All You Need To Know About Hiring a Financial Advisor

Good financial advice has the potential to reduce your debt, make you wealthier, or even help cushion your retirement. However, it is not always easy to find and may cost you more than you may think. Worse still, bad advice can actually be costlier. That’s why it is important to be cautious of the sources of financial services advice you choose to follow.

The Internet today is literally littered with all kinds of websites and self-proclaimed investment gurus all claiming to offer personal financial advice online. However, before you decide to commit to any specific one, you need to ensure that the information you seek comes from a legitimate source. Financial advisors are as close as you can ever get to a legitimate source of good advice.

What Is a Financial Advisor?

Financial advisors are also known as a financial adviser or financial planner and is a professional that works with clients to offer financial guidance and develop a comprehensive financial plan that includes savings, budget, insurance, and tax strategies that align with the financial goals of their clients.

Financial advisors offer clients analysis, guidance, and asset management. They use their knowledge of the markets and trends as well as their expertise to monitor client portfolios. While the financial advisor field is largely unregulated the best advisors are certified and licensed.

Financial advisors can offer a wide range of services, which include but aren’t limited to estate planning, investment management, and tax planning. Financial advisors are also increasingly offering a range of services from portfolio management to insurance products as a one-stop-shop.

Types of Financial Advisors

Financial advisors are professionals with varied areas of expertise and who offer a wide range of services. Hiring the right type of financial advisor that will meet your specific requirements is critical to ensuring that you receive the right kind of assistance you need. Here are the different types of financial advisors available today:

  1. Robo-Advisors

A Robo-advisor, such as Betterment.com, is an automated algorithm designed to recommend a particular investment portfolio based on your risk tolerance, goals, and age. Using a Robo-advisor is perhaps the fastest, easiest, and cheapest way to gain exposure to the markets and is ideal for those looking to invest but who lack the capital to work with a professional asset manager.

Robo-advisors generally don’t offer any financial planning advice, but you can combine Robo-advisors with simple financial plans to create an inexpensive financial ecosystem. Robo-advisors are also experiencing an explosion in popularity, which makes them highly accessible and competitively priced. Just about every broker-dealer currently offers a Robo-advisor.

  1. Online Financial Planning Services/Virtual Advisors

Online financial planning services include many of the features offered by robo-advisors but build on them by including the opportunity to consult with professional advisors if and when questions arise. This helps bring you closer to working with an in-person advisor, but via an online interface.

Virtual advisors also differ from Robo-advisors in that they usually have minimum investment requirements that are sometimes relatively high especially for beginner investors. Still, they are considerably cheaper than working with an in-person advisor.

Virtual advisors and online financial planning services tend to appeal most to younger, more technologically savvy investors, investors that don’t like the idea of spending too much time driving to and from meetings, as well as investors in remote locations.

III. In-Person Advisors

If you are a person that prefers a more hands-on approach, then a traditional, in-person advisor may be just what you need. It is the more traditional form of financial advising that includes a wide range of services to help you handle different aspects of your finances beyond investment accounts.

In-person advisors are ideal for those with complex financial situations such as large net worth, complicated retirement, and estate planning goals, investment accounts, etc. because those require an experienced professional’s thoughtful analysis.

If you decide to work with in-person advisors, there are different professionals that can provide the specific personal financial guidance you need. Below are some of the specific job types along with their definitions. However, you should keep in mind that the same person may hold multiple titles:

– Financial Advisor: It is a general term for a professional responsible for providing financial guidance to clients.

– Financial Consultant: It is a term used to refer to a professional that offers insights regarding a certain financial goal or issue.

– Wealth Managers: A professional usually employed by high net worth individuals to assist with the management of your wealth.

– Registered Investment Advisor: A professional that offers investment advice and makes recommendations. They are usually registered either with a state regulator or the U.S. Securities and Exchange Commission.

– Stockbroker/Broker: A person that purchases and sells financial instruments (stocks) on behalf of their clients in exchange for a commission, fee, or both. They are required to first pass examinations and register with the U.S. Securities and Exchange Commission before they start working.

When Should You Work with Financial Advisors?

Just about anybody can work with a financial advisor at any age or stage of life. You don’t need to be a high net worth individual; all you need to do is find an advisor that’s suited to your situation. If you need a plan for saving money, are finding it difficult to prioritize financial goals, or want help with investment management.

