You know how important having a plan is for financial success. And you have started to see some initial progress. But you wonder if professional financial advice is only required by the very rich. Could anyone like you benefit from a financial advisor? Would you?
Professional financial advisors do have specific education and experience. Their job is to help you build and protect your assets. And they make the most of your investments to secure the long-term future for you and your family.
If you are reading this, you may wonder about hiring your own financial advisor. So many tools exist to help manage finances. Everything from free retirement calculators to personal finance apps. Yet, today in these uncertain times, it is more important than ever to have a real pro on your side. So, it is time to ask: Why do you need a financial advisor? Here are a few reasons:
- For Your Family’s Protection
- To Help Plan for Saving and Spending
- Plan as You Get Older
- To Secure Your House
- For Investment Goals
- To Balance Assets
- For a Professional Objective Assessment
- Tax Planning
- To Stay on Track
- For Peace of Mind
- Information Overload
- There are Too Many Choices
- Even the Pros Need Help
- Who is the Expert?
- Your Own Personal Biases
Let’s look at these reasons listed. Because you may discover that a financial advisor could be more important than you imagined!
But First, What Is A Financial Advisor?
To begin with, a “financial advisor” is not the name of a degree or an official title. It is a generic description of a job. That job covers a wide variety of financial services. So, ask about the background of your financial advisor. They might be a:
· Certified Public Accountant (CPA)
CPAs take rigorous exams to get their certification. They help with accounting, taxes, consulting and business services like mergers and acquisitions.
· Personal Finance Specialist (PFS)
These CPAs pass even more exams and have more extensive education and experience to become PFSs. They help with broader areas of financial planning.
· Certified Financial Planner (CFP)
CFPs pass an exam for certification, too. Plus, they agree to the CFP code of ethics and must have some work experience. Their expertise is in taxes, insurance, estate planning, and in retirement planning.
There are other types of financial experts, but these are the most likely ones you will encounter. Plus, some financial advisors have more than one license. For example, a Certified Public Accountant (CPA) might also be a Certified Financial Planner (CFP). The important thing is to work with a professional with the training and experience applicable to your situation.
Now, let’s look at the 15 reasons why you need a financial advisor.
1. For Your Family’s Protection
First, financial planning starts with life insurance. There is a myriad of different life insurance products available on the market. Some are excellent investments or ideal financial protection vehicles. The reason there are so many is because there are so many different life situations. Because every person’s situation is different, an adviser can tell you which insurance policies fit for you.
The financial advisor carefully assesses your life position and guides you through to see the best options for the protection of your family. Every situation is different whether you are married or single, have a young family, or will soon retire.
2. To Help Plan for Saving and Spending
Long-term security means building up some assets. Firstly, to pay for emergencies and then for luxuries and holidays. So, step one plans the spending habits for you to begin saving. And step two plans saving patterns so that you build wealth quickly and efficiently.
Living below your means could be the most common financial advice repeated in the modern world. And for good reasons. You cannot get ahead financially if you spend all your income. However, it is super easy to follow along as your friends hit milestones or you start earning more money.
Your advisor helps you keep your fixed expenses reasonable and stable based on what you earn. Of course, when you make good money there comes the freedom to spend how you want. But be careful your lifestyle expenses don’t get to be more than your income.
No matter how many dollars you begin with, a financial advisor looks at your situation and finds a starting point to help move you into a successful future. The earlier you start, the better. The best time was 5 years ago, but the second-best time is today.
3. Plan as You Get Older
After you plan for your short-term savings, it is time to think about the longer term. Planning for your retirement means sifting through tax rules, product options and intricate asset combinations. Thus, maximizing your long-term financial success.
Estate planning begins as you build some wealth. Your task becomes to decide how the money disperses if something happens to you. A financial advisor works with your estate attorney to distribute your assets according to the instructions you leave. That way, your wishes supersede probate court and eliminate family arguments after you pass.
