Do I Need a Financial Advisor?
Who you are tomorrow begins with what you do today.
When I started my journey to financial independence, the question that kept coming to mind was when do I need a financial advisor? I usually love the DIY approach on a lot of things, however, when it came to money, I wasn’t so sure. The extent of my financial knowledge is very basic, live on less than you make and invest the rest, but I wanted to understand when other financial strategies would become relevant in my situation, and when I would benefit from a financial advisor. This led me to research information on:
What is a financial advisor?
When do you need a financial advisor?
What terms do you need to understand when interviewing financial advisors?
What questions should you ask when interviewing financial advisors?
What are some tips for getting the most out of your appointment with your financial advisor?
First, let’s focus on what a financial advisor is, and when you could benefit from seeking a financial advisor.
What is a financial advisor?
A financial advisor is someone who actively works with clients providing guidance to help them reach their financial goals. A financial advisor should have the heart of an educator helping their clients understand and feel comfortable about their financial decisions.
When finding a financial advisor, don’t take the decision lightly. This is someone you should plan to work with for a long time, so be sure to do your homework to find an advisor that will fit you best. Remember, this is YOUR money, so make sure you understand what your advisor is suggesting and be sure to ask questions when you don’t. When working with a financial advisor, you should both be incentivized to work with each other. The financial advisor is helping your net worth, and you are compensating them for their help.
When do you need a financial advisor?
You could benefit from a financial advisor if:
The gravity of your financial decisions is so great that you do not want to go into it alone, and you feel that some expert advice could be beneficial. Remember, a 10% mistake on $500,000 is much greater than a 10% mistake on $5,000 or even $50,000.
Will you or your loved ones be okay if you suffered a large financial mistake or loss?
Your net worth has outgrown the simple target retirement funds. For most of us, the simple target retirement funds are a great start, but there comes a time when you can graduate beyond the solution a target retirement fund is used for. When your assets reach a certain size, there may be other options or strategies that you can start taking advantage of to help you reach your financial goals. Some of these can include tax/asset location, tax loss harvesting, legal capital gain avoidance strategies, charitable giving, and diversification. These are all things a financial advisor can help you with.
This could be different for each individual, but I’ve heard some financial advisors suggest focusing on investing in low-cost index target retirement funds (which you can do on your own) until you reach a net worth of around $500,000. They say for beginners, this can help take the emotion out of investing, and once you reach a net worth of around $500,000, then you could start evaluating if there are other strategies (as named above) that could benefit you. However, if the gravity of your decisions is greater than you feel comfortable with or if you have had a major life event, you might benefit from seeking advice sooner.
You do not have enough time in the day needed to research, handle, and keep up with your financial needs. It can take a lot of time to research and stay educated about the ever-changing financial policies and laws, especially if this is not your profession. There can come a point in your financial journey where it would be worth the extra expense to hire someone who knows and can keep up with the financial field.
Your finances get more complicated. As we age, our finances naturally tend to get more complicated. You earn more, invest more, buy more, contribute to more things, etc., so having someone who can help ensure you are staying on the best route for your finances can be a wise move financially.
You want someone else on your side who can handle your finances if you were unable to speak for yourself. This could be beneficial if you have a spouse that doesn’t know much about the finances, or if you are alone and don’t want your other family members to get ripped off by someone else poorly managing your finances.
You’ve had a major life event that has triggered financial questions.
These can include:
You are nearing retirement, and you want to ensure you’re on the right track financially.
You just inherited money, and you want to get advice on how to invest it.
You were recently married or divorced.
You just had a child and want to ensure they are provided for.
Your parents are getting older, and you would like help managing their overall finances.
You want help creating or updating your estate plan.
Disclaimer: I am only learning myself, so I cannot guarantee this information is completely accurate, but my hope is that it can give you a good starting point if you are interested in finding a financial advisor as well. Be sure to do your own research and let me know if you have any additional information or corrections to add to this information.
If you want to learn more, check out my Financial Professionals page for additional information.
