Do I Need a Financial Advisor?

Do you need a financial advisor?

Or, to rephrase this question: Could you get greater benefit from an advisor than the cost of their fee?

The answer is a firm "maybe," depending on your knowledge and comfort with your budget, investments, and financial plan.

Financial advisors can help everyone

People have a tendency to conceptualize financial advisors as people who only help mega-wealthy individuals and families.

But this isn't accurate. Financial advisors, believe it or not, are common among middle-class families who need help with planning for retirement, saving for their children's college, buying a home, and taking care of other major financial goals.

To decide if you need to hire a financial advisor or what type of advisor to hire, you need to first ask yourself some questions and assess your comfort level with making financial decisions.

Financial advisors eliminate emotional decision making

Especially when involved in a fairly risky investment strategy, people have a tendency to emotionally react to changes in the stock market.

If you have a financial advisor assisting you with your investment decisions, they will be able to help you keep an emotional distance from your money so that you can make the best long-term plan for your money.

Your financial advisor will be able to help you allocate funds into a portfolio that best matches your personal risk comfort level.

Technology instead of a financial advisor?

More and more financial planning apps like Draft and websites like Personal Capital are making every day financial management decisions easier to handle with the help of a financial planner. Many of these apps and websites offer very similar services as that of a financial advisor.

Especially if you’re confident in your money management skills and investment choices, with the help of these planning tools, you may not need to shell out money for the cost of a financial advisor.

Financial advisors are helpful for big life changes

While apps and websites are definitely helpful, sometimes they just won’t be as beneficial as an actual financial advisor.

Would you know how to deal with the tax consequences of an inherited IRA? What about if a family member suddenly leaves you a large sum of money? Would you know how to invest it?

If you are suddenly facing a new or drastic change to your finances, like receiving a large inheritance that you aren’t sure how to invest, a financial advisor would help decide what to do with your money and how to handle any tax fallout.

If you are about to retire, and you aren’t sure how or when to start withdrawing from your 401k and other retirement accounts, you may benefit from hiring a financial advisor.

Are you comfortable with your financial situation?

If you feel confident, but would still like an advisor looking over your shoulder, you will most likely be able to get by paying a flat, one-time fee for a financial advisor once a year. You can manage your won accounts the rest of the time.

If, however, you hate dealing with finances, you don’t understand the first thing about implementing an effective investment strategy, or you receive a huge sum of money you’re not sure what to do with it, I recommend finding a financial advisor to help with your financial management needs.

When making the decision whether or not to hire a financial advisor, look at your finances ask yourself if you feel like you know what you’re doing. If you feel like you have a good handle on your daily financial needs, great, you probably don’t need to spend the money on one. Only look into hiring a financial advisor if a big financial life change pops up. At that point, weigh the pros and cons of the cost of a fee-based planner versus a commission-based planner.

If, however, you feel stressed over your money or feel like you’re not making the best decisions possible, then a financial advisor would definitely be a financially wise move that would most likely end up worth the investment.