A substantial potential expense in your retirement years is long-term care. In-home medical care or rehab hospital stays after an injury burn through retirement funds exceptionally quickly. A financial advisor helps you consider your options for long-term care.
A financial advisor helps you develop retirement spending strategies. Once you retire, which ones of your investments require minimum withdrawals every year? Is there an income stream that is best for you to tap into first? These sorts of questions are vital as you begin spending the money you saved over your working life. Your financial advisor helps by showing you the options so you can make the best retirement decisions.
4. To Secure Your House
Mortgages are complicated, especially after the credit crunch. Lender requirements are more stringent. Plus, buying a home is often the most expensive decision you make in your life. Financial advisors often save you many thousands of dollars. They seek the best interest rates for you and help you objectively assess levels for borrowing. They help make the most of your down payment funds and could find mortgage lenders otherwise unavailable to you.
5. For Investment Goals
As you get older and your income and assets increase, it is time to consider enhancing your financial position, not just consolidating.
Many Americans consider early retirement, but this could also mean private school fees or college tuition for your children. Whatever the goals, a financial advisor helps you objectively assess what is realistic. Then, they create a plan with you to allow you to achieve it.
6. To Balance Assets
Investment both protects against potential downturns and targets maximum growth. Higher returns often mean higher risk, so you want to match your risk tolerance to how you balance your assets.
As you rebalance your investments, you change where your assets are to protect your wealth. Most portfolios are made up of several types of investments. You might have bonds, mutual funds, and cash equivalents. For example, you might invest half of your money in bonds and the other half in mutual funds.
A financial advisor carefully makes a detailed assessment of your financial situation and your attitudes toward risk. They use this combination of information, along with the details of specific investments to make recommendations. Plus, they make sure you diversify your assets across different asset classes and in various accounts, funds and providers.
Over time, the closer you get to retirement, your trusted financial advisor will show you how and when and how to make the necessary changes.
7. For a Professional Objective Assessment
New investment opportunities and products often come with some marketing hype. The product presentation makes the opportunity sound tremendous and hard to resist! But it isn’t necessarily right for you and your current financial situation.
A good advisor knows how market dips work like getting your stocks at a discount! They encourage you to leave the investments alone. And then to invest any extra cash if you can to get stocks at the lower price.
Likewise, when a new stock or investing fad starts to soar, an advisor helps keep your portfolio balanced. So, your retirement outlook doesn’t end up looking like a casino in Vegas.
Investors get caught in market bubbles and high fees sometimes because they rush into investments that “seemed like a good idea at the time.” Your financial advisor sees through the façade to identify both potential downsides and benefits. So, that way, you make informed decisions about every investment.
8. Tax Planning
With a thorough risk and investment assessment completed, next look at tax planning. Even a basic overview of your tax position can save you thousands.
Tax planning includes using any tax-deferred savings accounts, pension plans and medical account options. Sometimes moving the ownership of assets to your spouse or child may maximize personal allowances for the family. You benefit from incentives, growth assets, and capital gains allowances to pay less income tax.
Plus, different tax laws apply to various financial situations. Some investments mean you pay more tax than others. Your advisor knows which assets impact your taxes, when the taxes are due, and how much you will have to pay. A professional financial advisor always considers your tax position when they make a recommendation.
9. To Stay on Track
How much should you have already saved for your retirement based on your current age? Can you make up for any lost time because you started investing later than you should? Is it a good idea to change your investments in your portfolio when you get older?
These questions seem impossible to answer, but for a financial advisor, this is everyday stuff. Because your advisor knows how to do the math, they keep you on track to save for your retirement. The AARP suggests savings of between $1 million and $1.5 million for a “comfortable” retirement. Yet, the Transamerica Center for Retirement Studies, a non-profit, private foundation, offers shocking news. Their research educates on emerging trends about retirement security. Results from recent TCRS studies say Americans in their sixties have an average of $172,000 in savings.
