Do I Need a Financial Advisor or Should I Go It Alone?

Do you need a financial advisor? The answer depends on different factors — the complexity of your finances, how comfortable you are managing investments, where you are in your wealth journey, and where you’d like to be.

The advisor’s mission is to close the gap between where you are financially and where you’d like to be. But there are costs involved and not everyone needs the help.

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Making a confident decision about hiring (or not hiring) an advisor requires some information-gathering, plus a bit of self-reflection.

What Does a Financial Planner Do?

Effective financial planners provide guidance that helps you reach your financial goals. Investment management and strategy is a primary component of that guidance. You can tap an advisor for a comprehensive investing strategy and more specific services like:

• Household spending review and budgeting
• Retirement planning
• College tuition planning
• Assessment of and recommendations for insurance protection
• Consultation with estate planners, tax planners, and other advisors

Financial planners are essentially personal finance mentors. They learn your situation, provide advice, and guide you towards informed financial decisions.

Financial Advisor vs. Financial Planner

The terms financial advisor and financial planner are often used interchangeably in conversation. Technically, though, they’re not exactly the same thing.

Financial advisor has a broader meaning than financial planner. Advisor encompasses planners as well as stockbrokers, insurance agents, estate planners, bankers, and accountants.

Working With a Financial Planner

Your role in the advisor relationship has three main parts:

1. You share your financial information and goals.
2. You evaluate and then accept or veto your advisor’s recommendations.
3. You fund the recommendations you accept.

Before you choose a financial advisor, think critically about your ability to fulfill these responsibilities. Are you comfortable sharing your financial details, speaking up when you disagree, and investing money per your financial plan? Ideally, the answer is a resounding yes.

If you’re not willing to be financially transparent and fund your choices, you may get limited value from an advisor.

When to Hire a Financial Advisor

One in three working adults and retirees currently consult with a professional financial advisor, according to a 2022 retirement survey from Employee Benefits Research Institute. Of those who don’t have an advisor today, nearly half said they intend to work with one in the future.

The cue to engage an advisor is often a significant life event, such as marriage or divorce. But there are other prompts, too. These include increased financial complexity, lack of time or investment expertise, and even disagreement among household members about the shared financial strategy.

Significant Life Events

Life events that change your financial picture or outlook include:

• Marriage: Combining two sets of finances can get complicated. Messier still can be the process of setting shared financial goals.
• Divorce: You may need help recasting your outlook with one income instead of two.
• Becoming a parent: Kids change the expense structure of your household and add new financial goals, like paying for college.
• Inheriting money: You’ve lost a loved one and gained a windfall. You may welcome outside guidance on investing that windfall in this stressful time.
• Assuming caregiver responsibilities for an elderly parent: Your income or expenses may change. You might need to reevaluate your retirement plan.
• Starting a business: Starting a business has risk. You may need to balance that risk by getting more conservative in other areas of your finances.
• Selling a business: Selling a business reshuffles your assets and probably changes your income. Both outcomes affect how you should manage money and investments going forward.
• Starting a new job or getting a promotion: An increase in income unlocks more money to pursue your financial goals. You may need guidance on how to invest that extra income efficiently.

Note that financial advisors can provide one-time consultations, as well as ongoing guidance. After a major life change, you may only need a short-term engagement. Typically, the outcome would be a financial plan you could implement yourself.

For example, say you just became eligible to contribute to your 401(k). You could choose a financial advisor to recommend initial investment choices appropriate for your age, risk tolerance, and goals. Then it would be your job to activate those investment selections and monitor your performance.

Increasingly Complex Finances

Finances naturally get more complicated over time, even without big life changes. You earn more, invest in your 401(k), contribute to an HSA, buy life insurance, and so on. One day, you may start doubting your ability to manage it all.

Financial advisors are particularly useful in this scenario. The good ones will take a comprehensive view of your assets and identify strategies to optimize your investment returns, lower your risk, or both.

Lack of Time or Expertise

Managing your money and investment portfolio can be like a second job — a second job you may not want. If you don’t have time for research and monitoring your portfolio, you can retain an advisor to do it for you. Your advisor does the tedious work and you get involved when it’s decision time.

Similarly, you might not feel comfortable making investing decisions. After all, investing is a confusing subject. A good advisor can support solid decision-making and help educate you on best practices of money management.

Household Conflict on Strategy

Nearly three-quarters of married or cohabitating adults admit to financial tension in their relationship. That’s according to a recent survey by the American Institute of CPAs.

Money conflicts may prevent you and your partner from moving forward on a wealth plan. You might retain a financial planner to smooth over those conflicts with objective, expert advice.

How Much Money Do You Need to Hire a Financial Advisor?

It’s a common question: Do you need a certain net worth to work with an advisor? Generally, no. Some advisors do enforce net worth thresholds, but many do not.

Having said that, it probably doesn’t make sense to retain an advisor if you’re living paycheck to paycheck. But if you have $100 monthly or $10,000 monthly available to support your financial goals, you might benefit from professional guidance. That guidance could be a one-time consultation to set an investment strategy, or it could be an ongoing relationship.

Pros and Cons of Working with a Financial Planner

There are clear advantages to working with a financial professional:

• Your advisor saves you time. They can research investment options and monitor your investment performance, so you don’t have to.
• Your advisor is an expert. Depending on your investing expertise, you may see better investment results working with an advisor than by managing money yourself.
• Your advisor can keep you from making expensive, emotional decisions. Emotion can be an investor’s worst enemy. Putting an advisor between you and your money can create the space you need to stay patient when the market gets volatile.

Big Financial Goals but No Plan

Here’s what it comes down to: If you have money to invest, financial goals to pursue, but no definitive plan, it may be time to retain an advisor. The right one can reduce financial stress, streamline your decision-making, and guide you to a wealthier future.

By Catherine Brock, Contributor