You've read all the books and watched all the Youtube videos but you still don't know where to start. We get it. 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?
Maybe you're in a bit of a financial fix. 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 money advisors. You'll learn about the different types of advisors, what they do and when you might need them.
Do I need a financial advisor and what do they do?
A financial advisor guides clients on what to do with their money and how to meet their long-term goals. To offer this, advisors must complete specific training and hold professional licenses.
Are financial advisors the same as investment advisors or business advisors?
Financial advisors wear many hats and they may specialize in different areas. Some may call themselves money advisors or investment advisors, while others may be business advisors. But, the main aim of each advisor is to provide financial planning services that help you set and meet your financial goals.
Advisors also support clients with guidance on investments and retirement funds. 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 taxes, insurance policies, and investments.
Types of financial advisors
So, do you need a financial advisor? To help you decide, let's look at the two main types of advisors: robo-advisors and human 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. This makes robo-advisors highly accessible to everyone.
Human advisors (in-person or online)
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.
Human advisors are great if you want to develop a long-term relationship with them and they're also available for you to ask questions directly. But as the nature of using a human advisor is more personal, you'll want to work with a professional you can trust.
What type of financial advisory services do they offer?
A financial advisor serves many purposes. But their primary goal is to help you plan for your future.
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.
Some advisors charge a flat fee. This can range anywhere from $2,000 - $8,000 a year. With this, you will get a personalized financial plan built to suit your and your family's needs. You also get hands-on help with implementing the plan. This can be useful because having a plan is one thing, but putting it into action can be a different battle.
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.
This fee is typically about 1%. Note that a lot of advisors will use this fee structure if your minimum investment is over $250,000. But the percentage you pay may drop the higher your investment.
Lastly, in-person advisors may offer an hourly rate that can range anywhere from $200 - $400 per hour. This type of package gives you immediate access to a personalized financial plan. You can expect this to include steps to implement.
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 0.30% to 0.89%.
There is typically no requirement for large amounts of money to open such an account.
Online financial advisors include platforms like Betterment and Wealthfront. These give you access to a personal financial plan and ongoing investment guidance.
When do you need a financial advisor?
In an ideal world, you'll always have access to one. However, realistically, hiring a financial advisor can be costly. So, when should you get a financial advisor?
There are some life situations when you should definitely seek professional guidance. These include the following:
When 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 in 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 working intentionally on your finances, it can be overwhelming. You'll learn about the stock market, bonds, budgeting, retirement planning, and saving. The list is endless. So, a financial advisor can help un-muddy the waters for you.
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.
When 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 divorce or bereavement.
In cases like these, outside counsel can help you navigate money worries and situations. These can include complex family matters, multiple financial accounts, or managing cash flow from multiple sources of income.
When you don't need a financial advisor
There are also instances where you may not need a financial advisor:
You've automated your finances
Have you automated 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. This 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.
What to look for in a personal or business financial advisor
If you are ready to seek out a personal or business financial advisor, here are some key considerations to keep in mind.
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 will also 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.
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.
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 investment 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, training, experience, and ethics - to receive this designation.
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 finances, this matters even more as this could impact your entire future.
As you search for a personal or business 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.
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.
What's their investment philosophy?
If you have strong opinions on the impact of your investments, then make sure you choose an investment advisor who aligns with your values.
For example, if you prefer to invest ethically, then ensure your advisor is able to choose investments that will use your dollars positively.
Do I need a financial advisor who's local?
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 investment 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 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 comparable to independent advisors. Another benefit is some advisors offer more than investment advice. They can help with life insurance and business planning as well.
Do you need a financial advisor? Leverage these tips to decide!
If you feel stuck and aren't sure which way to go, hiring 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.
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.