By: Bob Haegele
November 6, 2020Financial decisions can be complicated, and that might make you wonder if you need a financial advisor. In many cases, that may very well be true – but not always.
In this post, we’ll cover some of the scenarios where you might need a financial advisor. We’ll also take a look at some alternatives if you don’t need one (or can’t afford it).
When You May Need a Financial Advisor
You might think you can just wing it when it comes to managing your money. That might be the case, but there are many scenarios in which a financial advisor would be beneficial.
Estate Planning
Estate planning bears some similarities to writing a will, but they are technically different processes. Nevertheless, estate planning is the process of determining what will to your assets when you inevitably pass away.
Chances are, you’ll have more assets than just some cash lying around, especially if you are older when you die. You may have a house, a car, lots of possessions in that house and car, investments, and much more.
You may have heard of – or even visited – an estate sale. That is not unrelated, as these are the sale of unclaimed items from the estate of someone who recently passed away.
But it’s not just about where those assets will go. Estate planning also covers your care if you become disabled, life insurance, minimizing taxes, and many other concerns
Given that we only reach our end-of-life once, this is not a process most people are very good at navigating on their own. Hiring an advisor, in this case, makes a lot of sense.
Retirement Planning
Much like estate planning, retirement is something most of us will only do once. As such, it can be helpful to have some guidance.
The biggest question when planning your retirement is trying to determine just how much money you’ll need and how much you expect to spend on a monthly basis.
That said, if you are determined not to use a financial advisor, you can probably determine your own monthly expenses. If you keep a budget, you can probably look that up fairly easily.
Or if you pay most of your bills digitally, you can look at bank statements.
Complex Tax Strategy
If you have ever done your own taxes, you probably already know that even slightly complicated finances can create a labyrinth come tax day.
But if your finances are complex, hiring a financial advisor could save you much more than the cost of the advisor’s fee.
If you have a home, children, and especially if you have your own business – it’s tough to catch everything on your own. Hiring someone could help you find deductions that could end up saving you thousands on your tax bill.
Your Finances Are Complicated
It may seem obvious, but if you feel as though you can no longer manage your money easily, it may be time to get assistance with your finances.
You may have children, have several disparate retirement accounts and bank accounts, shared assets, and so on. