If you’re someone who has thrived, you’re probably thinking that you should learn how to make smart investment decisions. Maybe you’ve even considered hiring a financial advisor to help. However, deciding exactly when to hire a financial advisor can be challenging.
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Maybe you think your financial situation isn’t complex enough, or you don’t have enough assets to justify hiring a financial advisor. Maybe you don’t trust advisors because of a bad experience, or you don’t want your financial situation to be judged by a total stranger. Maybe you think that you can make financial investment decisions and create a financial plan on your own or with the help of robo advisors (tools that allow you to invest in a diversified portfolio with an asset allocation based on your answers to a risk tolerance questionnaire and the date you need the funds).
However, not everything in your portfolio can be reduced to an algorithm. Life is often more complex than goals-based investing tools alone can handle, which is why 84% of Americans would prefer to work with humans when making financial investment decisions.
Most likely, however, you’re probably struggling with the decision to hire a financial advisor because you don’t know where to start. Many people call themselves financial advisors, promising to help you start building wealth or create a financial plan, but there’s no standard definition. An “advisor” could specialize in taxes, insurance, or stocks, or they could have an alphabet soup of designations, such as CFP, CFA, CPA, AEP, ChFC, or AFA.
Many factors could stop you from ever getting help with your finances. But doing so can take a lot of pressure off you. If you’re among the 73% of Americans who say finances are one of the biggest stressors in life, then it could be time to seriously consider working with a financial advisor.
Deciding How To Make Smart Investment Decisions
Despite common misconceptions, working with an advisor is about more than investing. Of course, investing is important, but it’s primarily a means to an end. It’s a tool that allows you to do and experience the things in life you want and need. You can’t know what portfolio makes sense without first understanding why you’re building wealth in the first place.
That’s why investing within the context of a personalized, well-thought-out financial plan that reflects who you are and the life you want for yourself and your loved ones is so vital. You need the knowledge, interest, and time to do this on your own. If you don’t have those key ingredients, an advisor fills in the gaps. When you create a financial plan with an advisor, you can align your money with your values to get the most out of life with what you have.
Further, an advisor can help you determine how to make smart investment decisions. One bad investment decision or tax move can not only cost a lot of money, but also seriously undermine your financial security and ability to achieve your financial goals. Failure to account for variables such as inflation, market volatility, medical expenses, or other important factors can render your plan for your future retirement inadequate.
And with long-term investing, having an objective opinion from a third party is critical. Money is highly emotional for myriad reasons that are different for each person. When the market falls, for example, many people feel the urgent need to pull out of particular investments or drastically change their allocations to be more conservative at the most inopportune times. This is a completely reasonable emotional response to experiencing volatile markets. The key is acknowledging those feelings and keeping them out of the driver’s seat when it comes to major investment decisions, which can be very difficult to do when your money is on the line.
When To Hire A Financial Advisor To Start Building Wealth
If you’re still unsure when to hire a financial advisorfor advice, here are three signs it’s time:
This might be the most obvious reason to hire a financial advisor. If you find yourself with a much higher income from a promotion or a sudden windfall from a business sale, inheritance, or newly vested equity compensation grants, a financial advisor can help you answer some critical questions: How does this increase in your net worth change your financial trajectory? What new tax strategies do you need to consider? How much should you use for short-term or long-term goals?
If you feel like you just need to pick something — but aren’t exactly sure what — when you encounter a financial decision, an advisor can help. Should you claim Social Security now or later? Should you exercise your vested stock options? If so, should you put up the cash to exercise, sell to cover, or initiate a cashless exercise? Should you contribute to your company’s deferred compensation plan? If so, how much, what distribution elections should you make, and how should that money be invested?
Should you buy additional life and disability insurance, or is your group policy through work sufficient? Should you make pre-tax or Roth contributions to your 401(k), and how much should you contribute? Should you use a trust for your estate documents, or is a will and powers of attorney sufficient?
Beyond the basic salary and investments, it can be overwhelming to make choices around things like equity compensation, employer benefits, and estate documents. And whether we’d like to admit it, managing money is a complicated, emotional process. Even financial advisors need their own advisors to help makefinancial investment decisions!
If you just don’t feel confident in your understanding of your financial situation, then an advisor can make things clearer. How do equity compensation and deferred compensation plans work? Is there anything else you could be doing to save money on taxes? Should you be thinking about long-term care insurance? How do you decide on the best investment allocation? What is the best way to pay for college?
Even if you have the knowledge, creating a comprehensive financial plan, monitoring your progress, and adapting to always-changing life circumstances are significant time commitments — especially while balancing a career, family, and time for yourself.
Just because you’re in a good place financially doesn’t mean you shouldn’t get help creating a financial plan so you can start building more wealth. Anyone can benefit from professional assistance. Hiring a financial planner takes the burden off your shoulders, so instead of worrying about your money, you can enjoy the life your money affords you.
About the Author
Derek Jess is a Senior Wealth Manager and shareholder at Plancorp, a full-service wealth management company serving families in 44 states. With specializations in financial planning for employees with equity-based and deferred compensation plans, he helps high-income clients with complex needs navigate through all stages of life.
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