Why You Should Hire a Financial Advisor

Point of Interest

Hiring a financial advisor can be a wise move for planning and investing, even if your financial picture is not complex or you’re not wealthy.

Making fiscally responsible decisions about what to do with your money now and having a plan for the future is important. Where the debate comes in is whether you should handle those choices all by yourself or enlist the help of a financial advisor.

No matter where you are in life, you should always have a financial plan that includes goals, a budget and plans to invest for the future. Unfortunately, not everyone has the skillsets and experience needed to make all of these decisions alone. And even if you do, you might not have the time to dedicate to the process. This is where financial advisors may be able to bridge the gaps and set you and your family up for financial success.

What is a financial advisor?

If you ask a lot of people, they will probably tell you financial advisors are people who buy and sell stocks for clients. While this is one role financial advisors may fulfill, it is far from a complete and accurate definition. In reality, financial advisors wear many hats. Their job is best summed up by their goal — to help their clients make the best financial decisions with their money and assets.

The list of tasks to reach this goal for their clients is endless but includes things like retirement planning, tax planning, employee benefits planning, debt management, small business planning and investment selection. A good financial advisor is trained to handle any and all aspects of your current, past and future financial picture.

Throughout everything, though, financial advisors are educators first. While you can have a relationship where your advisor makes decisions for you, this is rare. Typically, your advisor works hard to educate you on all of your available options and gives you complete control over what you want to do. They’ll give recommendations and answer your questions about the options, but in the end, the final call is up to you.

Why hire a financial advisor?

Many people believe that only the wealthy or those with complex financial situations should seek assistance from a financial advisor. In reality, this is incorrect. Often, people seek out financial advisors much later than they should. Even if you have a simple financial picture, there may be additional options you’re unaware of that could enhance your outlook. Financial advisors are trained to look at simple and complex situations and find the best route forward.

“I would hire a financial advisor because there are certain investment, insurance or estate issues that need expert advice and attention,” says John Foard III, president of Foard Wealth. “There are just times when the guidance of a qualified professional is needed to make sure missteps don’t occur, which could cost you a large percentage of your savings or investments.”

When to hire a professional financial advisor

To be clear, anytime is a good time to seek the help of a professional financial advisor if you don’t have a clear plan forward for your financial goals. That being said, there are certain life events where you certainly want to reach out for additional help.

1. Divorce, child custody changes or other relationship changes

If you’ve had significant changes to your family structure, it’s important to make sure that all changes are handled correctly. It’s especially important to financially protect yourself and the ones you care about during these changes to ensure stability on the other side.

2. Nearing retirement

One of the most common reasons people go to see financial advisors is for help with retirement planning. If you don’t have a retirement plan, you should see an advisor as soon as possible. If you’re nearing retirement and it’s been a while since you’ve seen a professional advisor, you’ll want to make an appointment to ensure everything is in order.

3. Receiving an inheritance or a large sum of money

Getting a large sum of money through an inheritance or something like a lottery win can greatly impact your financial picture. When you have more money to work with, the potential gains are greater, but so are the potential mistales. Let a trained financial professional help you plan where intelligently to put this newfound money.

The cost of hiring a financial advisor

Before we discuss the different costs associated with hiring a financial advisor, we should mention the potential costs associated with not hiring an advisor. If you make a mistake in your personal or business finances, you could lose a large sum of money that could have been avoided with the help of a professional.

Additionally, if you’re failing to take advantage of every available option out there that could increase your wealth, you’re leaving money on the table. In both of these situations, not hiring a financial advisor could be way more expensive than the costs of hiring the most expensive one on the block.

When it comes to paying for a financial advisor, you’ll see several different cost structures. One of the most common structures is commission-based advisors. Ideally, you’ll want to avoid these types of planners as they make money based on the number of transactions they make or the types of products they sell you. This could push a financial agent to give biased information that might not be ideal for your situation.

The two cost structures you should stick to with financial advisors are fee-only advisors and percentage-based advisors. Fee-only advisors charge you hourly for advice. While this may be more expensive upfront, you know the information you are getting is unbiased.

Percentage-based financial advisors charge an annual percentage for the amount of money they are managing. While this may be an ideal setup for many, keep in mind that many percentage-based advisors have minimum account sizes they are willing to work with. Typically, the minimum is around $100,000 or higher.

Can financial advisors be expensive? Yes, but not seeking the help and advice of a professional could turn out to be much costlier.

Finding the right financial advisor for you

You’ll only see the benefits of using a financial advisor if you choose an experienced and trusted advisor with a proven track record. While the vetting process should be extensive, here are a few questions you can ask to get the conversation started.

1. How long have you been in the business? How long have you been with this particular company?

2. Can you provide any evidence of a positive track record of success? Can you benchmark your numbers against the market?

3. How many clients are you managing? How easy or difficult is it to get ahold of you?

4. What is your fee structure? Do you make any money based on the products we select to use?

5. How long do you plan to continue being a financial advisor? Are you planning on retiring anytime soon?

For many, a financial advisor can help navigate a one-time unique situation or help you set up your financial plan for the future. While you could do most of this on your own, the risk of making a mistake or missing out on an opportunity is great. When you tap into a trusted professional, you know you have someone whose days are 100% dedicated to financial planning helping you along the way.

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