When and How to Hire a Financial Advisor

We here at BILLSHARK would like to correct a common misconception. That is, that only rich people need financial advisors. There are times, however, it makes sense for the rest of us to seek out the advice of a competent advisor to help get our finances in order.

“So many people feel that they don’t have enough money for a financial advisor,” Angela Moore, owner of Modern Money Advisor in Miami, told HuffPost. “The industry has promoted this fear by primarily focusing on high-net-worth clients who, generally speaking, have at least $1 million in assets to invest.”

Using a financial planner can be worth the cost. One study by Russell Investments, a large money management firm, estimated that a good financial advisor can increase investment returns by as much as 3.75 percent. Another found similar results, with those using a financial advisor for their 401(k) earning 3.32 percent more than those who didn’t.

Just as with seeking medical advice, there is only so much you can learn on the internet. So here are some times you might want to hire a financial advisor, as well as how to find one you can trust.

Why you might need to hire a financial advisor

1. When you don’t know what you’re doing.

They don’t teach money management in schools, and—unless you come from a wealthy background—managing your money well can often be hopelessly confusing.

What do you do first? Build up an emergency fund or pay down debt? Save for a home or pay off student loans?

Which investments pay the quickest returns? Which are the smartest? Should you get out of the stock market now, or ride the wave?

It’s likely you don’t know all of the answers, so ask for help!

2. Your life has suddenly changed.

If your rich uncle just died and left you a small fortune, or you’ve just won the lottery, of course you’ll want advice on investments and taxes.

But other life-changing events might also qualify: marriage, divorce, a new job, a new child.

“Marriage, buying a home, starting a family, changing jobs, kids going to college—all these have financial implications and would benefit from unbiased financial planning,” Mike Zung, owner of Java Wealth Planning in Lee’s Summit, Missouri, told HuffPost.

He added even someone who has just graduated from college and started working would benefit from personalized advice on debt management, budgeting, and their company’s 401(k) plan.

3. When you don’t have the time.

Even if you know what you’re doing, managing your financial portfolio takes a lot of time to get right. Not only do you have to stay on top of your assets, you have to keep up with emerging market trends, changes to the tax code, and a host of ever-shifting variables that can impact your investments.

How to find the right one

So if you’ve decided you’d like to hire a financial advisor, how do you go about it?

The easiest way is to ask friends, family, co-workers, or acquaintances for recommendations. If you have a doctor, a lawyer, a tax consultant, or someone you know who employs their own financial planner, ask if they recommend theirs.

Or, you could simply check the nonprofit Association for Financial Counseling and Planning Education (AFCPE®) to find a financial advisor near you. They offer financial advice regardless of your financial history or current financial status, by the way.

Next, unless you have at least $500,000 in assets, look for a fee-only consultant. That’s because a fee-based advisor makes commissions by selling various financial products. For those with larger portfolios, an ongoing portfolio manager typically charges between one and two percent of assets under management.

You can expect to pay between $500 and $2,500 for a one-time financial plan from a financial advisor.

Then, interview the advisor and ask them:

  1. What type of clients they typically work with
  2. What their professional background is
  3. Whether they will provide references and their performance record
  4. How you will communicate with each other
  5. What their investment philosophy is

Red flags

You certainly want your financial advisor to open your eyes to opportunities you might not have found on your own. But be wary of anyone who promises too-good-to-be-true results. They might use such phrases as “can’t miss,” “guaranteed return,” or “loss protection.”

You want a financial advisor who can keep you from making mistakes with your investments, like buying high and selling low. But if they’re trying this fool’s errand (also known as “tactical asset allocation”) with your money, run, don’t walk, and take your portfolio with you. Real professionals know market timing doesn’t work. If it did, everybody would do it, and we’d all be rich.

BILLSHARK exists to look out for your money. Let our professional negotiators find all the ways your service providers are ripping you off. Remember, you pay nothing unless we save you money.

Featured Posts