Here are some of the specific instances when it makes perfect sense to work with financial advisors:

I.When Planning for Retirement

One of the best times in your life to consider hiring a financial advisor is when you are either planning for or approaching retirement. It is important to hire one since a bear market may come just after retirement causing you to lose most or all your money especially if you don’t have a properly balanced portfolio.

Professional financial advisors will help you balance your portfolio and make it more conservative. That refers to the allocation of money to a wide range of financial instruments including bonds, stocks, mutual funds, etc. That way, you won’t risk losing all your money if there’s an unfortunate bear run.

The other key reason why you need to hire a financial planner when planning for retirement is that you may quite easily outlive your money. Today, the average life expectancy has risen to anywhere between 90 and 95 years. So, if you retire at 65, there’s a possibility that you may live an additional 30 years. Financial planners can help you devise a plan for generating extra income to help prolong the goals of your investment portfolio.

II.When You Are Looking to Invest

Investing is one of the most intimidating topics for most people. Financial planners or investment advisor/investment management services will help you develop a suitable investment plan for your money. While you don’t always need an advisor to help you invest, if you are a beginner and don’t know where to start, it makes perfect sense to work with a professional who has more expertise in the area.

Good financial planning will help you identify both short-term and long-term investment goals that you might not have necessarily thought about. A short-term investment goal, for instance, can be something as simple as paying off your credit card bills thus freeing up some money. You can deposit that extra money into a safe investment such as a high-interest savings account. A long-term investment goal, on the other hand, can be investing in a tax-deferred account.

III. When You Want to Start a Family

When you are planning for a major life event such as starting a family, you should consider hiring a certified financial planner. Starting a family might be exciting, but it can be very expensive too. You must think about childcare, mortgages, medical expenses, and housing expenses.

Furthermore, if something were to happen to you, you would want to ensure that your spouse and children are protected financially. That means that you would need to ensure that you have insurance in place.

IV. When You Want an Impartial Third-Party Opinion Regarding Your Finances

Today, there are many do-it-yourself investors that never even consider hiring a financial investor. Their reasoning is that since they are fairly savvy when it comes to investing, it doesn’t make a lot of sense to pay someone a fee or commission every year and reduce their returns.

However, things are not always black and white when it comes to investing. No matter how much you learn about investing, you can never be on the same level as someone that deals with it on a daily basis. You are also still human, which means that you are susceptible to making irrational financial decisions.

Hiring a financial advisor can help you identify an opportunity that you might have otherwise overlooked or save you from making disastrous financial decisions and may actually increase your investment returns, in spite of the fee you are required to pay.

I. When Planning for Retirement
One of the best times in your life to consider hiring a financial advisor is when you are either planning for or approaching retirement. It is important to hire one since a bear market may come just after retirement causing you to lose most or all your money especially if you don’t have a properly balanced portfolio.
Professional financial advisors will help you balance your portfolio and make it more conservative. That refers to the allocation of money to a wide range of financial instruments including bonds, stocks, mutual funds, etc. That way, you won’t risk losing all your money if there’s an unfortunate bear run.
The other key reason why you need to hire a financial planner when planning for retirement is that you may quite easily outlive your money. Today, the average life expectancy has risen to anywhere between 90 and 95 years. So, if you retire at 65, there’s a possibility that you may live an additional 30 years. Financial planners can help you devise a plan for generating extra income to help prolong the goals of your investment portfolio.


II. When You Are Looking to Invest

Investing is one of the most intimidating topics for most people. Financial planners or investment advisor/investment management services will help you develop a suitable investment plan for your money. While you don’t always need an advisor to help you invest, if you are a beginner and don’t know where to start, it makes perfect sense to work with a professional who has more expertise in the area.
Good financial planning will help you identify both short-term and long-term investment goals that you might not have necessarily thought about. A short-term investment goal, for instance, can be something as simple as paying off your credit card bills thus freeing up some money. You can deposit that extra money into a safe investment such as a high-interest savings account. A long-term investment goal, on the other hand, can be investing in a tax-deferred account.

