You already outsource many of your tasks to the experts. Mechanics fix your vehicles, landscapers tend to your lawn, and cleaners keep your home spic and span.
So why wouldn’t you hire a financial advisor to manage your money?
Northwestern Mutual’s Planning & Progress Study 2023 found that two-thirds (66%) of respondents believe their financial planning needs improvement. That number rises to 79% for both Millennials and Gen Z. However, even though the data shows that Americans who work with an advisor feel much more prepared for unexpected expenses and retirement, only 37% of people work with one.
Why? Well, to start, it isn’t a free service, and some people would rather do it themselves than pay someone else. In some cases, people don’t have enough assets to meet most financial advisors’ requirements—though some people mistakenly believe this even though they do have enough saved. And in other cases, people are unaware of all the services a financial advisor offers.
However, while a financial advisor might not make sense for everybody, far more people would benefit from one than you might realize.
Of course, the reason why you’re reading this article is because you’re wondering: “Do I need a financial advisor?” We can help you figure that out. Read on, and we’ll provide a little more information about financial advisors, then we’ll lead you through a set of questions that can help you determine the answer.
Different Types of Financial Advisors
Before we dive into whether a financial advisor makes sense for you, let’s talk a little bit about what a financial advisor is in the first place.
“Financial advisor” is an extremely broad term that includes everything from certified, registered investment advisers to uncredentialed financial professionals such as financial coaches. Given the wide range of expertise and specialization you’ll find under the financial advisor umbrella, it’s best to know about the various types, which include (but aren’t limited to):
- Investment advisers
- Wealth managers/wealth advisers
- Asset managers
- Portfolio managers
- Brokers
- Broker-dealers
- Certified Financial Planners™
- Financial coach
- Robo-advisors
Here are a few examples to give you an idea of how these roles differ:
An investment adviser is a registered financial professional that can provide investment advice to clients or even manage their clients’ assets.
A Certified Financial Planner (CFP®) is actually a designation given to financial advisors that have completed a formal education progress in fields including financial planning, investing, retirement saving, insurance, taxes, and more. These advisors provide advice in those fields, and are compelled to do so with the client’s best interests in mind, while also adhering to strict ethical standards.
Broker-dealers are individuals or companies that buy and sell securities on behalf of customers, for itself, or both. Broker-dealer licenses dictate which financial products they are allowed to sell. Meanwhile, a wealth adviser or wealth manager usually works exclusively with high-net-worth individuals (HNWIs). They offer comprehensive financial help with everything from investing to estate planning to charitable giving and more.
The questions we’re about to ask will determine whether you need a financial advisor in the first place. Just keep in mind that the type of financial advisor will depend on your specific situation.
How to Know Whether You Need a Financial Advisor
“Mo Money Mo Problems” – The Notorious B.I.G.
With respect to Biggie Smalls, more money can actually help solve a lot of life’s problems. But it’s true that having more money can come with its own set of challenges. Do you invest differently with a larger sum of money? What kind of impact will taxes have? What will happen to all your assets when you pass away?
Some people choose to pass the responsibility of managing these and other money issues on to a financial advisor. These experts can make educated decisions about what to do with your assets, saving you time and stress.
Of course, maybe you don’t have enough money (yet) to warrant a financial advisor. Maybe your assets aren’t complicated enough to bring more cooks into the kitchen.
So, how do you know if you should hire one, and if now’s the time to do it? Your answers to the following questions will help you determine whether you should keep managing your own money or start seeking the assistance of a financial pro.
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1. Do You Have a High Net Worth?
I wish I could tell you there’s a specific minimum dollar amount that justifies hiring a financial advisor. But the answer is a little more complicated than that.
A high-net-worth individual is generally defined as being someone who has between $1 million and $5 million in liquid assets. But depending on the financial advisor, you could be eligible with a net worth in the tens of thousands of dollars.
What I can tell you is this: The higher your net worth, the more important having a financial advisor becomes.
Consider the 2021 Herbers & Company Financials Behaviors Study, which focused on people with self-reported assets of at least $250,000 and included 43 statements around four factors of happiness: fulfillment, impact, intentions, and gratefulness. The results found that people who hired financial advisors were three times happier than those who didn’t. But hiring financial advisors increased happiness the most drastically for people with more than $1.2 million in assets.
A vital consideration, especially if you have low assets, is fees. If a financial advisor will let you start at, say, $10,000 in assets and only charges a percent of assets annually (let’s say 1%), you’re paying $100 a year for someone who should be able to help you earn much more on your money than that. However, if a financial advisor will let you start at $10,000 in assets but charges flat-dollar fees, even just a $500 initial meeting would eat up 5% of your assets.
So especially if you have a lower net worth, you have to think carefully about whether an advisor would be worth the cost. In many cases, you might be better off improving your DIY game with financial planning tools, starting out with a cheaper robo-advisor platform, and/or working with a less expensive financial coach.
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2. Are You an Experienced Investor?
A certain subset of Americans have the time, patience, interest, and ability to choose all of their own investments and either come close to or even beat the market. If that’s you, and you enjoy it, keep doing what you’re doing.
But if you’re not adept at investing—and statistically, that’s most of us—you might want to consider a financial advisor.
Investors who deem themselves unseasoned have a few options. You could try to build a wide-ranging investment portfolio despite your lack of experience, though virtually every market study would tell you that’s a bad idea. You could lean on a handful of index funds and simply track the market, which is a much more commonly advised route for DIYers. Or you could ask a financial advisor for advice (or even have them manage your assets).
