It’s a good question. But the answer is like a lot of financial planning advice: unsatisfying.
That’s because the only truthful answer is: it depends.
So how do you know if you need a financial advisor? Here are some questions that may help you find your answer:
Do you need help tracking your monthly finances?
- You should have a handle on this before you seek a financial planner. Planners will need to know how much you are spending and saving and whether you have the ability to increase your savings rate. Tools like Quicken and Mint.com can be a big help as you get your cash flow straightened out.
Do you have a specific retirement date in mind, and if so, have you already saved substantial money toward your retirement?
- If yes, then you are in an ideal spot to benefit from great financial planning advice and assistance.
Are you worried about an impending stock market crash? Or are you worried you have missed out on the bitcoin boom?
- Either of these topics are good fodder for an introductory discussion with a good planner. A planner who works as their clients’ advocate (a fiduciary advisor) and an advisor who is paid only by clients (a fee only advisor) is a great resource for these questions. They can help you clarify your financial goals and review your current strategy to be sure it fits your goals, your age, and your risk temperament.
Are you wondering if it’s worth it to participate in the 401(k) at work?
- The basic answer to this question is yes. For the majority of 401(k) plans, your employer is willing to give you free money if you save to the plan. It’s hard to beat the 100 percent return offered by free matching contributions. If you want to do the math and double check the details, any good planner should be able to help you in a free initial consultation.
Do you have multiple retirement accounts through multiple institutions?
- It’s a great idea to gather these accounts into one self-directed IRA. It’s a no-tax transfer, so you can move the assets in kind without buying or selling anything, and consolidation reduces the paperwork and record keeping for these investments. It’s also a good idea to meet with a financial planner to be sure you have a consistent investment strategy and get a feel for how far along you are on the road to retirement.
Do you have a lump sum to invest and you're thinking about buying an annuity?
- This is another place where a fiduciary, fee-only advisor can be a big help. Sometimes, an annuity is a great asset. It’s a promise to pay income for as long as you live. That can be very helpful. Other times, it can be a very expensive and confusing tool that locks your money up and creates problems. You need advice to sort it out, and you want that advice from somebody who works for you, not for an insurance company.
Do you have a dream? One that requires you to quit your current job at age 55?
- It might be impossible, or it might just take some focus and some dedicated follow through. A good planner can help you sort out the details and build a game plan to make that dream come true.
Have you lost faith in the U.S. financial system? Are you tempted to take all your savings and buy rental properties?
- While the idea of taking money out of retirement savings and buying a business or a rental property is sort of a radical scenario for most people, it is an option. But is it the best option for you, your family and your goals? A good planner can help you think through the numbers.
Are you just starting out, making good money and want to get a good start on your financial future?
- A good financial planner should offer a free get-to-know-you meeting where you may be able to sort out everything you need as a young person within that first hour. Or at least you could learn a few things to figure it out on your own. If this sounds like I’m describing you, try resources like Kiplinger's Personal Finance magazine and Kiplinger.com, or online investment advisors like Betterment or WealthFront. They have some resources that might just help you out.
Should I hire a financial planner?
The decision to hire a financial advisor can ultimately come down to these factors:
- Some people prefer to do things themselves. Others prefer to hire experts.
- Some folks have very specific and challenging financial goals. Others just want to pay for their child’s college and pay off the house by age 60.
- Some people have inherited substantial wealth and want to use it for specific purposes. Others have a high earning potential and want to hit financial targets quickly. Others don’t have any great prospects of increasing their income any time soon.
Regardless of your decision, it’s important to think of working with a financial advisor as an investment in your future. Remember, they are building the plan that will allow you to retire and stop worrying about money for the rest of your life. If you hire a fee-only financial planner, expect to pay $100-$500 an hour for their work. If your financial plan calls for professional investment management, expect to pay 1 to 2 percent of the assets under the advisor’s care per year, often less for larger accounts.
If you want to talk about whether you need a financial planner, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their financial goals.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.