Do I need a Financial Advisor? A helpful guide to wealth management

The cost associated with hiring someone to manage your money along with the level of trust required to allow someone else access to your finances will often cause hesitation. However, there comes a time when it is no longer sensible to continue handling your finances alone. So when is the right time to hire a wealth manager?

There is no specific income or net worth required before seeking out professional financial management. If your finances have grown to the point where you are struggling to actively manage it effectively on your own, it may be time to hire a financial advisor. Lets look what exactly a financial advisor does, how to choose the right one, and some of the situations in which seeking help will benefit you.

What is a wealth manager

A wealth manager is responsible for managing their clients’ wealth. They provide services for fees in the areas of financial planning and investment management. Other services they offer include accounting, tax services, retirement planning, estate planning and more.

Wealth managers are responsible for managing the relationships between an individual’s many financial professionals, including lawyers, accountants and insurance agents. They typically handle large clients with large net worth. The U.S. Securities and Exchange Commission (SEC) defines a high-net-worth individual as someone who has at least $750,000 under management.

How is a wealth manager different from a financial advisor?

There are many different types of financial services professionals. The common goal of any financial professional is to grow and preserve wealth over the long term. Weather an investment adviser, a fiduciary, estate planner, they are all different types of financial advisers.

Having a net worth exceeding $750,000 is not required in order to hire a financial advisor. There are different types of financial advisors who may specialize in certain areas such as investments or insurance for example. But they all fall under the broader category of advisor.

Do I really need a financial advisor or can I do this myself?

The decision to hire someone to handle your finances is entirely up to you. There may be certain areas where you feel more comfortable than others. For example, perhaps you are comfortable investing on your own in the stock market but you know nothing about insurance. You might hire someone to look into the best way to insure yourself and your family.

Certain aspects of our finances will require the aid of a professional. For example when it comes to estate planning. You will need a lawyer to help setup your last will and be the executor of your estate after you are gone. You will want to be sure your family is taken care of and protected financially after you are gone and most people are not qualified to handle this themselves. Aside from the fact that you are, you know, dead at the time.

How much do Financial Professionals Cost

The costs of financial professionals have a wide range. Services can cost anywhere from $50 bucks for a one time service such as your annual income tax return to thousands of dollars a year for recurring services and active fund management.

It really depends just how involved they will be in your day to day finances. Also, the more credentials a financial professional offers, the more they will likely charge for their services.

Some financial advisors will charge commission in the form of a percentage of your total assets or stock market portfolio. In other words, the more money you have, the more money you pay.

Many stock investors don’t like using the services of financial advisors because their commission eats directly in to their gains. If you are earning a 7% gain and now 1%needs to go to your financial advisor, it has a huge impact on your fund over time. $10,000 at 10% over 30 years is $175,000. But at 9% it is only #133,000. You lose over $40,000 to your advisor.

How do I know it is time to hire a professional?

There are many reasons someone would want to hire a financial professional to handle their money. Here are just a few of the factors to consider to help you know when the time is right for you.

Life Changes

Any big life changes will carry with it changes in your financial habits, needs and wants. Here is a list of just some of the life changing events that may trigger the need to seek professional financial services.

Marriage
Birth of a Child
Divorce
Lottery Winner
Large inheritance or financial windfall
Starting a business
Declaring bankruptcy
Retirement

Net worth growth

As your total net worth grows, it may become more challenging to make good decisions on how to best protect and grow your wealth. An increase in money means an increase in the time it takes to research your options and plan your financial success.

You will also find that it becomes more nerve wracking to handle larger sums of money. Stakes a raised, you have more to lose. Afterall, you have worked hard to obtain this money, you don’t want to lose it because you made bad decisions.

Pre-Retirement

As you are in the final stages of retirement planning, you will most likely want some assistance to help assure you are financially set. Imagine retiring from work and then digging in to your finances only to realize, oops, I forgot to carry the one. Gotta go back to work.

In the last few months/years before retirement you will need to make alot of decisions and preparations including

Deciding where to live
Rolling over a Roth IRA
Rolling over a 401k
Determining how much cash and assets you actually have available
Determining your withdrawal rate and how long your money will last
Mentally preparing for the life change
Making plans to how you will spend your time
Estate planning
and don’t forget, you are still at work during all of this

Perhaps with all of this going on, you might find it benefits you to hire someone to help with the planning.

Planning for your beneficiaries

Nobody likes to talk about when your loved ones are going to die but the truth is, it is inevitable. And when you are gone, what wil happen to all of your money and assets? If you are leaving behind loved ones, you will want to assure they are not only taken care of but protected from the tax man and anyone else who might try to lay claim to your hard earned money after you die.

Hiring a financial advisor and/or lawyer to help complete your will is a must. Especially if you have accumulated a large amount of wealth in your lifetime you will want someone you trust who is not emotional a the time to handle your affairs and execute your last wishes in the way you laid them out before you died.

