You’ve read all the books and watched all the Youtube videos but you still don’t know where to start. Sometimes, when it comes to your personal finances, it can be hard to apply generic advice. And that’s probably why you’re asking the question: do I need a financial advisor?
Financial advisors are financial professionals that guide clients, using their expertise, on what to do with their money and how to meet their long-term goals. To offer this, many advisors complete specific training and hold professional certifications.
Maybe you’re in a bit of a financial fix or have bad money habits. Or perhaps things have been going really well, and you want your money to work a little harder for you.
Either way, this article will take a deep dive into what it takes to work with financial advisors. You’ll learn about the different types of advisors, what they do, and when you might need them.
Is it really necessary to have a financial advisor? How to know
Hiring a financial advisor can be costly. So let’s first answer the question, “Do I need a financial advisor?”.
There are some life situations when you should definitely seek professional guidance. These include the following:
You can’t figure out your personal finances on your own
For some people, managing money is more than a chore. You might fall into this category if you’re already asking the question do I need a financial advisor? And that’s OK.
We all have activities where we shine and others not so much. Some people love cooking, doing dishes, or creating art. Others love managing money.
If you don’t fall into this last bucket, you’re one of many, and hiring a financial advisor is probably a wise move.
When you’re just starting out on your personal finance journey
If you’re new to understanding how to set intentions for your finances, it can be overwhelming. You can learn about the stock market, bonds, budgeting, retirement planning, and saving. The list is endless. So, financial advisors do help un-muddy the waters for you.
When should you get a financial advisor? It is often a good idea to seek professional financial advice as a beginner. Remember, though, that it can cost you hundreds of dollars and more.
With access to information online, it is advisable to do your own financial research first. If you’re still stumped, then you can take the leap and hire an expert.
You have complex financial considerations
If your finances aren’t straightforward, when should you get a financial advisor? Perhaps you’re dealing with major life changes, such as finding out how to prepare for divorce or bereavement.
In cases like these, outside counsel can help you navigate money worries and major life events. These can include complex family matters, multiple financial accounts, or managing cash flow from multiple sources of income.
At any time in your life, whether you’re in your 30s, 40s, or beyond, you may have a major life change, and your finances could look different. It could be anything from a large pay raise to a new baby to sudden monthly expenses.
A financial advisor can coach you on what steps to take next, regardless of what is happening with your circumstances.
When you receive a lump sum of money (such as an inheritance)
If you’ve acquired a large amount of money and you aren’t sure what steps to take, a financial advisor can be helpful. They can guide you on savings and investment decisions and help you decide on some goals for the money.
That way, you can be sure that your finances are being handled correctly, the way that you want, and make a plan so you don’t spend the money without thinking.
When don’t you need a financial advisor?
All money priorities and circumstances are unique. There are instances where you may not need a financial advisor:
You’ve automated your finances
Have you decided to automate your finances so you’re hitting your savings and investment goals? It sounds like you’re already in good shape.
Many people in this bucket have set up a simple investment plan. It will automatically rebalance with little to no need for making adjustments. Here’s an example of a financial plan to ensure you are on track.
You’re looking for tax help
Tax help should not be confused with financial advisory help. While they both deal with your money, the professionals involved are completely different.
A Certified Public Accountant (CPA) is best equipped to support all your tax needs. A CPA who is also passionate about financial planning will be able to touch on your bigger financial picture while homing in on your taxes.
So if you need to make a tax plan, these professionals will be more helpful.
Expert tip
A financial advisor should help guide you in the right direction with your money. Working with one can be a good idea in some cases.
But be sure that you are making the best financial decisions for you at all times, not just following advice. Take time to think things through and make smart choices, whether you work with a financial advisor or not.
Types of financial advisors
So, do you need a financial advisor? To help you decide, let’s look at the different types of advisors for your money.
Robo advisors
A robo-advisor is also known as a digital money advisor. They provide advice based on complex algorithms linked to your personal profile.
A robo-advisor can make automatic investments for clients, and this is great if you have a simple portfolio. But be aware there’s zero human supervision in the process.
Robo-advisors work best for passive investing. And the great news is you only need a small opening balance to get started. It makes robo-advisors highly accessible to everyone.
For a more hands-on approach, hiring a human financial advisor is in your best interests. This person will become your go-to financial resource.
As you might expect, though, the hands-on approach comes at an expense.
Financial planner (CFP)
A financial planner will help you reach your money goals and also works with you on your current finances.
A CFP stands for Certified Financial Planner (Certified by the CFP board), which is what you should look for if you decide to go this route. This person must pass an exam and complete coursework related to financial planning, and they are also a fiduciary, meaning they put the client’s best interest and financial needs first.
