Managing your finances can be an overwhelming task, and we’ve all asked ourselves at one time or another if it’s time to hire someone to do the job for us. You may be wondering if a financial advisor is really necessary, how to decide when to hire one, and how much you can expect to pay an advisor. We’ll be covering all of that in this article.
What Is a Financial Advisor?
One of the main roles of a financial advisor is to help individuals and families oversee their investments and make investment decisions. But financial advisors do far more than that. They also help you set financial goals and craft strategic plans to achieve them.
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Financial advisors help with a variety of tasks related to investment portfolios. For example, they can help identify the right asset allocation so that a portfolio is properly diversified. They can also help you optimize your tax situation and rebalance your portfolio as necessary.
Why You Should Get a Financial Advisor
Before hiring a financial advisor, it’s important to consider the advantages and disadvantages. Here are the main advantages of hiring a financial advisor.
• Professional Advice
When you hire a financial advisor, you get the benefit of years of experience. Advisors spend far more time researching the market and planning topics, so they bring something to the table that most individual investors can’t do themselves. Your advisor can also provide you with insights on tax optimization. You can learn more about tax optimization from Personal Capital’s financial advisors in your free, downloadable guide 5 Tax Hacks Every Investor Should Know.
Here’s a story from someone who experienced these insights firsthand. About 10 years ago, Personal Capital Wealth Management client Mike D. wanted to get a better handle on his finances. He started using Personal Capital’s free financial tools, and what he saw surprised him.
“I’d been kind of unhappy with the expenses,” he said in an unpaid testimonial. “When I got my Personal Capital Dashboard and saw how much they were charging me—investment brokerage fees, advisor fees, mutual fund fees—all of those were piling up. And I just wasn’t happy. I think more than anything else, that was the consistent push that I had to make the move [to invest with Personal Capital].”
• Peace of Mind
When you hire a financial advisor, you have the peace of mind knowing that someone is keeping you on the right track and helping you meet your financial goals on time.
“It’s really changed the way I think about money and what money can do for me.” — Kathy L., Personal Capital Wealth Management client in an unpaid testimonial
• Time Savings
Researching and purchasing your own investments can be a time-intensive process. Hiring a financial advisor saves you time, which can be worth far more than the cost you pay for their services.
Why You Shouldn’t Get a Financial Advisor
Here are the main disadvantages of hiring a financial advisor.
Depending on the type of financial advisor you hire, you can expect to pay a fee for your assets under management. Sometimes you may be charged fees you’re unaware of, like Mike D. realized when using his free financial tools. These hidden fees caused him to switch to a wealth management company with a transparent fee structure.
“I tend to like lower-cost philosophies,” he said. “And I saw that the portfolio costs aligned well with how you go to market, invest, and watch for tax optimization.”
• Loss of Control
It can be challenging to hand control of your investments over to someone else. This requires an incredible amount of trust and it can be challenging to find the right advisor for you.
Rhett M., a self-taught investor, experienced this when a serious medical condition caused him to rethink his investment approach.
“Before Personal Capital, I felt all the pressure of not making mistakes for my family. Now if something comes up, I know where to go,” said the Personal Capital Wealth Management client in an unpaid testimonial. “When I had my brain tumor, I was trying to plan for my wife to take over the finances. With my former wealth manager, I just did not have that sense that everything would be okay. There’s no question in my mind that if that had happened now, that I wouldn’t worry because our advisor knows us; he knows our values. I definitely did not have that feeling before.”
• Potentially Biased Advice
All financial advisors should have their clients’ best interests in mind, but that’s unfortunately not always the case. Advisors who are paid strictly through commission may be more interested in recommending products than making the best decisions for your goals.
Personal Capital’s advisors are held to a fiduciary standard, meaning that they have a legal responsibility to act in the best interest of the client, making decisions that are in that person’s best interests.
When is it Time to Hire a Financial Advisor?
It can be difficult to know when it’s time to hire a financial professional to manage your money. Here are a few questions to ask yourself to help you know if the time is right.
Are you going through any major life changes?
Major life changes are often the perfect time to seek the help of a financial advisor. Whether it’s getting married, starting a family, or making a big career move, a financial advisor can help you set and reach your financial goals and make strategic money moves.
Are you struggling to organize your finances?
A financial advisor might be a good idea if you find that you can’t keep your finances organized on your own. Rather than letting things fall through the cracks, consider hiring a professional to keep you on track.
Are you unsure if you’re on track for retirement?
One of the greatest fears many Americans have is not being able to retire comfortably. Many people worry whether Social Security benefits will be available by the time they retire, and data consistently shows that most people simply aren’t saving enough.
A financial advisor can take a look at your situation and tell you whether you’re on track for retirement. If you aren’t, they can advise you on what you can do to get there.
Do you want someone else to make your investment decisions?
Investing can be time consuming, with everything from researching investments and funds to the actual buying and selling. Many people would rather hand those tasks off to a professional.
If you simply want someone else to advise you on your investing moves, a financial advisor might be right for you.
What to Expect When You Meet With a Financial Advisor
When you meet with your financial advisor for the first time, your advisor will want to gain a full understanding of your financial goals and current financial picture.
First, your advisor will ask you a variety of questions about your finances, including your income, monthly expenses, current investments, and more. Next, they’ll try to get a picture of where you want to go. For many people, retirement is the primary financial goal they need help with. But you may have other savings and investment goals they can advise you on.
From there, your advisor will put together a financial plan with recommended next steps. The plan will include details, such as investment recommendations and how much to invest each month to meet your financial goals.
How to Find a Financial Advisor
Finding the right professional to manage your money can be challenging. You want to work with someone who’s qualified and that you trust while still being conscious of the cost. Here are a few steps to follow to find the right financial advisor for you:
1. Understand the different types of professionals.
Financial professionals go by many different titles, including financial advisor, financial planner, or wealth advisor. Some may help create a holistic financial plan, while others focus solely on managing your investments. It’s important to understand what you want out of a financial advisor.
2. Look for the right credentials.
There isn’t necessarily a specific set of credentials required to be a financial advisor. Certified financial planners (CFPs) are held to a fiduciary standard, meaning they have a legal and ethical responsibility to act in your best interests. All of the financial advisors on Personal Capital’s wealth management team are held to the fiduciary standard, meaning they are held to the highest standard.
3. Ask how they’re paid.
Financial advisors are typically paid by either fees or commissions. Remember that being commission-based could also mean your best interests aren’t their top priority.
4. Look for the right fit.
Just because someone is a good financial advisor doesn’t necessarily mean they’re the right one for you. It’s important to find someone who feels right to you and who has a similar financial philosophy so you know they’ll manage your money in a way you’d want.
Hiring someone to manage your finances feels like a big step.
There’s no one right time when people should seek professional help. When the time is right, you’ll have the peace of mind of knowing that an expert is keeping you on track to meet your financial goals.
For free, you can try out the Personal Capital Dashboard, a suite of interactive financial tools to help you meet your goals. Millions of people use these professional-grade tools to see all of their financial accounts in one place and plan for long-term goals like retirement. If you then choose to become an investment client with a fee-based fiduciary advisor, you have full visibility into your investment portfolio and long-term financial planning.
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Personal Capital compensates Don Sadler (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.