III. When You Want to Start a Family

When you are planning for a major life event such as starting a family, you should consider hiring a certified financial planner. Starting a family might be exciting, but it can be very expensive too. You must think about childcare, mortgages, medical expenses, and housing expenses.
Furthermore, if something were to happen to you, you would want to ensure that your spouse and children are protected financially. That means that you would need to ensure that you have insurance in place.

IV. When You Want an Impartial Third-Party Opinion Regarding Your Finances

Today, there are many do-it-yourself investors that never even consider hiring a financial investor. Their reasoning is that since they are fairly savvy when it comes to investing, it doesn’t make a lot of sense to pay someone a fee or commission every year and reduce their returns.

However, things are not always black and white when it comes to investing. No matter how much you learn about investing, you can never be on the same level as someone that deals with it on a daily basis. You are also still human, which means that you are susceptible to making irrational financial decisions.

Hiring a financial advisor can help you identify an opportunity that you might have otherwise overlooked or save you from making disastrous financial decisions and may actually increase your investment returns, in spite of the fee you are required to pay.

V. When You Have a Lot of Debt

You can probably handle having several thousand dollars in debt on your credit cards, student loans, or other small debts. However, if you are dealing with debt amounting to hundreds of thousands or millions of dollars, you should consider seeking guidance from professionals that have assisted others facing similar situations.

A financial advisor will help you make a budget and set up a financial plan for paying off the debt including your credit cards. They can help you find extra funds in your budget to service your debts. So, if you need to sort out your debts or have trouble paying your bills, you should consider hiring a financial advisor.

VI. When You Have a Lot of Debt

You can probably handle having several thousand dollars in debt on your credit cards, student loans, or other small debts. However, if you are dealing with debt amounting to hundreds of thousands or millions of dollars, you should consider seeking guidance from professionals that have assisted others facing similar situations.

A financial advisor will help you make a budget and set up a financial plan for paying off the debt including your credit cards. They can help you find extra funds in your budget to service your debts. So, if you need to sort out your debts or have trouble paying your bills, you should consider hiring a financial advisor.

Services Provided by a Financial Advisor

They may offer a variety of services to you. Such services will usually be considered in concert with each other. That helps the advisor develop an overall plan that considers all aspects of your current situations along with your future aspirations. Here are some services that financial advisors provide:

Retirement Planning

Investment decisions are inevitably an integral component of retirement planning. However, one thing that’s often overlooked is how to withdraw funds from the nest egg after retirement and especially the kind of retirement you want to have. A financial advisor will help you develop a clear vision for retirement and a plan for achieving that vision.

Wealth Management Services

Your wealth portfolio is probably comprised of different kinds of investments such as cash, stocks, bonds, mutual funds, etc. and all of them represent all your money. For instance, you may have 50 percent of your wealth in stocks, 25 percent in mutual funds, and the remaining 2 percent in cash or bonds.

Over time as you get closer to retirement, you may want to seek wealth management services to change these percentages to better manage and protect your wealth. Wealth advisors can advise you on when and how to change those percentages to have a more balanced portfolio through the correct management of your wealth.

Estate Planning

You obviously need an attorney to draft the documents to be used in estate planning, but you still need an advisor to help put the documents in the context of your financial circumstances along with your vision of how you would like your estate allocated. This is classed as good management.

Financial advisers can discuss strategies for living wills, wills, trust, power of attorney, life insurance, and other issues of the distribution of wealth, both in life as well as in death.

Annuities

Annuities are insurance contracts issued by insurance companies. Annuities are of three main types: fixed, variable, or indexed and have been a long part of financial advisors’ toolkits since they offer clients the chance to obtain tax-deferred growth and income in retirement for a cost.

Annuities can be an integral part of your overall retirement strategy, but they are not ideal for everyone. Top financial advisers will help you determine whether annuities make sense for your financial situation and needs.

Life Insurance

Proper financial advice cannot be complete without accounting for or at least considering the numerous risks people face in life such as a disability or early death or even the unexpected loss of property.

Financial professionals or advisors will help you evaluate your financial needs and develop suitable strategies for mitigating the risks you face in life that are customized to your situation and ultimately help you pick out the best life insurance and health insurance policies.