Wealth manager
A wealth manager can advise you about your money, and they typically work with wealthy people with high net worth. They focus on investing, estate planning, and other aspects of wealth.
If you have a large amount of money or are trying to grow your wealth, consider this option.
Registered representative
A registered representative may also be a financial advisor, and they are able to purchase and sell securities for the clients they represent. You can rest assured that they have the knowledge to help you, as they are required to pass extensive tests.
Registered investment advisor
A registered investment advisor can offer you guidance about your money. It can be either a person or a company, and they offer help with your investing options.
A registered investment advisor is also held to specific fiduciary standards, which may give you some peace of mind. This is not a requirement for some other types of advisors.
What type of advisory services do financial advisors offer?
A financial advisor serves many purposes. But their primary goal is to help you plan for your future.
They offer guidance on how to save money, what financial accounts you should open, or how to build an investment portfolio if you want to know how to start investing properly. They also advise on how to think through risk, buy a home, and plan your estate (find out more with this estate planning checklist).
How much does a financial advisor cost?
Your financial advisor will use a fee model. The options are usually a flat fee, an hourly rate, or a percentage-based fee.
However, the fee you pay will also depend on whether your advisor operates in-person or online. As you might expect, in-person financial advisors tend to be more expensive.
In-person financial advisors’ fees
When working with an in-person financial advisor, you’ll come across different payment options. Here are some common ones.
Flat fee
Some advisors charge a flat fee. It can range anywhere from $1,500-$3,000 to make your financial plan, to a much higher amount.
With this, you will get a personalized financial plan built to suit your and your family’s needs. It can be useful because having a plan can help you take action.
Percentage-based fee or fee-only
Some charge a percentage-based fee, which is a percentage of the amount you have invested.
An example would be a percentage of your assets under management. The percentage is typically about 1%.
Hourly fee
Lastly, in-person advisors may offer an hourly rate that can range anywhere from $200 – $400 per hour. But, with this type of package, you won’t receive any follow-up or support. You’ll be on your own to put the plan into action.
So, this works best when you are comfortable with handling your own finances. And you must have the discipline to follow through.
Online financial advisors’ fees
Online financial planning offers a lower fee structure. Fees are based on the assets under management, i.e. a percentage-based fee structure, and can range from 0.20% to 0.35%.
There is typically no requirement for large amounts of money to open such an account.
Online financial advisors include platforms like Betterment and also Wealthfront. These give you access to a personal financial plan and ongoing investment guidance.
What to look for in a financial advisor: 5 Question to ask
If you are ready to seek out a financial advisor, here are some key considerations to keep in mind.
1. What is their fee type?
Hiring a financial advisor can cost you hundreds, if not thousands, of dollars. So, it’s crucial to do a ton of research before you commit to a specific advisor. You’ll want to understand exactly how the fees will work for your financial situation.
Fees may differ by state and level of service. The key to remember is that the simpler your investment needs are, the less you’ll have to pay.
If you are just starting out and need basic investment management, then paying $1,000 for an advisor is a lot.
However, if you’re further along with more complex needs, that amount might make sense.
2. Do they have the right certifications and credentials?
Credentials matter. When you sign on with a new advisor, you’re trusting that person to help you build a secure financial future.
A financial advisor needs to have the right certifications and title, for instance, being a registered investment advisor. You should also look for someone who is a fiduciary.
So, the question, in this case, is not so much do I need a financial advisor, but rather do I need this financial advisor?! The right advisor will have successfully fulfilled the requirements of the Financial Industry Regulatory Authority (FINRA).
If you’re looking for a financial planner, you’ll want to work with someone who has a Certified Financial Planner (CFP) title. This will mean that the individual has successfully fulfilled the CFP Board’s requirements – education, exam, experience, and ethics – to receive this designation.
3. Do you work well with them?
When dealing with any advisor in life, a relationship built on trust matters. But when it comes to personal finance, this matters even more as this could impact your entire future.
As you search for a financial advisor, have as many live conversations with them as possible. Do your research and ensure you trust and can depend on the person fully.
Look for reviews, and if you can, ask for referrals. The more aligned you are in mission, values, and strategy with your advisor, the more rewarding it will be to work with them.
4. How does communication work?
If you’re hiring an in-person financial advisor, be clear on how much access to them you’ll have.
Will they be available to answer your phone calls or respond to your emails quickly? How frequently will you be able to meet face-to-face? Make sure these expectations are set before you sign with them.
