Invest Financial Planning

When Do You Need a Financial Advisor vs. Just Some Financial Advice?

Jean Chatzky  |  October 21, 2019

We break down the important difference with Schwab’s Cynthia Loh – and get into how to find the right person (or service) for this time in your life

Here’s a question I get asked all the time: How do you choose a financial advisor who’s going to not just provide you with quality information well-suited to your financial life, but who’s also a good fit for you personally? These days, with so many solutions on the market – some human, some not, some in-between – and so many different price points, it’s tougher than ever to choose.  That’s the topic I tackled with Schwab’s Cynthia Loh, Vice President of Digital Advice and Innovation.

Q: What’s your personal approach to advice?

A: In the past two years, I’ve gotten married, had a baby, and moved between cities – all of which involved a number of decisions around money and investing.  I work with a CFP® professional who helps me plan both for day-to-day and long-term financial considerations like putting my child through college. 

Q: Sometimes people are surprised to hear that I have a financial advisor myself – and they want to know why.  Surely after writing so much about it, they figure I’d know enough to make my own decisions. So, let me ask you the same question.

A: I believe it’s good to have an external perspective.  Where I’ve found an advisor especially helpful is to include a neutral third-party in discussing challenging topics – it allowed my husband and me to look at what our fears with money were and address some of our bad habits. Working with an advisor made it about something that my partner and I were doing together rather than a conflict.

Q: How do you know when it’s time to bring an advisor into your life vs. when you just need some advice?  

A: I like that distinction.  And let me start with the advice piece.  Many of the clients we see are looking for advice rather than an advisor.  I liken the difference to going to the gym rather than hiring a personal trainer.  When you go to the gym, you may have a question about how to use a particular piece of equipment or what you’ll get out of a particular class.   But mostly you drop in and work out in a self-directed way. When you hire a personal trainer, however, you’re making a commitment about making a change for the long term.  You want check-ins. You want to make sure you’re on track in an ongoing way. It’s often during big life moments that we see the desire for advice become a desire for an individual to help with planning.

Q: Okay, let’s get into it.  What’s the best way to find an advisor for you? 

A: The way I think about it, great outcomes really stem from asking great questions.  So, these are the questions I would ask – and the answers I’d want to hear.

1. What are your recommendations based on? The answer is that they should be based on your individual needs as a client, your goals, time horizon, etc.  I’d also personally want to see that they’ve worked with someone in a situation similar to me, what type of recommendations they’ve provided, and what kinds of outcomes have come from that.  Ask to see plans with the names and identifying details blacked out. 

2. How do you work with your clients toward meeting individual goals? Here, you’re looking for guidance on how often you’ll meet with and talk to your advisor.  Is it a quarterly cadence?  Does the advisor reach out when something happens in the markets or the world? And how will you mark progress?

 3. Are you focused on my investments or my life?  This is a great question to ask up front to figure out whether an advisor is just going to be looking at your portfolio or your holistic life goals.  Both can be valuable, but you need to understand what you’re signing up for.  I think those who are more sophisticated investors may want to partner with an advisor on specific investments.  Others need more handholding in terms of how much to save and how to think about different ways to save for other goals.

4. How much will I pay in fees and how does that impact my returns over time?  It is really important to get a clear picture here because of the impact it has on your ability to save and invest.  And related to that, you want to know how the advisor is compensated.  You wouldn’t write a check blindly to a contractor, and you shouldn’t do that to an advisor either.  But by talking to a number of different advisors and getting a sense of when and how they’re compensated, you’ll get a sense of what you’re getting for your money.

Q: On the flipside, what don’t you want to hear in answer to these questions?

A: If I heard someone who’s pretty unclear about fees, or a vague answer that’s not transparent, I wouldn’t feel comfortable. You should know from your advisor: This is what I charge. And this is what you get for what I charge.  

Q: You work in digital on Schwab’s robo advice tools.  Who do these tend to work for?

A: The clients we see are comfortable getting things done using technology, but what they’re really looking for is something easy.  They’re using digital interactive tools comfortably. Many were self-directed investors before.  They previously didn’t have an option for managed investing that they felt fit them. They’re generally looking for advice rather than a one-on-one relationship with an advisor, but sometimes, as their life stages progress, they find they want to talk to someone, too.  

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