When Should You Hire a Financial Advisor?

Whether you’re expecting your first child or planning to retire in the near future, your financial situation requires attention, knowledge and care. While Googling answers or asking a friend for help can answer basic questions, a financial advisor can provide holistic services that protect your wealth and help you make wise decisions. Knowing when to hire a financial advisor often depends on specific life events, such as preparing for retirement, handling inheritance or navigating significant financial decisions.

If you’re ready to hire a financial advisor, SmartAsset’s free tool can match you with up to three fiduciary advisors who serve your area.

What Are Financial Advisors?

Financial advisors are professionals skilled at managing money and assets. They can assist with financial planning, investing, taxes, estate planning and more. While financial advisors usually have general knowledge of an array of financial subjects, they can also specialize in a specific area. For example, a financial advisor might concentrate on retirement planning for working families or work with high-net-worth individuals.

Although anyone can call themselves a financial advisor without completing mandatory training, these professionals may have qualifications such as the Certified Financial Planner™ (CFP®) or chartered financial analyst (CFA) designations. These certifications, which require hundreds of hours of coursework and multiple exams to earn, demonstrate expertise in financial planning or financial analysis.

What Financial Advisors Do

Financial advisors offer a range of services that can help you optimize your finances. So, whether you need assistance with managing a large inheritance or diversifying your investment portfolio, a financial advisor can provide expertise and clarity.

In addition, services can be as general or specific as you want. For instance, you can authorize your financial advisor to make investment choices on your behalf at a moment’s notice. On the other hand, you can require your financial advisor to obtain your approval for any change they want to make to your portfolio.

Furthermore, financial advisors frequently help with taxes because of the complexity of tax laws and the uniqueness of each person’s tax circumstances. As a result, some advisors specialize in helping clients optimize their tax strategy and reduce their liability.

Aside from the services mentioned above, financial advisors can also help with the following:

Legacy or charitable giving planning
Risk management
Education saving planning
Cash flow analysis
Small business planning
Debt management

When Should You Hire a Financial Advisor?

Hiring a financial advisor can provide clarity and structure when managing money becomes complex. However, determining the right time to engage one depends on your individual financial situation, goals and preferences.

Here are some of the situations and areas of financial need that may warrant an the help of an advisor:

Significant Life Changes

Life moves quickly and financial habits that you develop in college or early professional life may not translate well when it comes time to manage wealth later on. Major life events like marriage, the birth of a child, divorce and retirement have financial ramifications that an advisor can help you handle.

For example, newlyweds often need guidance in merging finances, establishing joint accounts or creating long-term savings plans for future goals. Likewise, the financial impact of divorce or losing a loved one may call for professional advice on reallocating assets or adjusting retirement plans.

You Need Help Investing Your Money

For individuals who have accumulated substantial wealth or are looking to grow their assets, the expertise of a financial advisor can be invaluable. Financial advisors help assess risk tolerance, recommend asset allocations, and provide access to a broader range of investment opportunities. As markets fluctuate, their ongoing advice can help adjust portfolios to align with changing economic conditions.

You Need a Financial Plan

Whether you want to retire at a specific age, send your child to college without taking a dime of student loans or start spending less than you make, a financial plan can streamline your efforts. Some financial advisors specialize in creating detailed, personalized financials plan to help their client pursue and achieve their goals.

You’re Struggling With Debt

Debt can be among the most stressful, challenging financial issues to handle. A financial advisor can help you approach your debt with a can-do attitude and provide the best strategies to rid yourself of debt as soon as possible. For example, a financial advisor might develop a plan in which you repay your smallest or high-interest loans first. Plus, they might find wasteful spending in your budget you can allocate toward debt payments.

You Have Limited Financial Knowledge or Time

Retirement plans, monthly budgets and investments can become increasingly complex as time goes on. Sitting down to pay the bills can seem like a huge effort, let alone tinkering with your portfolio or finding the best way to save for higher education. Many people hire financial advisors simply because they lack the time, desire, or expertise to manage their finances effectively.