So, even when you have your investments in place, and everything goes according to plan, your financial advisor monitors everything. Market developments, global pandemics, elections, and other events can push investments off course. A financial advisor keeps a watchful eye on investments, assessing performance against other options. That comparison ensures your asset collection and allocations do not get distorted during market fluctuations. And it helps you to consolidate your gains as your deadlines, like retirement or college tuition or mortgage payoffs, come closer.
10. For Peace of Mind
Money and investments are complicated, and there are many considerations to provide protection and maximize your wealth. Financial markets fluctuate, and with that volatility, the media sometimes exaggerate risks.
Professional advisors are knee-deep in investments every day, all day. You might spend several hours on the internet looking up different definitions, deciphering acronyms, and going over reports, the professionals don’t need to do that. This is all second nature to them. They find answers in no time because that is the world where they live. They save you countless hours just in time you would rather spend doing almost anything else.
A good financial advisor cuts through the hype, so you have peace of mind. For general, practical financial advice or specialized expertise, usually, in the long term, your money is well spent on expert advice. Most investors find anything they pay to a financial advisor is paid back to them many times over.
11. Information Overload
We live in the information age. Consumer education empowers the ability to make informed decisions, but it also becomes overwhelming. One quick internet search will yield conflicting advice on pretty much any investment topic, so how do you decide?
It is wonderful to access information readily, but reading about a complex financial topic doesn’t necessarily equate to understanding. Even if you do understand the investment option thoroughly, making an objective decision about your situation remains challenging. Information makes it possible to thoroughly consider an investment decision. But too much information causes procrastination and paralysis over the fear of making a wrong decision. Then how does access to information help?
A big part of the job of a financial advisor is to sort through information sources and help you focus on the best decisions for your finances and personal goals.
12. There are Too Many Choices and Too Little Time
Just here in the US, you can choose from over 10,000 mutual and exchange-traded funds (ETFs). Sorting through this vast collection of choices takes a lot of time. And in the end, you may settle on something that just has the best marketing scheme. Does this create peace of mind for your investment choices?
If necessary, you could learn to cut hair, change the oil in the car and sew your own clothes. But do you really have the time? And is that what you want to do? Where is it best for you to spend your time?
If you are retired, you may have time to read through the newspapers, research all kinds of stocks, or discuss ongoing changes in tax law with your accountant. A busy working person with a young family probably doesn’t have that time available. The young family might really appreciate the financial advisor’s help to keep up on changes. The markets and laws change regularly, so when you need some expertise, one call or an email to your advisor takes the pressure off.
A Hobby? Really?
Some investors commit many hours and consider picking through funds a hobby. But if you have other responsibilities and hobbies, a professional financial advisor paves the way. Each advisor usually has specific lists of vetted go-to investments. They do extensive research and complete the due diligence to be sure these investments meet particular criteria. They watch for features like low expenses, consistent top returns, or tax advantages.
You weigh how best to spend your time. When your financial advisor helps free up your time, you concentrate on earning more or spending time with family. So, that advice is priceless.
Helping you to sort through the veritable financial supermarket myriad of choices is another excellent reason why you need a financial advisor.
13. Even the Pros Need Help
Your doctor doesn’t perform surgery on them self. Your dentist has a dentist. Even your hairstylist has someone else do their hair! Experts get advice and consult with others they trust and respect. And that is especially true in financial planning. Everybody has blind spots when it comes to their own money.
Blind spots are different for different people, but you likely have several blind spots as you manage your wealth. Sometimes it is making emotional decisions about finances. Other times it is about misinformation. You have to be very careful because these blind spots will cause big problems for your financial plans. That’s another reason why you need a financial advisor.
A professional advisor gives you a complete overview and comprehensive details about your financial situation because they make an objective assessment. From the outside looking in, your advisor searches for weak spots you may not notice. And they give you solid advice on how to go about fixing them.
Additionally, they keep a cool head if ever you are in a panic. And they offer you well-educated advice to make wise money choices.
