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Key points
- A financial advisor can help you identify and achieve your financial goals.
- Consider hiring an advisor if your finances are complex or you experience a major life event.
- Choose an advisor you feel comfortable with and whose expertise aligns with your needs.
Hiring a financial advisor is a big decision. Not only are you inviting a complete stranger into some of the most intimate areas of your life, but you’re paying for the privilege.
While more than 60% of Americans think their financial planning needs improvement, only 35% seek help from a financial advisor, according to Northwestern Mutual’s 2022 Planning and Progress Study.
The study also revealed how impactful a financial advisor can be, from helping clients save during the COVID-19 pandemic to making them feel like they’re on more solid ground.
Working with a financial advisor can be great, but it isn’t for everyone. Here’s how to determine if you need a financial advisor and what to look for if you do.
Do I need a financial advisor?
Deciding to work with a financial advisor is a personal choice. There is no set litmus test for whether you need one.
That said, if you have investable assets, personal and financial goals, or questions about your finances, you may want to hire a financial advisor.
If it sounds like anyone with money should work with a financial advisor, that’s the gist of it, according to Kimberly Stewart, a financial advisor at Ameriprise Financial, whose personal philosophy is “If you have money, you need a financial advisor.”
“Your finances are too important to leave to chance,” Stewart said. “Understanding money and its applications are paramount to achieving financial success.”
If you already possess that understanding and feel confident in your financial plan and ability to manage your money throughout life’s ups and downs, you may be fine on your own.
Still, you might want to engage a financial advisor for a second opinion and to ensure you’re on track to reach your goals.
At the end of the day, a financial advisor’s job is built around offering counsel and actionable guidance.
“If you’re the type of person who’d feel more confident and in control of your finances if you had someone to gut-check decisions and plans with, working with a financial advisor may be a smart move,” said Manuel Alvarez, a senior wealth advisor at Citi International Personal Bank U.S.
You may also want a financial advisor for peace of mind.
If money creates anxiety for you and you worry about your financial future, an advisor can help you understand your situation and suggest actions you can take to boost your financial confidence.
Find a financial advisor in minutes with Datalign.
When it makes sense
Just like there’s no set litmus test for whether you need a financial advisor, there’s no definitive answer to the question of when you should hire one. But certain situations tend to benefit from financial advice.
Experts say it makes sense to hire a financial advisor in the following circumstances:
- You don’t have the time or inclination to manage your finances.
- You experience a major life event, such as a marriage, divorce, loss of a spouse, birth of a child, relocation or change in your employment status.
- Your financial situation changes, such as receiving an inheritance.
- Your financial situation becomes more serious and the cost of a financial mistake more costly.
“When we begin our careers, our finances can be comparatively simpler than when our families grow, our income grows and life becomes more complex,” said John Diehl, senior vice president of applied insights at Hartford Funds. This is when getting financial guidance can make sense.
While a major event could be the impetus for hiring a financial advisor, Alvarez recommended finding one before life gets crazy.
During busier and more stressful moments, you may feel rushed to choose an advisor and not give yourself sufficient time to vet candidates.
“As many advisors like myself can attest, it’s during those quieter times that you’re more likely to provide an accurate financial picture and, in turn, help your advisor get a clearer sense of your goals as well as any potential pain points and opportunities,” Alvarez said.
Then, when life gets hectic, you’ll have someone in your corner to help.
Financial advisor vs. financial planner
A follow-up question is what type of professional to hire. You’ll most likely encounter two job titles: financial advisor and financial planner. While the terms may be used interchangeably, they describe different types of financial professionals, each providing unique guidance.
“A financial advisor typically focuses on a specific area of your finances,” Stewart said. “Conversely, a financial planner typically helps clients with a more holistic, comprehensive approach that encompasses several aspects of one’s finances, such as budgeting, savings, investments, retirement planning, insurance planning and estate planning.”
Another potential distinction between a financial planner and a financial advisor is the compensation model:
- Financial planners are more likely to be paid a percentage of the assets they manage for you.
- Financial advisors are more likely to be paid through commissions on the products they sell you.
Understanding these points is more important than what a financial professional chooses to call themselves.
Questions to ask a financial advisor
Once you decide to hire a financial advisor, it’s time to begin the interview process.
You may want to meet several professionals to compare their services and fees. Questions to ask before hiring a financial advisor include the following:
- What services do you offer?
- What is your investment philosophy and strategy?
- How are you compensated, and how much will it cost me to work with you?
- How will we work together?
- Do you specialize in any areas of financial planning?
- How is your business structured? Do you work as part of a team or are you a solo practitioner?
- Who will be my primary point of contact with your office, and how will we communicate?
- What is your professional background?
- What credentials do you hold?
Ultimately, while titles and certifications matter, it comes down to whether you feel comfortable working closely with the financial advisor long term. Ask yourself if you trust them and believe in their ability to responsibly manage and grow your wealth. If the answer is anything other than a resounding yes, keep looking.
Tips for choosing a financial advisor
When choosing a financial advisor, consider the following expert tips.
1. Tap your network for recommendations
Your network is a great place to begin looking for a financial advisor. It can include your friends, family, colleagues and neighbors. The best recommendations often come from people whose financial situations resemble yours or who share similar financial goals.
But don’t take a recommendation at face value. “Play the field and meet with multiple candidates to see who you mesh with,” Alvarez said.
2. Identify the factors that are most important to you
Ask yourself what you want most in a financial advisor. What would your ideal advisor be like?
You might prefer working with a financial advisor whose background is similar to yours. For instance, Alvarez speaks Spanish and finds that many of his clients whose primary language is Spanish appreciate being able to communicate that way.
3. Find someone who listens
You could be working closely with this person for decades to come, so it’s crucial that you feel comfortable with them. Ask yourself if the advisor is receptive to your personal and financial goals and confident in their ability to create a financial plan to help you achieve them.
4. Vet their background
Personality traits are important, but so are professional qualifications. “You will want to know about their background, their expertise and if they often work with clients in similar circumstances to yours,” Diehl said.
You can check an advisor’s credentials and disciplinary history using the Financial Industry Regulatory Authority’s BrokerCheck tool or the Securities and Exchange Commission’s Investment Advisor Public Disclosure website.
The former is often used by financial advisors working at broker-dealers, while the latter is likely where you’ll find financial planners working at investment advisory firms. If the professional isn’t listed on the first site you check, try the other.
Frequently asked questions (FAQs)
A financial advisor can wear many hats, but common services include creating a financial plan, identifying investment products for you, and monitoring and managing your portfolio to ensure you’re on track to reach your goals.
The right time to get a financial advisor is when you need financial guidance, such as if you experience a major life change or your financial situation becomes more complex. Or maybe you’re just tired of doing it all on your own.
You might even want a financial advisor to get a second opinion on the financial plan you’ve created for yourself. In short, there’s never a bad time to contact a financial advisor.
How often you should meet with your financial advisor will be determined by you and your advisor.
Many experts recommend at least an annual or biannual review.
Stewart’s tip: Meet with your advisor more often if your financial situation is complex or in flux.
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