The Pros vs. Cons of Hiring A Certified Financial Advisor – Do You Actually Need a Financial Advisor?
There’s no doubt that you’ll have more investment opportunities as you attain more wealth. Unfortunately, more wealth often comes with lots of complexities and of course a greater need to get a certified financial advisor. Generally, a financial advisor can help you plan out your investment and financial life and prevent you from falling into financial pitfalls.
While you can do it with the help of a certified financial advisor, you can as well do it all by yourself and still become successful. Doing it yourself gives you more control over your financial situation and obviously saves you some money.
But hiring a financial advisor comes with immense advantages such as saving your precious time and expert advice on how to invest and plan your financial future.
Who is a Financial Advisor and What Does They Actually Do?
A financial advisor is a certified professional who helps his/her client plan personal and business finance. A financial advisor will help you come up with a practical retirement savings plan. He can also help you make sound investment decisions now and in the future.
The field of financial advising and planning is generally unregulated. This means that anybody can call himself or herself a financial advisor or planner. In fact, there is no license required. Anybody can hang a sign advertising his services and boom, they become one!
So DO NOT hire a financial advisor over Reddit. It’s always advisable not to go for such individuals because it’s likely to end up in bad experience. Instead, go for a certified financial planner; a professional with genuine credentials
That being said, here are some crucial things that you should know as far as hiring a financial advisor is concerned.
Do You Need a Financial Advisor or Not?
The most honest and unbiased answer to this is, it depends. Financial matters can sometimes be very complex. But that’s not a reason enough to believe articles that are desperately trying to tell or convince you that you’re in dire need of a financial advisor.
If you love investing and feels like the DIY (Do It Yourself) kind of person, then you can be great doing without a financial advisor. Here are some of the reasons why you may actually not need a financial advisor,
You Love Investing On Your Own
If you’re the type of person who gets thrilled monitoring stock prices rise and fall, you would just be fine going it alone.
You want to Save the Financial Advisor Fee
You’re probably investing in relatively small and simple businesses and want to save the money that you’d otherwise pay the financial advisor. Under such a scenario, you’d be better off without a financial advisor.
You only Need Some Help with Tax
If you’re in simple investments and only need some little help with your taxes, you may need a tax advisor, not a financial advisor.
If a Huge Chunk of Your Income is from Pensions
You’ve invested so much in your pension income and have a huge chunk of your income coming from social security and pension. Obviously, these types of investments cover most of your needs and a financial advisor may not be of importance.
In short, you do not need a financial advisor to manage your 401k retirement plan because there’s already a financial advisor in place carrying out this responsibility and on the payroll of your employer. On the other hand, you may still need a financial advisor if the income is so huge that you need somebody to help you manage it.
Cons of Managing Your Finances Alone
- Changes in legislation could negatively affect you
- You have no expert advice on where to invest and how to plan your finances
- While some people might not need a financial advisor, there’s no denying that a certified financial advisor can greatly help you with financial planning, investment decisions, and retirement planning and many more.
So Why Should You Have a Financial Advisor?
As we noted earlier, financial matters are sometimes very complex. For instance, making decisions on your retirement, buying and selling stocks and protecting your wealth are sometimes very complicated and too involving. As such, handling and managing them all by yourself can be stressful if not impossible.
But with a certified financial advisor by your side, you can easily manage all these issues. A certified financial advisor will look at your financial situation, come up with a financial plan and help you make decisions that conform to your desired financial goals.
Generally, financial advisors are experts on matters investment and can help you come up with appropriate decisions that can help you grow your wealth. Again, they can help you protect your assets and also ensure that you’re set and ready for your retirement.
Pros of Hiring a Financial Advisor
- Peace of mind knowing a professional is managing and monitoring your finances
- You have a professional helping you navigate challenging financial situations
- You’ve got an expert to manage your financial portfolio
Cons of Hiring a Financial Advisor
- You’ll have to pay a given fee
- You run a risk of hiring an unscrupulous financial advisor
How Much Money Do You Need to Hire a Financial Advisor?
