing a comprehensive plan for your money that fits your goals.
• Investment and portfolio management 
• Planning for milestones, such as retirement, children’s education, buying a house, etc.
• Tax planning

After you hire a financial advisor, they’ll have in-depth conversations with you about what you want your money to accomplish for you. Then, they’ll help you come up with a detailed plan, which they’ll then work with you to put into action.

Ethics

Most financial advisors uphold a fiduciary duty, which is a standard of ethics that requires them to put your needs first at all times. However, be aware that some professionals don’t follow this rule. Commission-based advisors and broker-dealers must typically adhere to the suitability standard, which only requires a professional to recommend products or investments that are “suitable” for a client.

Benefits

Often, we’re in the dark about what the right choices are for our money. When you hire an advisor, they’ll be able to help illuminate a clear path toward your goals. They can do this by working alongside you to create a comprehensive plan and helping pick shrewd investments.

Without a professional by your side, it’ll be up to you to manage your money. For many, this is a tall order, especially with the more assets you have. If you’re uncomfortable with your finances being left up to you, it may benefit you to hire an expert.

Assessing Your Finances

Before you decide whether hiring an advisor is right for you, you need to assess your financial situation. When you do so, don’t just think in the short-term, but in the long-term as well. Here are key aspects of your situation that you should evaluate:

Your Short- and Long-Term Goals

It’s important that you think about your financial goals. That is, where do you want your money to take you in the next two, five, or even 10 years? You may also have specific milestones or purchases you want to make, such as:

• Buying a home
• College tuition for your kids
• Planning for retirement
• Starting a business

Whatever your goals may be, you should carefully consider them when you assess your finances. Doing so can also help you decide whether an expert’s touch is a necessity for you to meet your objectives.

The Complexity of Your Situation

Everyone’s finances require varying amounts of effort or expertise to manage. It’s a good idea to gauge how difficult it will be for you (or an expert) to manage your money. For instance, someone with one source of income likely has a much simpler situation than, say, a person with several businesses and tax implications to deal with.

Understanding how complex (or simple) your situation is can also help you identify what type of professional you need. If you don’t have a ton of money and you need to come up with a plan for your future, a CFP may be ideal. On the other hand, a high-net-worth individual may need a wealth manager.

How Much Time and Expertise You Have

At times, managing your finances can be extremely time-consuming. And it can require expertise that you simply don’t have. It’s wise to think about how much time you can commit to your money. If you can’t feasibly manage your situation due to time constraints or lack of knowledge, an advisor can be invaluable.

Risk Tolerance

With investing, the decisions you make often come down to your risk tolerance. Without much knowledge or research, you may not be comfortable pursuing specific opportunities. A financial advisor can help you identify investments with your risk tolerance in mind. This way, you can feel better about how you’re building your portfolio.

When to Consider a Financial Advisor

Deciding when to see a financial advisor depends on various factors, such as life events or the complexity of your situation. After you have a holistic assessment of your current situation, you can begin to decide whether an expert is the way to go. If you fit into one or more of the below categories, it may be wise to hire someone to help with your money:

1. You Have Complex Finances

Having complex or hard to manage finances is a good reason to hire an advisor. There are many reasons why this may be the case for you, including:

• Having a high net worth
• Multiple income sources
• A highly diversified investment portfolio
• Intricate taxes

2. Retirement Planning

Planning for your retirement isn’t always a walk in the park. A financial advisor can help you ensure you have enough money or income at that time. They can do this by utilizing specific investment strategies, maximizing your savings, and ensuring you have the appropriate accounts in place.

3. Major Life Events

In life, major events can occur, shaking our financial foundation. Getting married, having kids, and starting a business are all examples of such a change. With an advisor, you can get help making sure you’re still on track toward realizing your goals.

4. Windfalls and Inheritances

Receiving a large amount of money all at once is exciting and, often, super stressful. Poor handling of such a lump sum could cause you to lose some or all of it. Hiring a professional to help manage your newfound wealth enables you to conserve or even grow it.

5. Goals or Benchmarks

Setting financial goals is important. Whether it’s buying a house, affording your child’s college tuition, or even going on a family vacation, an advisor can help put a plan in place for you to reach your objectives.