You simply have no interest in doing it yourself

One last reason not to handle your own finances is that you simply don’t want to. You might be too busy with work and family to take the time to do it effectively. Perhaps you can’t handle the stress or you don’t feel comfortable doing it yourself.

If you can afford it and don’t want to or don’t feel like you can do it, why not hire someone else. I can change the oil on my car, but I pay 30 bucks 4 times a year to have someone else do it anyway because I am just not that interested in doing it myself.

How to chose someone you can trust

If the world taught us anything in 2008 when the banking system almost crashed it is not to trust anyone and that there are bad people out there who will hurt you to get their hands on your money.

Lets face it, most people rank financial professionals just below car salesman when it comes to trustworthiness. Not all financial advisors are out for themselves. In fact, most are going to look out for your best interests simply because, the more money they make you, the more money they make themselves. Some are even required to do so by law. Here are some tips on choosing the right one for you.

Meet face to face. Treat it like a job interview which is essentially what it is. You are potentially hiring this person to work for you. You need to prepare a list of questions for your potential advisor and then meet face to face.

Allow them to tell you about their history and sell them selves to you. Then ask your questions. If they are condescending or don’t answer your questions, run for the hills. If they make promises about their stock market picks or returns and promise they can time the market, run, don’t walk out of their office. And if you simply don’t get along, trust your gut and find someone else before you pay them a dime.

Here are some sample questions to ask.

How do you get paid?
Can I see your credentials? fees or commissions?
What type of clients do you work with? Wealthy? Avg net worth? Retired?
Tell them your goals and ask how do you plan to help me achieve my goals?
How will you invest my money?
How often will we meet and how accessible are you? Phone? Email? Smoke signals???
How do you measure success?
What happens if I die?
Are you a fiduciary?

What is a fiduciary?

An advisor who is bound to fiduciary duty is required to put their clients’ best interests ahead of their own desire to make a profit. A fiduciary is required to disclose any potential conflict of interests and in fact most don’t earn commissions at all but are paid fees instead.

The fiduciary is required to recommend investments that are in the best interest of the client. Someone not held to the fiduciary standard are inly required to make recommendations that are suitable for the client. The wording difference is slight but the difference in outcome for your money can be huge.

For example, high commission, high fee mutual funds may be found suitable for you however is it really in your best interest? The high fees and commissions will eat away at your profit not to mention, it will probably underperform when compared to lower fee simple index funds.

You should absolutely ask your advisor in your first face to face meeting if they are a fiduciary. One quick test is to determine if they are a member of NAPFA (National Association of Personal Finance Advisors. If they are a member, then they are a fiduciary. Do your research before making any final decision. Meet with your advisor, check their website, google their name and firm, ask around. It is your money and your financial future, you owe it to yourself to be thorough.

What are the benefits of hiring a financial advisor?

Now that you know what a financial advisor is and what pitfalls to look out for, lets examine the potential benefits of hiring a professional financial advisor.

A good financial advisor will help to educate you .

Just in their interactions with you, your advisor will teach you all about finances. If you ever had your taxes done by a professional, think about how mush you learned in doing so.

I’ll share my experience. I used to do my own taxes when all I had was a simple job collecting carts at the shop rite and then selling cds at the music store when I was 19 and 20 years old. Then as my finances grew and I bought my first condo and was making much more mney, I thought, let me find someone who knows what they are doing. What I learned through interacting with them was that this is not so hard and I indeed can do this myself if I just follow the steps that they taught me. They hadn’t set out to teach me how to do taxes but I learned just from interacting with them. A good financial advisor can do the same for you when it comes to your overall finances from investing to saving to budgeting and everything in between.

Goal Setting

Your financial advisor should help you set financial goals. They should be able to translate your ultimate destination into smaller, achievable goals along the way. They will also help you to see those goals through to completion.

Retirement Planning

Your financial advisor will help you plan today for you inevitable retirement. They can guide on making the proper savings and investment decisions now in order to build a nest egg that will outlast you.

A good financial advisor will take your information and come up with the best possible game plan. They will consider your age, current net worth, income, budget, savings, desired retirement age and desired total net worth at retirement. They will use all of this information and their years of experience to determine the best course of action for you.

More retirement planning

In addition to helping you realize your road to retirement, a good financial planner will help to determine exactly how your finances will work for you in retirement. The biggest fear I have is that I will out live my money. A good financial planner will crunch the numbers and assure that does not happen.

Save time

Your financial planner should be saving you your most valuable and fleeting commodity; your time. You want to spend your time with family and doing things you love; not sweating over a calculator and notepad. This is the reason you hired the professional in the first place. Go out and make more money instead of spending your time crunching numbers,

I hope this guide was helpful in your quest to determine if hiring a financial advisor is the right decision for you at this time.

If you would like to see some of the tools I use, check out the resources page

Earl