Invest Financial Planning

How Do I Know When It’s Time For A Financial Advisor?

Pam Krueger  |  September 30, 2020

Is now the time to consider hiring a financial advisor? A look at what should go into your decision before you begin working with a planner.

There are a lot of scary things going on right now – COVID health-care concerns, job loss, a volatile stock market. Those issues have been prompting a lot of people to seek out financial advice, often for the first time.

But taking the step to hire a financial advisor or planner doesn’t always have to be in response to worry or fear. Collaborating with a qualified advisor can also be just as much about empowering yourself to take charge of your money and get closer to reaching your financial goals. As you age your finances can get more complex because you now have more invested in your retirement plans, or an inheritance or perhaps you may go through a divorce. Whether it’s a positive event or a personal challenge, you may want to ensure that you’re making the most of all of the opportunities to save money, invest more and protect your income. Starting a relationship with a qualified financial advisor at the right time in life can be a game-changer. An advisor who’s truly looking out for your best interest can help you organize your financial priorities and provide real guidance by creating a clear path to ‘financial security’ in a way that aligns with your personal definition of security.

But not everyone needs or wants to hire an advisor. You may not feel you need anyone’s help if you’re comfortable with your cash flow and are confident you’ve been making the most of your employee benefits, and overall, are making good money decisions. Financial advice costs money — the fees you pay for expert advice can start off as high as 1% of your investments. If you’ve been able to build up your savings, make the most of your 401(k) at work all on your own, and you are not stressed over money, then you may not want someone else’s advice.

At the same time, even if you feel financially solid,  you may look at your finances and see you’re in a better position than you thought and are ready to take your financial plans to the next level with some help from a professional. The key is to choose an advisor wisely and go about the process very thoughtfully and not in a rush or under pressure. An excellent financial advisor or planner should be fully fiduciary and not sell any products for brokerage firms or insurance companies; a comprehensive advisor should also have specialized expertise to manage your investments and develop a detailed holistic financial plan.

A lot of people decide to hire an advisor after something dramatic has changed in their life – whether they get a new job with different benefits, get married or move, or have kids or grandkids. They may have clear goals they want to reach, whether it’s saving for a house, kids’ college, retirement, or evaluating an early retirement offer, or dealing with company stock options. Robust planning includes real estate, tax planning and evaluating insurance coverages. Covid-19 has put a lot of people on edge about the possibility of a job loss, or new financial responsibilities to help aging parents or other family members. A competent fiduciary advisor can help you sort through those decisions and manage all of these competing needs and goals.

A study by financial-research firm Cerulli found that about three-quarters of people rank the top drivers of satisfaction with their advisors to be trustworthiness, and highly personalized advice. Their main reasons for hiring a financial advisor were planning for retirement, followed by protecting their current level of wealth and improving household cash flow.

A holistic, independent registered investment adviser can and should do a comprehensive evaluation of all areas of your finances – including protecting your assets and your family from financial risks, and preparing for unexpected expenses. What you may not know is they can also do a fee audit of your 401(k) and other investments to reduce your overall expenses which in many cases you might not even realize you’ve been paying. They can also help you think through and commit to your investment strategy. Vanguard has been studying the extra value that a financial advisor can provide for more than 15 years and concluded that advisors who follow certain standards can add an average of about 3% per year to investment returns. This “advisor alpha” isn’t only thanks to their investment picks, but also because they can help with your investment allocation decisions, add tax efficiencies, and provide withdrawal advice and behavioral coaching to make sure you stay invested without getting nervous and jumping out of the market during a period of short-term volatility.

A good advisor also has a client retention rate above 97%. For you and your advisor, this is a long-term collaboration. But not every advisor is a fiduciary or paid only by you. An advisor in a sales rep role could actually set back your financial plans when making a sale is his job. It matters how an advisor gets paid. It’s a conversation you’ll want to have at the outset, and you shouldn’t feel shy to ask all the ways the advisor gets paid– does he or she receive commissions or revenue sharing arrangements for selling certain funds or annuities or from placement fees in private investments?  An advisor who is legally held to the fiduciary standard will be 100% transparent about all fees.

You need to know who they really work for, and unless it’s only you, it’s a potential conflict of interest. Also ask an advisor to describe the extent of their services and their typical clients to make sure it’s a good fit. Whether you’re going through challenging financial times right now or you’re doing well and closer than ever to an important milestone and want to stay on track, working with an established advisor who puts your needs first can help you worry less or even feel empowered about money.

YOUR ADVISOR IS STANDING BY

Need a financial advisor but aren’t sure where to start? Fill out this brief questionnaire we created in partnership with Wealthramp. You’ll be matched with a fee-only fiduciary advisor who specializes in your area of need. Don’t worry about unsolicited calls during dinner — it’s up to you to reach out when you’re ready to tackle your “to do” list!

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