Do I Need a Financial Advisor: 5 Reasons Why You Need One

As the name pretty much suggests, a financial advisor is a (authorized, accrued and regulated) professional who helps individuals manage their finances, and plan for their financial future. They offer advice on a wide range of financial matters, including investments, savings, estate, and retirement planning all designed to help clients get the most out of their money. 

Financial advisors can come from various backgrounds, but they all share the goal of helping clients achieve their financial objectives. This may mean advising them about the best savings account or how to set up a trust.

It is important to note that while accountants do sometimes offer financial advice, they are not financial advisors. Furthermore, while financial advisors sometimes offer tax advice, not all financial advisors are fully qualified tax advisors.

In this post, we will take a closer look at the services that financial advisors can offer, who exactly would benefit from using one, and what the fees may be.

5 Reasons To Use a Financial Advisor

Here are the top 5 benefits of using a financial advisor:

  1. Expertise in Financial Planning: Qualified financial advisors possess in-depth, up to date knowledge of financial markets, investment strategies and tax implications. This knowledge can prove to be invaluable in making informed financial decisions.
  2. Personalized Financial Strategies:  Advisors provide tailored advice based on an individual client’s financial situation, goals, and risk tolerance. This customized approach to wealth management balances out a client’s present circumstances with their financial goals.
  3. Long-Term Financial Security: By focusing on long-term planning, financial advisors can help clients prepare for retirement, for children’s education, or other significant life events up to and including death.
  4. Stress Reduction: Managing finances, especially investments, can be seriously stressful for most laypeople. Having a financial advisor can alleviate this stress and ensure a sounder nights slumber by offering reliable guidance and support.
  5. Regular Monitoring and Adjustment: Financial advisors regularly review and adjust their clients financial plans to reflect changes in the market, personal circumstances, or in financial goals.

5 Reasons Not To Use a Financial Advisor

Now let’s look at some valid reasons to maybe not use a financial advisor:

  1. Cost: Financial advisors typically charge fees. While these are often quickly ‘repaid’ by following the advice offered, using a Financial Advisor can sometimes prove counter cost-effective for those with simple financial needs or small portfolios.
  2. Availability of DIY Resources:  The fact is that with the rise of online tools and resources, many individuals feel confident managing their finances independently. Again, those with simpler needs may find a blog or even an AI tool can provide perfectly satisfactory advice for free.
  3. Potential Conflicts of Interest:  Some advisors may have conflicts of interest if they receive commissions for selling specific financial products or promoting certain stocks and shares. While they should never act against their clients interest, this does sometimes happen especially where there is a grey area.
  4. Lack of Personal Control: Some individuals simply prefer to have direct control over their financial decisions and investments. Of course, these individuals are free to consult an advisor and then ignore the advice received if they wish.
  5. One-Size-Fits-All Advice: In some cases, inexperienced, overworked or demotivated advisors may fall into a pattern of offering generalized advice that might not perfectly fit an individual’s unique financial situation.

Who Could Benefit From A Financial Advisor?

The short answer here is that absolutely everybody and anybody could benefit from a financial advisor. In fact, many individuals who use one for the first time often remark that they wish they had done so years ago as they can offer so many simple but effective financial ‘hacks’.

However, in particular a financial advisor could prove to be especially helpful for those nearing retirement, high net worth individuals, entrepreneurs and business owners, those going through a divorce and those who are looking to prepare their last will and testament.

Financial Advisor Fees

The fees that financial advisors charge their clients come in a number of shapes of sizes. 

  • Flat Fees: Some advisors charge a flat fee either for specific services, per consultation, or as an annual retainer. These fees vary pretty widely depending on geo-locaion and level of expertise. Many clients find that  fee only advice is the best as it makes the cost of the advice, clear and transparent.
  • Hourly Rates: Rather than charge flat fees, some advisors prefer to bill an hourly basis. These can be ideal for those seeking advice on specific issues rather than needing a full consultation. In New York City, the hourly rate typically varies from between $150 – $300 per hour.
  • Percentage of Assets Under Management (AUM): This is a less common fee structure where the advisor charges a percentage of the total assets they manage for the client. For individuals with high net worths or large portfolios, this option can sometimes prove to be unpalatable.
  • Commission-Based: Some advisors earn commissions from banks and other institutions on financial products they sell. This model is somewhat controversial as it can lead to conflicts of interest.

Final Thoughts

 

On balance a financial advisor can prove to be a key partner in achieving financial goals. However it is important to carefully consider our unique needs and circumstances before deciding to engage one. 

 

Finally, it is also worth investigating whether advisors in your area have strong customer testimonials or if they offer free preliminary consultations to get an idea of what they may offer for the fee.