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When it comes to managing your money, you don’t want anyone to mess it up, and that includes you. There may come a time when you need to call in backup and hire a financial advisor, especially if you’re making big decisions with your money.
Not everyone’s financial situation calls for extra help, but in some cases you may need it. Here’s how to determine if hiring a financial advisor is right for you.
What financial advisors do
A financial advisor helps individuals manage their money and map out their financial future. For example, financial advisors can help you plan for retirement, your budget, estate planning, and more. They also help you set your personal financial goals to achieve milestones.
For example, some people want to buy a house soon, while others focus on saving for retirement. A good financial advisor will take your family, age, career, and priorities into account when setting your financial goals, and then help you figure out how to achieve them.
Keep in mind that goals change. Once you reach that next milestone or feel like you want to change course, your financial advisor can help you determine your next steps.
When should you engage a financial advisor?
Not everyone needs a financial advisor, especially because this entails additional costs. But having extra help and advice can be crucial in achieving financial goals, especially if you feel stuck or aren’t sure how to get there. Here are three important reasons why you may need help.
Life events
Graduating, getting married, expanding your family, and starting a business are some major life events that may cause you to reassess your financial situation. A financial advisor can help you manage these life events and ensure you get or stay on track.
Lack of experience
Whether you have complicated finances or don’t know how certain things work, hiring a professional can help you understand concepts you weren’t familiar with. Some people need the extra help and if you have the resources, getting personal help can make a big difference.
Developing a strategy
A financial advisor can help you hone your goals and map out a way to achieve them. This could be anything from starting to invest, buying real estate, saving for an emergency or retirement, or anything else. Whether you have one main goal or several, a financial advisor is your guide in creating and achieving those goals.
What type of financial advisor do I need?
There are so many different types of financial advisors that it can be a bit overwhelming. Which type to use depends on your needs and goals. Some of the main types of financial advisors include:
- Certified Financial Planner (CFP). This person has been awarded the CFP designation by the CFP board and is highly qualified to advise you on a wide range of topics. These topics can be anything from starting to invest to saving for long-term goals. CFPs have spent thousands of hours practicing and passing an exam to reach this level, and they are tasked with acting in your best interests.
- Robo-advisor. If you’re new to investing, a robo-advisor is a good introduction point. After you choose your robo-advisor, you fill out a questionnaire that determines your risk tolerance and assesses your goals, and your robo-advisor chooses your investment portfolio. You can then link your bank account and deposit money automatically every month. It’s really the set-it-and-forget-it model.
- Asset manager. If you are a wealthy person, you may need someone to give you personalized advice and make financial decisions on your behalf. That’s an asset manager. They have strong knowledge of investment management, estate and tax planning and other financial topics.
If you’re looking for someone to encourage you to achieve your goals, or if you have some basic financial questions, you may want to seek the help of a financial coach or financial advisor. Keep in mind that these people may not have any certifications, but they do have knowledge of basic financial topics.
It is a good idea to research all professionals before paying for services.
Questions to ask a financial advisor
As you consider hiring a financial advisor, it’s a good idea to screen potential candidates by asking them a few key questions, such as:
- Are you a confidential counselor? A fiduciary is someone who puts their client’s needs above all else. If you’re looking for someone who will always act in your best interest (not theirs or their company’s), ask if they are a fiduciary. Then have them put it in writing.
- How do you get paid? Financial professionals can be paid in different ways: fee-only, commission-based, or a combination of both. A fee-only financial advisor means that you pay someone for services provided and that person is not paid by anyone else (such as third-party companies). A commission-based or even fee-based advisor is someone who is paid by companies for promoting their products. So you may get advice that increases their salary, but doesn’t necessarily align with your goals or values.
- How are you going to help me? Having a helpful financial advisor is critical, so let him/her answer this question. What happens if there is a market downturn or if you lose your job? See how they react in different scenarios. You want someone to help you wade through the rough waters and get you to dry land, so don’t go with someone who can trap you in bad money moves like making drastic decisions during uncertainty.
In short
While not everyone needs a financial advisor, many people would benefit from personalized advice to help them build a strong financial future. You do not need to have a lot of assets to use a financial advisor. If you’re interested in finding a financial advisor near you, check out Bankrate’s financial advisor matching tool to find one near you.
