Whether you’re a new parent or expecting to retire shortly, 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. Financial advisors can help you navigate the process of creating a financial plan and getting your money to grow. Here’s when to hire a financial advisor.
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 usually have qualifications such as certified financial planners (CFP) or chartered financial analysts (CFA). These certifications require hundreds of hours of coursework and multiple exams to earn.
What Financial Advisors Do
Financial advisors offer a range of services that 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 law and the uniqueness of each person’s tax circumstances. As a result, a financial advisor can help you take advantage of your tax situation to the fullest extent, reduce taxes owed and maximize your refund.
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?
Waiting for a financial emergency before hiring a financial advisor isn’t recommended. Instead, you preempt financial straits by hiring a financial advisor in these specific situations:
Significant Life Changes
Life moves quickly and financial habits from college or early professional life may not translate well to managing wealth as a couple or affording childcare. Marriage, divorce, salary increases, retirement and launching a business have financial ramifications an advisor can help you handle.
Investing in the Stock Market
Purchasing assets always involves risk and a myriad of investments are available for those looking to grow their wealth. However, the sheer amount of information and decisions associated with investing can be overwhelming, even if you’re solely looking at buying stock in Fortune 500 companies. A financial advisor can help you set investment goals and select assets that fit your priorities and risk tolerance.
Creating 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. A financial advisor can craft a detailed, personalized financial plan oriented toward your goals.
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.
Limited Time and Financial Knowledge
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. Each facet of the financial world has sufficient depth for financial advisors to specialize in – so don’t worry if you’re feeling overwhelmed. Professionals with expertise on your financial needs can help you optimally manage your wealth.
Lack of Agreement with Your Partner
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, concretize a set of shared priorities and help opposing family members harmonize.
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 Certifications: Asking about an advisor’s educational background and qualifications is vital. Certifications such as certified financial planner (CFP) or investment advisor representative (IAR) 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 Payment: 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 Takes 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 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.
The 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.
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