If you do opt for a financial advisor, you might be surprised at how simple their plan is. A 2023 Journal of Financial Planning survey found that the most common investments that advisors use for their clients are exchange-traded funds (ETFs), cash and equivalents, and mutual funds—very straightforward investments that most people would utilize on their own. However, depending on your needs and how aggressive (or defensive) you want to be, your financial advisor might suggest a number of other options, including annuities, life insurance products, or alternative investments such as real estate or private equity.
Related: 10 Best Vanguard Funds for the Everyday Investor
3. Do You Find Tax Planning Confusing?
To be clear: We’re not talking about simply filing your taxes. We’re talking about tax planning—analyzing your finances and investments, with an understanding of the tax code, to minimize the amount you pay in taxes (and thus, saving money).
While tax planning can yield enormous financial results, it’s a complex process, so it shouldn’t come as a surprise that many people want to outsource this task. According to the 2023 Herbers & Company Service Market Growth Study, tax planning is the most demanded service among people with more than $250,000 in household assets.
If you organize and file your own taxes every year, keep up-to-date on all the various tax deductions and credits you qualify for, know how to properly allocate savings in tax-advantaged accounts, and otherwise have a great grasp on how to maximize your tax savings, that’s a sign you might not need a financial advisor.
But if you feel like your finances could be much more tax-efficient, don’t have much knowledge of the tax code, or simply don’t enjoy dealing with taxes, you will probably find an advisor useful.
Related: 7 Best Schwab Funds You Can Buy: Low Fees, Low Minimums
4. Do You Have a Written, Concrete Financial Plan?
When it comes to finances, a lot of Americans just wing it.
Schwab’s 2021 Modern Wealth Survey found that only one-third of respondents had a written financial plan. The top reasons given for not having a plan:
- I don’t have enough money to make a plan worthwhile.
- It’s too complicated.
- I don’t have time to develop a plan.
Even if you have what you think is a financial plan, give it a closer look. Are your goals vague? Do you actually have a clear path to meeting any endpoint?
If you don’t have a specific plan, a financial advisor can help.
Financial planners don’t just draw up a set of instructions. They help people determine what they’re trying to achieve in the first place. The results of a USA TODAY poll showed that Americans top financial goals for 2024 were building up a rainy-day fund, saving for retirement, and saving for a child’s schooling.
Let’s use a child’s college fund as an example. A financial advisor could help you choose the best tax-advantaged account(s) for educational savings. They could also help you estimate how much money you’d need to contribute, determine what the contribution schedule would look like, and provide advice on which investments to choose (or even take over investment management altogether).
If you already have clear goals and have set reasonable paths to reach them, you might not need a helping hand. But if you don’t have a plan, consider reaching out to a financial advisor.
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5. Are You Going Through (Or About to Go Through) a Major Life Event?
Significant life changes often require or cause significant changes in your financial life. Just take a minute to think about the dollars and cents involved in life changes such as:
- Marriage
- Divorce
- Having children (whether birth or adoption)
- Receiving a large inheritance
- Receiving a substantial pay raise
- Starting your own business
While some of these life changes are more finance-altering than others, all of them require a high level of consideration, whether it’s figuring out how to save tens of thousands of dollars for your child’s college or capital for starting a business, or drastically changing your budget ahead of your first child or in the wake of getting a divorce.
Having a financial advisor to guide you through major life events can help you make sound choices and maximize your financial resources. But if you don’t see any major life events on the horizon, you might not need to rush to find a pro.
Related: Is It a Good Time to Buy Treasury Bonds?
6. Do You Get Emotional About Your Finances?
Maybe you’ve worked extremely hard to build your wealth. Maybe your finances are a point of contention in your marriage. Maybe you’re just an impulsive person. For many reasons, some people are prone to making emotional financial decisions.
Consider this: During the early months of COVID, the stock market sold off sharply. While the conventional wisdom is to remain invested through bear markets, some investors became fearful and sold off their assets to minimize their losses, only to find their money on the sidelines while the market rapidly rebounded. In many cases, those investors ended up underperforming people who had simply stayed put.
Don’t be ashamed or embarrassed if you say “yes” to this question. It’s extremely common. For instance, a 2021 MagnifyMoney survey found that “66% of investors have made an impulsive or emotionally charged investing decision they later regretted.”
One of the best things you can do to improve your financial situation is to take emotion out of the equation. If you’re not disciplined enough to do that yourself, the next best thing you can do is to hand the decision off to an impartial third party. If you have a gambler’s mindset or struggle with decision fatigue, a financial advisor can put your mind at ease.
However, if you can objectively say you don’t let emotions play a role in your financial decisions, you might not need an advisor.
Related: The 13 Best Mutual Funds You Can Buy
7. Do You Want Help With Retirement Planning?
Do you worry you won’t have enough money for retirement? You’re not alone. Studies frequently find that large swaths of Americans are concerned their retirement savings will come up short.
For instance, in the Retirement Insecurity 2024: Americans’ Views of Retirement survey conducted by Greenwald Research, 79% of Americans said they believe there’s a retirement crisis, and a majority of Americans (55%) said they worry they won’t be able to achieve financial security in retirement.
If you have a clear retirement (or even early retirement!) goal and you’re on track to meet that goal, keep it up!
But if you feel like you’re behind on your retirement savings, or you’re not even sure how much you’ll need to retire, a financial advisor could be invaluable. The right financial advisor can help you solidify your time horizon and expectations for your intended lifestyle during retirement, draw up a plan that will help you get there, and help you pick investments that will match your risk tolerance and return expectations.
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