If you do your own investing, have you ever wondered whether you should turn things over to a professional advisor? This article attempts to shed some light on this topic and provide you with some things to think about so you can make the best decision.
Judging Yourself
The need for critical self-evaluation is vital when determining whether to hire a financial planner. Advisors say the decision depends on the investor.
The following questions should help you sort out whether you need an advisor:
- Do you have a fair knowledge of investments?
- Do you enjoy reading about investments and doing research?
- Do you have expertise in investments? Do you have the time to monitor, evaluate them and make periodic changes to your portfolio?
If you answered "yes" to the above questions, you may not need an advisor or financial planner.
Confusion is common because the terms don't just describe job titles; they also refer to distinct parts of an integrated financial process: financial planning and investment management.
Think about a house. When you build from scratch, you need an architect (who creates a detailed blueprint) and a builder (who executes in accordance with the plans). While their work is intimately connected, the architect and builder are attending to very different -- yet equally important -- parts of the "dream home" process.
When you build your financial house, "financial planning" is the process of architecting a vision of your future. During this process your financial professional will ask (and help you answer) essential questions, such as:
- Am I currently saving enough to meet my retirement goals?
- How much house -- or car -- can I afford given my income and assets?
- When should I start taking Social Security?
What's an investor to do?
Before engaging your financial professional, go beyond the title to truly understand their specialty.
- Plan: Help clients align savings rates with retirement and other financial goals (or help clients determine how much they can comfortably spend per year if they are in retirement).
- Invest: Set an appropriate asset allocation in conjunction with an assessment of a client's willingness, ability and need to take risk -- and then invest in accordance with a written investment policy statement, using an "need-based" approach.
- Clarify: Assist clients as they work with other financial professionals (accountants, insurance agents, estate lawyers, etc.) through a process called financial life planning.
The bottom line.
Whether you need an architect, a builder or both, understand that your needs are unique; due diligence is required to ensure no matter what their "title", you've found a professional who offers the financial services you really need. It's your hard-earned money and your future, and every question is worth asking.
While many people avoid working with a financial advisor because of the presumed cost, hiring a trustworthy, qualified advisor can actually be the best investment you make. Experts generally recommend seeking out an advisor prior to a major life event, such as a marriage, having a child, a job change, starting a business or retirement. Most people make the mistake of waiting too long to do financial planning and only do so after a crisis, such as a job loss, bankruptcy, divorce, death in the family or when they’re running out of money in retirement. In most cases, this procrastination leads to having to do more with less, which is a recipe for failure.
In my mind, any time could be a good time to hire an advisor if you feel like you need help developing, implementing and managing a suitable Financial Plan, which you should always do sooner rather than later, especially if you are anticipating a major life event.
The key is to ask plenty of questions before committing to working with one. This way, you can make sure you are comfortable with that person and are fully aware of all potential costs, which can vary greatly by type of advisor. Keep an eye and ear out for any potential conflicts of interests, as many advisors are incentivized to sell particular products that earn them commissions. Make sure you know which investment and insurance companies an advisor is affiliated with and the potential pros and cons of those relationships. Also keep in mind that some advisors only work with clients above a certain net worth or amount of investable assets.
You ultimately want to work with an advisor you trust and who focuses on working with clients like you to help ensure that you get the attention and level of service you want and deserve. So do your homework and be prepared to spend money to make money -- the long-term benefits can be well worth it.
Good luck!
