Posted on October 10, 2022.

Do you need a financial advisor? The answer depends on different factors — the complexity of your finances, how comfortable you are managing investments, where you are in your wealth journey, and where you'd like to be.

The advisor's mission is to close the gap between where you are financially and where you'd like to be. But there are costs involved and not everyone needs the help.

Making a confident decision about hiring (or not hiring) an advisor requires some information-gathering, plus a bit of self-reflection.

What Does a Financial Planner Do?

Effective financial planners provide guidance that helps you reach your financial goals. Investment management and strategy is a primary component of that guidance. You can tap an advisor for a comprehensive investing strategy and more specific services like:

• Household spending review and budgeting
• Retirement planning
• College tuition planning
• Assessment of and recommendations for insurance protection
• Consultation with estate planners, tax planners, and other advisors

Financial planners are essentially personal finance mentors. They learn your situation, provide advice, and guide you towards informed financial decisions.

Financial Advisor vs. Financial Planner

The terms financial advisor and financial planner are often used interchangeably in conversation. Technically, though, they’re not exactly the same thing.

Financial advisor has a broader meaning than financial planner. Advisor encompasses planners as well as stockbrokers, insurance agents, estate planners, bankers, and accountants.

Working With a Financial Planner

Your role in the advisor relationship has three main parts:

1. You share your financial information and goals.
2. You evaluate and then accept or veto your advisor's recommendations.
3. You fund the recommendations you accept.

Before you choose a financial advisor, think critically about your ability to fulfill these responsibilities. Are you comfortable sharing your financial details, speaking up when you disagree, and investing money per your financial plan? Ideally, the answer is a resounding yes.

If you’re not willing to be financially transparent and fund your choices, you may get limited value from an advisor.

When to Hire a Financial Advisor

One in three working adults and retirees currently consult with a professional financial advisor, according to a 2022 retirement survey from Employee Benefits Research Institute. Of those who don't have an advisor today, nearly half said they intend to work with one in the future.

The cue to engage an advisor is often a significant life event, such as marriage or divorce. But there are other prompts, too. These include increased financial complexity, lack of time or investment expertise, and even disagreement among household members about the shared financial strategy.

Significant Life Events

Life events that change your financial picture or outlook include:

• Marriage: Combining two sets of finances can get complicated. Messier still can be the process of setting shared financial goals.
• Divorce: You may need help recasting your outlook with one income instead of two.
• Becoming a parent: Kids change the expense structure of your household and add new financial goals, like paying for college.
• Inheriting money: You've lost a loved one and gained a windfall. You may welcome outside guidance on investing that windfall in this stressful time.
• Assuming caregiver responsibilities for an elderly parent: Your income or expenses may change. You might need to reevaluate your retirement plan.
• Starting a business: Starting a business has risk. You may need to balance that risk by getting more conservative in other areas of your finances.
• Selling a business: Selling a business reshuffles your assets and probably changes your income. Both outcomes affect how you should manage money and investments going forward.
• Starting a new job or getting a promotion: An increase in income unlocks more money to pursue your financial goals. You may need guidance on how to invest that extra income efficiently.

Note that financial advisors can provide one-time consultations, as well as ongoing guidance. After a major life change, you may only need a short-term engagement. Typically, the outcome would be a financial plan you could implement yourself.

For example, say you just became eligible to contribute to your 401(k). You could choose a financial advisor to recommend initial investment choices appropriate for your age, risk tolerance, and goals. Then it would be your job to activate those investment selections and monitor your performance.

Source: Forbes