6. You Need Help with Investing

Investing is a great way to build wealth. But it can also be a complicated affair. If you’re ill-informed, it might be hard to know where to start. A financial expert can help guide you toward wise investment opportunities, while also keeping your risk tolerance in mind.

Do It Yourself (DIY) Finance: Pros and Cons

Advisors are a helpful resource, but they’re certainly not cheap. With this in mind, it may be tempting to handle your money on your own. However, this comes with some serious downsides, especially if you’re not well-equipped to do so. Below is a snapshot of the pros and cons of DIY finance:

Pros:

• You save money in the short term by not hiring a professional.
• May be smart for new investors. If you’re just getting started and have minimal assets, then hiring an expert may not be worth the cost.
• You avoid the risk of bad advisors. Some experts don’t have your best interest at heart. Going solo with your finances helps you avoid mal-intentioned people that may do more harm than good.

Cons:

• Substantial time commitment. Without a seasoned pro in your corner, you’ll have to spend a lot of your own time researching, planning, and growing your portfolio.
• Hard to know what’s right. An expert works with you to pick the right strategy for your money. Without one, you may be unsure of what the wisest decisions or investments are, especially if you don’t have a ton of experience.
• Mistakes are more likely to occur when you don’t have a second pair of eyes on your side. Lack of diversification, the wrong investments, and not planning far enough in the future are all examples of missteps one can make with their finances. Hiring an advisor is one way you can eliminate mistakes.

At the end of the day, choosing a DIY strategy may be right if you have simple needs or goals, but it can also add a ton of stress to your life. If your finances are complex or you don’t feel comfortable managing everything yourself, hiring an advisor is likely the right call.

Selecting the Ideal Advisor

Once you’ve decided to hire a professional, you’ll need to select the type that’s right for you. What you choose will depend on your goals and immediate needs. Here’s a list of the most common types of financial advisors:

• Financial planners. These professionals assist with developing a plan for your short- and long-term goals. This includes tasks like retirement planning, estate planning, risk management, investment management, and more. You may often see certified financial planners (CFPs), which are experts verified by the CFP board.
• Registered investment advisors (RIAs) and investment advisor representatives (IARs). Firm who give investment advice for compensation must register with the SEC as an RIA. Any professionals who assist clients on behalf of the firm are recognized as an IAR.
• Wealth managers help high-net-worth individuals conserve, protect, or grow their assets. Typically, you need a minimum of $2M to work with one. However, this amount may vary depending on the firm or person you choose to hire.
• Robo-advisors are digital platforms that use algorithms and statistics to help build your portfolio. They’re ideal for new investors because of their low price and minimum investment.
• Broker-dealers. Firms that help you buy and sell securities for a commission are broker-dealers. Professionals that work for them are typically not fiduciaries but must follow FINRA’s suitability standard. This is where they may only recommend products or investments that are “suitable” for their client, rather than beneficial.

If you need help finding a qualified advisor in your area, we recommend using a free matching tool. After filling out a short quiz to get an idea of your goals and needs, it’ll present you with a vetted expert near you.

Frequently Asked Questions

Do I need financial advice after retirement?

This depends on your goals. Even after retirement, you may want to grow your wealth or minimize risk. You may also need to plan your estate if you haven’t done so already. Hiring an advisor is a great way to fulfill those goals. 

Do I need a financial expert to manage my IRA?

You don’t need an expert to do this, but it’s not a bad idea to hire one. An advisor can help you make smart investments that prepare you for retirement. Without one, you’ll need to take the reins and self-manage your portfolio. This means spending time doing research, identifying opportunities, and mitigating risk.  

Are financial advisors necessary to invest?

No, they’re not. At any time, you can open up an investment account and start building your portfolio. But you may not be comfortable doing so. Hiring an advisor helps you know you’re doing everything the right way.

Why shouldn’t I hire a finance professional?

The most glaring disadvantage to hiring a professional is the cost. Financial advisors can cost hundreds per hour or thousands per project. Some may even take a percentage of your assets under management (AUM), which adds up substantially.

What percentage of millionaires work with a financial advisor?

Per CNBC, 70% of millionaires in 2022 worked with a financial advisor. And, in younger generations, the number is even higher, with 90% of millennial millionaires having one. Of course, you don’t need to hire a professional to become a millionaire; however, a trend such as this suggests that people of such net worth may feel more comfortable when an expert’s working with them.