Everything You Need to Know When Asking Yourself “Do I Need a Financial Advisor?”

Everything You Need to Know When Asking Yourself “Do I Need a Financial Advisor?”

September 22, 2022

One question often asked is, “Do I really need a financial advisor?” Unsurprisingly, the answer is often a resounding “Yes!” In 2021, 38% of Americans reported working with a financial advisor, and of those who didn’t, 78% reported that they can see themselves hiring one at some point in the future.

When you break it down, it isn’t surprising that the overwhelming majority of individuals who work with a financial advisor feel confident that the investment is well worth the money. Advisors bring clarity and expertise to life’s most complicated problems, including:

  • Investment management
  • Financial goals
  • Retirement planning
  • Tax guidance
  • Asset management

It is estimated that professional financial advice can add between 1.5% and 4% to portfolio returns over the long term, which begs the question: why not work with an advisor? Contrary to what many my think financial advisors are not just for the ultra-wealthy or those nearing retirement. Instead, people from all walks of life can benefit from professional financial advice.

Need help managing student loan repayments? Are you are looking for help with your estate planning? Are you unsure how to start saving for your child’s or grandchild’s college fund? A Financial advisor can help with all these factors and more.

Though it may feel difficult to decide when and how to work with an advisor, it really doesn’t have to be complicated. If you have recently asked yourself, do I need a financial advisor? keep reading to learn how to identify when it is time to contact someone.


Has Your Financial Situation Recently Become More Complicated?

A recent study found that 60% of individuals that work with a financial advisor sought out the partnership after a significant life event that made their financial situation more complicated. Some of those significant life events include:

  • Getting married or divorced
  • Receiving an inheritance
  • Receiving a large sum of money
  • Nearing retirement age

If your financial situation recently changed and you are now making decisions about large sums of money, making choices that have multiple complex layers, or are just not completely sure what rules and regulations apply to your new situation, it is probably time to talk to an expert.


Do You Need Help Creating and Implementing an Investment Strategy?

No matter your age or financial situation, it is always a good idea to have some sort of investment strategy in place. Take planning for retirement as an example: many people in their 20s may think they have plenty of time to save for retirement. In fact, 25% of Americans think they don’t need a financial advisor until they are middle-aged. This common misconception ends up leading people to hold off on putting a retirement saving strategy together. As you probably guessed, this isn’t always a good idea.

Say you start your investing journey at $100 a month, and you average a positive return of 1% a month, which will come out to 12% a year. Now, say that investment compounds for 40 years. By retirement, your account will be a little over $1.17 million.

In contrast, say your twin sibling puts off investing until you’re both in your 50s, but they invest $1,000 a month for 10 years. Assuming they are also averaging 1% a month, compounded monthly, they will only have around $230,000 for retirement.

What this demonstrates is the importance of planning ahead: having a strategy in place is imperative to ensuring your financial future will be everything you want it to be and more. If you aren’t sure how to get started, however, a financial advisor is a great resource to make sure you’re doing the right thing for your goals.


Do You Need Tax Guidance?

There is a reason so many people get stressed around tax season. Taxes are complicated and oftentimes can feel like a lose-lose situation if you aren’t an expert at tax law. A few missteps in your investment strategy could end up costing you thousands down the road.

Conversely, if you aren’t up-to-date on all the available tax credits and deductions, you may be sending the IRS more than you should. Things like child tax credits, student loan interest payment deductions, and even out-of-pocket charitable contribution deductions should all be taken into consideration when filing your taxes.

Thankfully, navigating taxes doesn’t have to be done in a vacuum. A financial advisor can eliminate the guesswork and guarantee you have all the information necessary to make the best choices for your financial goals.


Questions to Ask a Financial Advisor

If you’re ready to work with a financial advisor, there are some questions you will want to ask before solidifying the partnership. It is important to properly vet your potential advisor to make sure they are the right person for the job.

“Are you a fiduciary?”

Not all financial advisors have to act with their clients’ best interests in mind, but fiduciary advisors do. Fiduciary advisors must:

  • Avoid and disclose all current or potential conflicts of interest
  • Clearly disclose any fees or commissions that take place in the relationship
  • Ensure all investment advice, to the best of the advisor’s knowledge, is accurate and complete
  • Only make investment recommendations that align with the client’s goals, objectives, and risk tolerance

At JL Smith we believe in providing Fiduciary Services to all our clients to ensure your best interests are always top of mind.

“How are you paid?”

Another way to ask this is, what is your fee structure? In a recent study by the CFA, 84% of responders said that full disclosure on fees and costs is a determining factor in developing a trusting relationship with a financial advisor. Don’t feel uncomfortable asking what their compensation structure is, this question will help ensure everyone is on the same page when it comes to payment.

Financial advisors can be paid in a variety of ways, including:

  • Fixed fee | a pre-arranged and agreed upon price for a given project. For example, an advisor charges $6,000 for a comprehensive financial plan.
  • Hourly fee | An advisor is paid a predetermined hourly rate for the work they provide clients.
  • Assets under management (AUM) | an annual fee levied as a percentage of the investments managed for a given client.
  • Commissions | An advisor can receive commissions off of common financial products like annuities, mutual funds, insurance, and more.

“What makes you qualified to be a financial advisor?”

The financial services industry, like so many other industries, is filled with special designations and professional certifications. You will want to look for an advisor that values continuing education and has the knowledge and expertise necessary to achieve your unique financial goals.

Noteworthy credentials to look out for include:

  • Certified Financial Planner (CFP) | 30 hours of continuing education every 2 years.
  • National Association of Personal Financial Advisors (NAPFA) | 60 hours every 2 years.
  • Certified Public Accountant (CPA) | 120 hours every 3 years.


What Kind of Relationship are you Looking for with Your Financial Advisor?

Before you commit to a financial advisor, you should know their process for interacting and engaging with clients. Our team of experienced financial advisors takes pride in helping educate our clients so they can better understand their personal finances and achieve their financial goals. With our holistic financial approach, we will make sure all of your assets work together to help you reach financial independence.

Schedule your free complimentary consultation with one of our trusted advisors today or reach out to us via phone or email to get started.