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Do You Really Need a Financial Advisor?

Every single person in this world has their job, profession and strong qualities.Financial advisors are people who provide assistance and financial advice to their customers. And since money plays a very important role in our lives, a question arises: do I need a professional to help me manage my finances?

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Table Of Content

Every single person in this world has their job, profession and strong qualities. We need doctors to take care of our health, mechanics to repair our cars, and teachers to show us the path of knowledge. And since money plays a very important role in our lives, a question arises: do I need a professional to help me manage my finances?

Financial advisors are people who provide assistance and financial advice to their customers. They are also called money managers (help you manage your money), financial planners (help you plan and distribute your resources properly), wealth managers and more.

In this chart using FED Survey of Consumer Finances data, we can see that many people only start serious retirement planning after the age of 35. While under 35s have an average of $30,000 in retirement accounts, this increases significantly in the 35 to 44 age bracket. However, the increase is even more significant between the 45 to 54 age group and the 55 to 64 age group.

Retirement Accounts by Age

Having said that, it’s good to mention that many people do not trust a professional to manage their financial resources and prefer to do it themselves. Undoubtedly, this could prove to be a tricky and life-changing decision.

So, Do I need a financial advisor?

If you are a person who has decided they need financial guidance and help, this article will show you the main things you need to know. But for most of us, the most important is to decide whether you actually need help or not. So, are you ready to dive in? Let's start:

Three Questions To Ask Yourself

Before we start with some more details, try to answer these three simple questions:

1.  Are Your Finances Complicated?

This is a very serious and fundamental question you need to answer before you hire a professional. Are you single or are you married expecting your first child? Do you want to make your first investments or you are “old”in the game and want to diversify your sources of income? How many credit cards and loans do you have?

Certainly, the more complicated your financial situation, the more you will need a person to guide and help you in these matters.

2. Do You Have Any Spare Money To Invest?

If you are a person who cannot afford to spend lots of money on various investment options and diversify their portfolio, then most probably you don’t need a financial planner. You must be aware that they will charge you for their services, so in the end, it will not be worth it. On the other hand, complex investment strategies will require a more professional and sophisticated approach.

3. What Do You Expect?

What do you want to achieve? Do you want to have a better financial discipline and save some money for retirement? Or, maybe, you want to become involved in the market and start successfully trading? In order to find the advisor you need, first, you have to be aware of what your goals are.

Don’t expect to beat the market and become rich in a fortnight. If a person or a company promises that to you, the chances are high they are trying to deceive you. Beware of the hundreds if not thousands of scams and Ponzi pyramids out there. Research the company/person if you have some suspicions (my advice is to do it regardless).

Do You Need a Financial Plan?

We have a lot of leeway in terms of reversing many of our judgments. However, you can't always count on a take-back, particularly when it comes to important financial decisions. To make the greatest decision the first time, you'll need the skills, experience, and objectivity that a financial advisor can provide. Because you never know when you'll get another chance.

Major financial decisions include deciding to retire, take an early retirement buyout package, sell a business, cash out a mortgage, take a lump payment over a pension, start Social Security, or borrow from your life insurance. You could also be making a significant decision by doing nothing at all.

A financial strategy aids in the achievement of 3 key goals:

  • Create Full Investing & Income Plan, Including Tax – Consider the various side effects' of making financial or investing decisions, such as tax consequences or funding one aim at the price of another. Our personal and financial lives are inextricably linked. You won't get the full picture if you look at it in a vacuum. A financial plan is the only way to tie everything together.
  • Estimate Large Decision Effect – A financial model is the best approach to evaluate the aim and compare options if you're considering a large decision like can I retire at the end of the year, should I utilize a windfall to pay off my mortgage early, or how much do I need to save to retire and maintain my lifestyle.
  • Test Different Retirement Scenarios – Who doesn't enjoy having a variety of choices? Maybe you've set your sights on retiring at the age of 55. Wouldn't it be interesting to know what your retirement budget may look like if you worked for another two years? It could incorporate a risk simulation to stress-test your plan and guarantee you don't run out of money. A risk simulation can help investors feel confident about the likelihood that their plan will succeed by accounting for the range in investment returns.

When You Need a Financial Advisor

Now let’s talk about the different situations when it makes perfect sense to hire a financial advisor.

  • Your Income Is High

There are many people who earn a lot of money but have no idea what to do with it. They either spend it inappropriately and invest it in unsuitable ventures or simply do nothing. Don’t forget that the higher the income, the higher the taxes you have to pay.

Not only will a financial advisor recommend the best things to invest in but also suggest ideas how to save money on taxes. This, consequently, will save you a great deal of effort and time and will give you the opportunity to focus on your job and make more cash.

  • You Plan To Start A Family

Many young people want to have a family but are worried, understandably, about all the financial uncertainties that go with it. Once you get married and have children of your own, you start thinking differently. Raising a child is no easy feat. You have to consider saving money for future education as well as life insurance in case of premature death.

Good financial planners will show you the ropes in this business and help you prioritize and make the right decisions.