14. Who is the Expert?
Just like your general practice physician refers you to a specialist, if you have a specific condition, a financial specialist has the expertise you need. This is especially true of financial advisors who focus on work in a niche market. Some advisors have specialized practices in transition times, like if you sell a business or plan a divorce. Others work within a particular profession or industry, like teachers or dentists.
Each advisor develops unique expertise in their chosen field since they have years of experience with clients in similar situations. For example, a financial advisor may be an expert about the pension plan in your state and how it affects your Social Security claim. This might be exceptionally helpful as you plan for your retirement. So, if you are in a unique financial situation, a specialized expert advisor might be your best choice.
15. Your Own Personal Biases
When you manage your own money, there are both advantages and disadvantages. You keep costs down, and you might find there is some fun if you need a hobby.
But everyone has personal biases.
It can be challenging to know precisely where each bias is and how to counteract it. It is necessary to reflect on how each bias impacts your decisions and how significant an impact they may have. For example, if you lost money in the tech-stock bubble of the year 2000, you may be biased against tech stocks. If so, you could miss out on decades of growth in technology stocks since that crash. An impartial advisor helps you recognize and counter any biases you may overlook.
And you might not think of yourself as being emotional, but most people make pretty rash emotional, financial decisions. The known phenomenon exists that humans feel more negative about losing money than we feel positive about making money.
Many investors find the ups and downs difficult to stomach as they watch their own money in the stock market. So, part of a financial advisor’s role is to hold you steady through tough market times. Then they help you make rational and logical decisions. That way, you don’t hit the panic button and react in a fashion that could lose you money in the longer-term.
Plus, this is not the all-or-nothing proposition it appears. You can manage your money and consult with an advisor to help with your overall financial picture. Or hire a specialized advisor to manage a portion of your portfolio. And you can always get expert advice in taxes, investment funds, a mortgage, or the stock market.
When to Meet with A Financial Advisor
Start working with a financial advisor as you begin to build some wealth. And be sure to meet with them twice a year or more. When you meet, review your portfolio and walk through the changes you want to make. But specifically, get the help of an advisor when you are:
- Near or at Retirement
- About to Start a Family
- A High Earner
- A High Net Worth Individual
- Facing a Very Specific Planning Need
- Coming into Money
Now, these situations are some of the times you need specifically to meet with a financial advisor, but they aren’t the only reasons. If you have financial questions, contact a financial advisor to see if they can help.
What to Expect in Your Meeting With A Financial Advisor
When you first meet with a financial advisor, it might feel a bit intimidating. And you might wonder what questions you should ask.
But don’t let that feeling stop you from getting the help you need. Here are some sample questions you can consider asking in your first meeting:
- What educational background do you have? What certifications as a financial advisor do you have?
- How long have you been working as a financial advisor?
- What services do you provide? Do you provide any specialized niche services? If so, what or for whom?
- What are the smallest, average, and most valuable portfolios you work with?
- What are the fees for your services? Are there different levels of service? What are they and what do they include?
- How often do you evaluate my overall financial situation to provide a current plan?
After that initial meeting, set up another appointment time. Then, go over the details of your current financial situation. Talk about the retirement accounts you have, such as IRAs or Roth 401(k)s. If you have children, talk about saving for their college funds. Then, talk about any long-term financial goals like paying off your mortgage, buying another property and retirement. And then you work together with your advisor to develop a game plan to achieve those goals.
Everyone doesn’t need a financial advisor. But the reasons for not having one are not what most people think. It is not about how much money you have so far. And it doesn’t matter how old you are. No matter how much money you have and how old (or young) you are, a financial advisor might be able to help you gain and protect your wealth.
On the other hand, if you enjoy personal financial planning as a hobby, have unlimited time to dedicate to it, and the emotional stability to clearly see your own biases, then you might be okay alone. But if you would rather spend time doing pretty much anything else, or require specific expertise from a trained professional, then you need a financial advisor.