Do You Really Need A Financial Advisor?


When you find yourself in a situation where you need financial help, it can be tempting to simply find a financial advisor in your area and refer the problem to them. However, before going for this option, there is one important question you should ask yourself: Do I really need a financial advisor?

First, let’s look at what a financial advisor actually does.

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What is a financial advisor?

A financial advisor is a broad term that refers to any person who can help you manage your money. What does a financial advisor do? They can help you with investment decisions, solving tax problems, and many other things. If it is a financial consideration, there is likely a financial advisor out there who can help.

The term “financial advisor” is general and technically anyone can refer to themselves as a “financial advisor,” including some shady people. To make sure you’re dealing with a reputable company, check out their certifications. One important certification to look for is whether you have passed the 63 and 65 Series exams that most states require before an advisor is allowed to legally take certain steps for a client.

What about a financial planner?

A financial planner is a specific type of financial advisor. Financial planners are individuals specifically responsible for helping their clients create a plan for achieving their long-term financial goals.

How is that different from a financial advisor? A financial planner would not necessarily be a good choice if you need financial help while you are trying to solve an immediate financial difficulty, such as: B. the solution of an impending tax situation. You would like a tax-oriented financial advisor for this.

Think of it this way: If the situation you are trying to resolve is a long-term situation, such as a For example, for long-term investments, planning your estate, or other matters that take a year or two to resolve, contact a financial planner Art of the financial advisor you want. If your situation is more immediate, such as a complex tax situation or a confusing inheritance, you would want a different type of financial advisor who is better suited to your immediate situation.

“Financial planner” is also an umbrella term. Before hiring one, make sure it’s certified. A key certification for financial planners is the Certified Financial Planner certification. You can search specifically for certified financial planners via the CFP website.

[Read More: What a Good Financial Planner Does and Doesn’t Do]

When does a financial advisor make sense?

You may need financial help and find a reputable financial advisor helpful in the following three situations.

Complicated tax situations

Filing taxes is easy for the vast majority of Americans. For around 70% of American households, taxes are so simple that they can be processed in minutes by filling out a free online form. Even if you don’t belong to this group, most tax situations can be easily handled using the IRS’s fillable free file forms.

Only in more complex situations, with different companies and many different streams of income, may you need help from a financial advisor to get things straight.

Complex estate planning

For most people, the hardest part of estate planning is getting started. Most Americans have relatively simple goods that can be handled well with just a few documents, and all you need to know is just a few Google searches or a trip to the library.

It gets more difficult when you have a large estate, unusual desires, or a large number of heirs. In situations like this, you can consult a financial advisor to make sure your plans are clear.

Investment planning for large amounts

For smaller amounts, the benefits of hiring a financial advisor are likely to be outweighed by the cost. While it is likely to improve your investments to some extent, the cost of a financial planner dealing with a small amount of assets can gobble up much of what you gain simply by doing it yourself.

Financial advisors come in handy when you have a large number of assets to consider. If you have enough assets to make estate tax an important consideration (say, $ 10 million or more), it may be worth discussing the matter with a financial advisor or planner. For smaller amounts, it is probably worth at least trying to manage your investments yourself and only consulting an advisor if you are struggling.

What’s the alternative?

The truth is that most financial planning decisions are surprisingly simple. Many financial decisions seem complicated because simple concepts are hidden behind complex-sounding jargon. They also seem risky as media coverage of financial issues tends to focus on very risky investments because they are exciting, but most financial options are actually relatively low-risk and boring. Most normal financial situations do not require outside advice.

Most of the financial situations that ordinary people face only require two things, neither of which requires a financial advisor.

A small amount of learning

The first element is learning. A financial advisor is not required to invest the time to really understand what your options are. It just takes some time to sit down, read a few documents and use Google to figure out what some of the jargon means.

If you don’t know where to start, just start with a beginner’s guide on the financial topic that concerns you. For example, if you are trying to understand your options for saving for retirement, you might be reading The Simple Dollar’s Guide to Retirement Planning.

You should always read multiple guides on a subject to get multiple perspectives. So turn to Google for other guides on the subject, or visit your local library and read an introductory book on the subject (the personal finance “For Dummies”) Books are generally pretty good for beginner guides, for example ).

A simple plan

If you carefully read a few beginner guides about your financial problem and make sure you really understand them, you will find that most of them will walk you through the process of creating a simple plan that is suitable for your situation. Most guides will help you tailor them to the nuances of your life. Since the vast majority of people have a relatively easy financial situation, you can usually create a simple plan that will work for you.

For example, if you have concerns about saving for your children’s future, first read our guide to saving for your child’s college education. This would advise you of some specific steps you should take, such as: B. opening a savings plan for 529 college and using automatic payments to keep the plan on track. How will you afford it? You can start with these 20 ways to painlessly cut your monthly budget.

This is really all you need. Save the financial advisor in case you get into extraordinary and difficult situations that go well beyond what you can learn from your own learning.

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