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What Does a Financial Advisor Do and Do I Need One?

Most likely you have run across someone in your circle of friends who is working with a financial advisor. This may have you thinking that you need to have one as well. It sounds like it might be a helpful step but you don’t really know the answer to the question, What does a financial advisor do for me?

what does a financial advisor doIt’s a great question. Before you hire professional services you need to know what they are all about. You need to understand if they can help with your specific need. You wouldn’t hire a tax professional to do your lawn care, right?

So I’ll help you with both questions today. Let’s tackle the What does a financial advisor do? question first.

What Does a Financial Advisor Do?

To put it in the easiest possible terms, a financial advisor meets with clients and helps them with their finances. In that sense, they become a planning partner to manage your money and help you achieve your personal and financial goals.

Now there are varying degrees to which a financial advisor can assist you. That will all depend on your needs and circumstances. You may need counsel for a one-time financial event or you may want on-going counsel that spans years. You may want an advisor to teach you money management or you may want them to manage your money for you. It’s up to you what type of relationship to seek.

Financial advisors can help you with a range of issues. Obviously money management and investing would be a priority for most clients. But advisors will also help clients examine their debt issues, insurances, estate and tax planning issues and trusts among other things.

All of these issues will be wrapped around the client’s future goals. The answer to the question, What does a financial advisor do? will have a lot to do with these goals. A good advisor will sit down with the client first and help them determine what they want to accomplish with their money. They will ask questions to determine the client’s current financial health, values, family dynamics, investing risk tolerance and hopes for retirement.

When long-term goals have been established the financial advisor will work with the client to develop a plan to reach those goals. The plan will serve as a roadmap for all future discussions. It will also help the advisor know what type of investments to choose should the client go that route.

Not all financial advisors are created equal. They all have their own level of training and expertise. They can have varying fee structures as well. It will require some due diligence on your part to find one that meets your needs. That will require you to interview several to see which one works for you.

A good financial advisor will seek to be a teacher first. They will empathize with the client’s financial and emotional needs. They will listen and help make sense of complex financial issues. They should not be promoting their own products (like insurance policies) in conjunction with their services. That’s one of several warning signs to look out for.

Related Article: 5 Warning Signs When Choosing a Financial Advisor

Do I Need a Financial Advisor?

This is of course the tougher question to answer. How do you know if you really need a financial adviser?  It will cost you money to hire their services. So how do you figure out if it’s worth it or not? Wouldn’t it just be better to do your own investing and retirement planning with tools like Betterment or Personal Capital?

As you work towards a decision, analyze these six areas. The answers should point you in the right direction.

1. Amount of assets. In general, the greater your net worth the more likely you will need some help. There is no hard and fast amount – like saying you need an advisor if you have one-million-dollar net worth. But that might be a good starting point to consider finding one.

Here’s the deal – you can manage any amount of money. But great wealth can bring with it great complications. The wealthy have their own share of problems to deal with. You may feel inadequate to handle issues related to taxes, inheritance, investments and estate planning. For those with a lot of money, those issues become bigger.

2. Amount of knowledge. This plays right into #1. As I said, with the right knowledge you can manage your own finances into the millions of dollars. You can take financial classes and learn how to pay off debt, spend wisely and what stock market investments to pursue. But learning all those things takes…(see #3)

3. Time. You should be growing in your knowledge of what it takes to handle money properly. But life is busy. Sometimes we don’t have the time we’d like to  invest in the learning. This can make managing your own money challenging, especially when it comes to investments in the stock market.

Or consider this scenario: You inherit a large sum of money and are faced with a deadline (the closing of the estate) to know what to do with it. This is a time when a financial advisor can be of great benefit. Not only because they can help you know what to do with the money but also because of… (see #4)

4. Emotion and Discipline. Emotion and discipline are big factors. For example, if you are emotionally distraught over the death of a loved one, you are not in a good place to make a wise financial decision.

Or if you’ve come across a large sum of money and your history says you lack spending discipline, a financial advisor can serve as a buffer between you and your money. They can serve as a mentor to make sure you are not spending frivolously.

5. Complexity. Another time to seek out the help of a financial advisor is when your financial life becomes complicated. This could happen due to things like divorce and remarriage, kid related issues, business endeavors or complicated investments.

6. Access to resources. Sometimes financial advisors have access to resources that the general public does not. This is due to their connections in the financial industry. These resources could bring additional benefit to developing your financial plans or helping with your investments.

The decision to hire a financial advisor is a personal one. You can learn to manage your finances by yourself. But it’s nice to know there are people ready and able to help if a need arises.

Questions: Have you ever wondered What does a financial advisor do? Have you ever worked with an advisor? At what other times would it be good to hire one? Do you find hard to have enough time to manage your finances?

Image at FreeDigitalPhotos.net

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  1. Are you still investing in real estate? I just found your site and was looking about the older content and found this post. I just joined BiggerPockets a few days ago and yes there are a lot of people willing to answer questions. I just don’t know how much help the will get me in actually doing a deal. I have time but not as much money. I have some but I am really looking for a mentor to show me the ropes.

  2. Great post! It can certainly be very helpful to have a financial advisor

  3. I would definitely hire a financial adviser because I know that this will bring me good results and take me to reaching my financial goals more easily. I wouldn’t think twice getting help from a financial adviser, but I gotta pick the best, qualified one.

  4. Jayson @ Monster Piggy Bank says

    I think there would a right time for us to hire a financial adviser in our life. Right now, I wouldn’t need one, but I am open to hiring one if I need help with my finances and how I can achieve my goals especially those related to retirement. I see lots of advantage when helped or assisted an adviser.

  5. I think a financial advisor is pretty similar to a personal trainer. You can figure out how to get in shape yourself and stay disciplined. But, if that’s too complicated for you, you don’t have the time, or you need help sticking to a plan, then a personal trainer can be worth their weight in gold. The exact same thing applies for financial advisors!

  6. I’ll try to draw an analogy here with home projects. I think most people are capable of renovating various rooms in their house, but it assumes you have the time/energy/ambition to make it happen. If you don’t, you need to hire a professional to do it. I think the same can be applied to finances. If you’re willing to put in the time and effort to understand and plan your finances, great! If not, then hire an adviser.

    • “…time/energy/ambition…” That’s a good point DC. I know some home improvements are within my grasp and I have the time/energy and ambition to tackle it. Others aren’t and I’d just assume hire the professional.

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