Asset Protection

It is always good to have a nice ‘cushion’ in the form of assets. Unfortunately, most assets have liabilities attached. So, it is important to determine an asset’s true value. A financial advisor has a good understanding of finances and the know-how to settle or cancel liabilities to ensure that you don’t end up with assets that become a burden in the future. Your advisor will look at your asset management and create a financial plan to protect your assets.

Income Planning

You can manage income more effectively if you have a properly defined plan. You can do this by creating a budget. However, to ensure that you prioritize your expenditure and identify areas of wastefulness, you should consider hiring a financial advisor who will help you do exactly that and ensure that you achieve your financial goals, especially through tax planning.

401k

401 (k) plans are complex. The rules are not only hard to understand but are always changing. When evaluating your 401k investment, the goal should always be to manage your assets in such a way that you can retire safely and securely.

Your employer may provide an advisor for the benefit plan offered by your company, but it is still important to consider hiring your own financial advisor who will help you get the most out of your retirement plan.

Alternative Investments

Alternative investments refer to a disparate range of investment assets and strategies that are best defined as investments that use a different approach from traditional instruments (i.e. cash, bonds, and stocks).

A financial advisor can review your current holdings and determine which alternative investments are a good fit for your goals and needs.

Benefits of Hiring a Financial Advisor

It is never easy to make a financial decision, whether it is short-term needs such as debt reduction or long-term objectives focused on investing. Making the right decisions can lead to financial stability while the wrong ones can lead to financial catastrophe.

That’s why you should consider working with a competent financial advisor. The right financial advisor should be viewed as an investment towards your own financial future. Here are some of the top benefits of hiring a financial advisor.

I. Objectivity

Lacking objectivity is one of the greatest mistakes you can ever make regarding investments and may result in reduced performance of your investment portfolio or even wipe it out completely. Allowing emotions to control your financial decision can easily undo months or even years of hard work.

Hiring a financial advisor will help you avoid costly financial mistakes by providing objectivity. They will provide you with necessary and informed guidance to help you establish positive and objective investment decisions.

Deadline and time is money concept with hourglass and British coin currency

II. Time Saving

It takes a lot of time to go through all possible investment plans. However, time is a luxury for many people, which means that they will not waste time on things that they don’t necessarily have an immediate need for.

If you are currently facing such a situation, you will be happy to know that a financial advisor can help reduce the time needed to get set up. An advisor will help you identify your needs and set a goal for you to achieve and once that’s done, they will immediately set up your investment strategy.

In turn, you will have more free time on your hands that you can use to spend with your family, travel the world, or even grow your business.

III. Reduced Stress

Stress is always a key factor when dealing with financial matters since you will need to factor in the possible losses likely to put a dent in your finances. If you are under stress, you will be more likely to make mistakes and this can lead to additional problems later on. It is thus better to approach the process when you are stress-free since you will be less likely to make mistakes.

A financial adviser can help alleviate your stress when dealing with financial matters and take the burden off your shoulders. That will help you think more clearly so that you will be in a better position to take on more challenging financial concerns in the future.

IV. Taxation Advice

Nothing is worse than putting your money in an investment, only to realize later that taxes make it less profitable than a less attractive investment vehicle that would have earned you more money. Taxes can easily wipe off any gains you had generated from a given investment.

A financial advisor can help you avoid such issues and ensure that all the tax implications have been properly considered before selecting the investment vehicle. An advisor will also have methods of reducing your tax burden by advising you on some of the latest changes in legislation that could be relevant to your situation.

V. Research

Financial advisors spend a great deal of time doing research. When considering your specific investment needs, they will research the most suitable opportunities. If they don’t already have answers to your questions, they will provide the right answers.

A financial advisor also undertakes research regularly to ensure that they maximize their knowledge of the markets, industry, taxation, and law so that you don’t need to. They are often assisted by other analysts, advisors, and industry experts that all help to bolster the advisor’s own research.

Final Thoughts

Hiring a financial advisory or any of the many wealth management firms may require that you spend money, but it is almost always worth it. There are those who also off fee-only financial services, or what is known as fee-based services. However, finding the right financial adviser who has your best interests in mind is far from easy. You need to choose someone you trust, who makes you comfortable, and whose skills are the right match for your best interest. If you find the right financial adviser for your needs and financial situation, it will definitely be a worthwhile investment.