If tracking investments, staying current with tax laws, or planning for future financial needs feels too time-consuming or complicated, outsourcing this responsibility to a professional can be a practical solution. Professionals with expertise on your financial needs can help you optimally manage your wealth.

You and Your Partner Can’t Agree

It’s possible that you and your partner have different financial habits and priorities. Meticulous savers can become irritated with enthusiastic spenders and an essential purchase to one might seem like a waste to the other. However, a financial advisor can facilitate communication between family members and help establish a set of shared priorities.

Benefits of Hiring a Financial Advisor

Hiring a financial advisor can bring you the following advantages:

Ability to work with an advisor once for a specific need or hire one long-term.
Advisors specializing in any financial topic are available.
Can provide logic and wisdom during emotional situations.
Can save time and costly mistakes with investments and taxes.
You can find a fiduciary financial advisor, meaning the law requires they put your financial interests above their own.

Cautions When Hiring a Financial Advisor

However, it’s wise to remember to be cautious about several things when looking for and hiring a financial advisor:

If your advisor does not have fiduciary status, they might buy and sell assets in your portfolio to earn commissions instead of providing the best returns
Your advisor might make suboptimal, expensive choices you don’t have the expertise to recognize, such as investing your money in funds with high management fees that perform worse than an index fund.
Not every professional relationship is a perfect match and the first financial advisor you find might not have the personality or approach that resonates with you.

How to Select a Suitable Financial Advisor

Remember, your financial advisor works for you, not the other way around. Therefore, it’s crucial to find one that suits your preferences. Use these tips to ensure you find the right one:

Hire a fiduciary. A fiduciary is obligated by law to make choices that benefit you rather than themselves. For instance, a compliant fiduciary would choose an investment fund with low commissions and high returns instead of one with high commissions and middling returns.
Ask about their professional certifications. Learning about an advisor’s educational background and professional credentials is vital. Certifications such as the (CFP®) or chartered financial consultant (ChFC) signify that the advisor is a well-trained fiduciary. In addition, an advisor’s credentials can help you tell if they can meet your specific needs. For example, if you want to focus on taxes, you might want to seek a certified public accountant (CPA) or enrolled agent (EA).
Clarify how they’re paid. A financial advisor should welcome all the questions you have – and one of them should be about how they’re paid. Generally, it’s a good idea to pick an advisor who receives a percentage of assets managed or set fees as payment.
Find an advisor who only receives fees. An advisor who makes a living on fees from clients is more likely to give reliable, quality advice. Instead of hawking their firm’s expensive products for sales commissions or sitting on your wealth, your advisor makes money solely by providing useful information during meetings.
Choose a straightforward communicator. A financial advisor who is rude or abrupt when communicating won’t help you reach your goals. In addition, if they don’t answer your questions directly and leave you feeling confused, it’s a sign to work with someone else. Your relationship with your advisor is key to building wealth and feeling in control of your finances.
Distinguish between robo-advisors and financial Advisors. Having grown in popularity in recent years, robo-advisors are digital tools that use algorithms to invest your money. Instead of meeting with a person, you’ll submit financial and personal information to a robo-advisor, which passively manages your investments. The benefit is that robo-advisors generally charge less expensive fees.

Bottom Line

A financial advisor can help with all sorts of financial situations. Because life is full of intricate financial issues and situations, it’s wise to consult with one as you make more money or grow your family. Remember, it’s best to choose a financial advisor with fiduciary status and certification that matches your needs.

Tips for Hiring a Financial Advisor

If you’re struggling to build a financial plan, a financial advisor can provide critical insight and help you come up with a plan to grow your wealth. If you don’t have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Robo-advisors are cost-effective financial tools that can help you if you aren’t ready for a human advisor but want to grow your investments. To help you understand the implications of choosing one, it’s a good idea to distinguish between robo-advisors and financial advisors.