  • You Are  Approaching Retirement

If you are a person who is nearing the age of retirement, it’s advisable to visit with a financial planner whose expertise is retirement planning. For the ordinary person, the calculation and distribution of your pension is a very complex process.

  • You Are Self-Employed

If you are a self-employed person, then most probably your financial and retirement differs a lot from the other people. There is a wide variety of retirement plans for self-employed people, therefore a financial advisor will help make the best choice.

A good financial advisor can help people who work for themselves or have their own businesses make the best out of their current financial situation. Not only will they advise you on how to plan your retirement but also help you grow your business and increase your income. Furthermore, they might give you advice on how to best use the money you have put aside.

  • You Are In a Financial Mess

It’s not necessary to be in debt to be in a financial mess. Oftentimes, people have quite a few loans, credit cards and some of them are really complex. Maybe you are wondering how to optimize your expenses and choose better repayment options. A professional financial planner will help you achieve that.

Perhaps you have a kid with special needs and you need assistance to cope with the situation. Or a loan of yours is too complicated for you and you want to change the repayment option? All these require the attention of a pro, don’t you think?

When You Don’t Need a Financial Planner

  • When You Are On a Tight Budget

As mentioned earlier, there is no point in hiring an advisor if you have a tight budget. If you are a person who can barely meet their obligations, it’s not very smart to hire someone and be even more financially troubled.

The truth is – financial advice costs money, and if you don’t have this money in the first place, simply don’t do it. What’s more, if you don’t have extra money, how can a financial planner help you invest it in something profitable?

Keep in mind:

There are planners who work on an hourly-basis (flat fee). You might consider using the services of one since they will give you good advice on how to handle your current predicament. Once you have more free cash, you can fully dive in.

  • The Amount Of Consumer Debt Is Huge

Sometimes people have problems with their loans; if you are having problems with your consumer debt, it will be better to seek advice elsewhere – a credit counselor. Where can you do that?

  • Your Financial Situation Is Simple

If your finances are simple and you are not in a mess, then why would you seek professional assistance? If you are simply interested in specific topics, such as money market accounts or invest in mutual funds, you can check out one of the million sources of information.

There is no need to pay for information when you have access to a great deal of it. Find the info you want and need, learn about it and then proceed with something more.

 Hiring a Financial Advisor: Pros & Cons

Using a financial advisor has a number of benefits and drawbacks. Some investors who work with a financial advisor, on the other hand, aren't aware of or take advantage of all of the benefits listed below.

  • Experience and Investment Knowledge – because most financial advisors are accredited, they have a broad understanding of investing. Not only that, but many financial advisors have a significant amount of experience, if not decades. This indicates they've most certainly worked with a wide range of clients, as well as invested through numerous bull and bad market cycles, gaining valuable experience. Diversifying a portfolio is critical to reduce volatility, which increases risk and, perhaps, the amount of income generated by your retirement funds – and financial consultants may be extremely beneficial in this situation.
  • Tailored Plan Including Tax Guidance – A financial counselor should, in theory, take into account your present financial condition as well as your long-term goals to design a plan that is suited to your specific needs and desires. If you have a financial setback, you can also seek assistance from your financial advisor. They can provide you guidance on how to avoid making financial mistakes in the future and help you get back on track.
  • Personal Advise – some firms will focus on specific areas of assistance, while others will provide help in all areas. Because not all IFAs are qualified to provide some types of advise, they may have to refer you to someone else. Most organizations will have a preliminary conversation with you over the phone or via email to determine whether or not what you want is within their capabilities or expertise. After determining whether both parties are willing to discuss the concerns further, a business will normally want to meet face to face so that they can explain how they function and gain a better understanding of the client's personal and financial situation in order to provide appropriate advise.
  • Fees – each firm establishes its own fee structure based on the sort of help requested and what they believe is a reasonable price. There will be distinct charging structures for different areas of advise, such as pensions, investments, mortgages, life and health insurances, equity release, and long-term care, because there are so many. Depending on how the firm wants to work, this could be a percentage of the money invested, a flat charge, an hourly cost, or a straight commission for non-investment/pension sectors.
  • Complex Planning – financial advisors set a definitive plan for your investment, and some of them can be complicated for understanding and require ongoing expert help.

Bottom Line

All in all, you have to seriously consider hiring a professional who can help you manage your money as well as invest in properly.

However, before that, you have to make sure whether you need financial assistance or not. If you do so, then I am certain a financial advisor can help you benefit the most from your current situation. 

Do You Need a Financial Advisor - FAQs

According to the Financial Planning Association (FPA), the cost of meeting with a financial planner ranges from $2,500 to $3,500 to make a plan. And if you maintain an ongoing relationship with the financial planner, it is approximately $3,000 to $3,500 per year.

It’s important to balance your needs with the cost of seeing a financial advisor. You may find that there are easier and more affordable ways to meet your needs.

Many banks do indeed give you the option of using financial advisors to assist you with your investments and other needs. But it’s important to note that bank advisors aren’t free. As such, there is usually a minimum amount you must pay to continue to use their services.

In many cases, however, you may find the same information online and free of charge. Make a list of your most pressing questions and search them out online before investing in financial advice.