5. What’s their investment philosophy?
If you have strong opinions on the impact of your investments, then make sure you choose a financial advisor who aligns with your values and understands your risk tolerance or how risk averse you are.
For example, if you prefer to invest ethically, then ensure your advisor is able to choose investments that will use your dollars positively.
Where can I find a financial advisor?
If you’d prefer to deal with an in-person financial advisor, in most cases it makes sense to choose someone local to you. If you’re looking for a reputable financial advisor in your area, check out the following ways to seek out a professional you can trust.
Via personal referral
Nothing beats the power of a referral, as it provides reassurance. You’ll know that someone you trust has received great value from working with the advisor.
In addition, it gives you first-hand proof that the advisor is reliable and has proven success.
But don’t stop there. A referral is only one piece of the puzzle. You’ll want to make sure the advisor provides 5-star treatment to everyone he/she encounters.
Be sure to do your research, and you can even check online for complaints filed to FINRA (the financial regulatory body).
From online reviews
The internet has opened up ways for us to ensure checks and balances are in place before signing up for services. The biggest way the internet helps is through reviews.
As you look at the profiles of financial advisors, look at their personal reviews as well as the reviews of the organizations they are affiliated with.
If you see any concerning feedback but are still particularly interested in working with the person, be sure to ask them about this when you’re interviewing them. You never want to blindly sign up with a money advisor.
At your local bank or financial institution
Work with your local bank or financial institution if you’re looking for a vetted financial advisor. This option will reassure you that you’re dealing with a reputable institution.
When you work with an advisor from your local bank, you’ll pay standard market rates similar to independent advisors. Another benefit is some advisors offer more than investment advice. They can also help with the importance of life insurance.
Are financial advisors the same as investment advisors?
Financial advisors wear many hats, and they may specialize in different areas. Some may call themselves investment advisors.
But, the main aim of each advisor is to provide financial planning services that help you set and meet your financial goals.
Financial advisors also support clients with guidance on investments and retirement accounts like your IRA. They’ll devise plans to support your specific requirements. For example, college savings, retirement savings, estate planning, inheritance, or business finances.
Your advisor may also educate you on insurance policies and investments.
Investment advisors, on the other hand, tend to specialize in securities.
Remember, anyone can say that they’re a financial advisor, but you want to look for someone who has the credentials and professional designations to prove they can really help you with your money.
How a financial planner is different from a financial advisor
Both a planner and an advisor can help you with your money. But they aren’t exactly the same.
A financial planner takes an interest in the financial goals you want to accomplish over many years and helps you set up a plan to get there.
On the other hand, an advisor can do this as well, but they may also help you with insurance, investments, etc. They may focus more on the investing aspect of wealth.
The main differences between the two are that a planner focuses on meeting your financial goals. An advisor is someone who can help you with this but also other aspects of your financial health.
Is it okay not to have a financial advisor?
Yes it’s ok not to have a financial advisor – not everyone needs one. If your finances are automated, or you already have a great money plan in place, a financial advisor may be an unnecessary expense.
While having an advisor can be helpful for some, especially those with complicated financial situations, it is by no means the right choice for everyone.
Is it better to have a financial advisor or do it yourself?
If your financial situation is easy to manage through automation and/or budgeting, you may be able to handle your money on your own. Especially if you understand financial literacy basics and investing.
On the other hand, if you have a large sum of money to deal with, or you’re trying to grow your wealth, and it seems complicated, you can benefit from the advice of a professional.
Do you need a financial advisor if you don’t have a lot of money?
It could benefit you to work with a financial advisor even if you don’t have a lot of money. You might have a lot of questions about money or are new to managing your finances and an advisor could help.
Then again, dealing with a smaller amount of money may be easier to manage by yourself. You may be able to handle your finances independently through a budget and basic investing skills.
What types of financial advisors should you avoid?
If your advisor is costing a lot of money that you don’t feel is worth it, or you have concerns that they aren’t putting your best interests first, you should avoid them.
You may also choose not to work with someone if something just feels off.
For example, if you notice any red flags like a lack of communication.
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Do you need a financial advisor? Leverage these tips to decide!
If you feel stuck and aren’t sure which way to go, knowing when should you get a financial advisor may not be a bad idea.
And if you’re just starting out in your financial journey and have been asking the question, “Do I need a financial advisor?” then the chances are that a professional may help to put your mind at ease and help you learn how to be better with money.
But as you gain more education and experience, you’ll gradually feel more confident to own the management of your finances. Remember, if you come across any bumps in the road, you can always return to your financial advisor for the latest advice to help you reach your money goals.