There’s no specific amount of money that you need to hire a financial advisor. However, you’ll need to have inevitable assets to attract the services for a financial advisor. In most cases, high-net-worth financial advisors deal with clients with at least $1 million to $5 million. On the other hand, you can still hire a financial advisor to help you manage your finances even if they’re not north of a million dollars.
Do You Need a Financial Advisor to Help You Get Out of Debt?
Differently, there wouldn’t be a need for hiring a financial advisor if your finances are on the lowest end of the spectrum. For example, it wouldn’t make any sense to hire a financial advisor and pay him top dollars just to tell you how to get out of debt. In other words, you shouldn’t hire a financial advisor and pay him $5,000 to help you get out of $25,000.
What is the Average Fee for a Financial Advisor?
Generally, financial advisors are paid on a commission or fee basis. You can hire a financial advisor and retain them permanently for their services or on an hourly rate. Here’s a typical fee structure of a financial advisor.
A financial advisor offering retainer services normally charge between $2,000 and $7,500 a month. Under this arrangement, a financial advisor will comprehensively help you plan and monitor your finances. He’ll come up with a plan, implement it, monitor progress and make the needed adjustments.
The fact that you have a financial advisor providing ongoing services can help you stick to the plan, make necessary adjustments or spot and rectify problems.
Pros: The financial advisor is in-house and will cover every aspect of your finances and investment planning.
Cons: It can be quite costly.
Financial advisors working on an hourly rate usually charge between $200 and $400 an hour. A financial advisor working on an hourly basis will only work specifically on what you need. This arrangement is flexible and you can pay him for a few hours to check on your financial plan, monitor your savings progress or provide advice on investments.
Pros: You get professional financial advice at a lower fee.
It’s very flexible!
Cons: You’ll still have to be responsible for making your financial decisions and managing your finances.
A financial advisor working on such an arrangement will charge between $1,000 and $3,000. He’ll set this fee, which in most cases, you’ll have to pay upfront. He’ll provide specific services, which you have to pay for.
Pros: You get a couple of professional services all at once.
Cons: The fee may be only for a specific service
In most cases, financial advisors working on commission will charge you a given percentage of your investment, typically between 1% and 2% of your investment or income depending on how you reach an agreement.
Pros: The commission is sometimes small if there’s a lot of work to do.
Cons: You may have to pay a lot of money to the financial advisor if you have a high net worth.
What is the Difference between a Financial Planner and a Financial Advisor?
In a very simple term, a financial advisor is a professional who helps his clients manage their finances. It’s basically an umbrella term of all financial advisory services such as retirement planning, estate planning, debt repayment, insurance, tax planning, financial planning and any other aspect of finances.
That being said, a financial planner is one type of financial advisor. A financial planner specializes in the creation of a financial plan that can help you achieve both your current and long term financial goals.
A financial planner can also help you create an education funding plan or retirement plan. Just like a financial advisor, a financial planner will evaluate your financial situation, create a suitable plan and make the necessary recommendations.
What does it take to become a Certified Financial Planner (CFP)
In order to become a CFP, you must pass the CFP certification examination. This exam is designed to examine your skills on how to apply and use comprehensive financial planning knowledge in real-life financial planning situations. Passing this exam shows that a financial planner has achieved a competency level required to become a financial planner.
So How Can You Find a Trustworthy Financial Advisor?
While there are various ways of finding a financial advisor, the best method is asking a family member, a trusted friend or a colleague for referrals.
The Bottom Line
While it’s not a must to hire a financial advisor, hiring one will definitely help put your finances and investments in order. To hire a financial advisor, you must have enough money in the bank and have the desire to invest. You may also need a financial advisor to help you plan retirement or your child’s education.
Before hiring a financial advisor, it’s crucial to understand that you’ll have to pay for the services. There are various ways of paying a financial advisor and it’s advisable to choose a method that works best for you.
So whether you have an investment strategy or understand every tax law, getting a financial advisor will obviously enhance your chances of becoming successful.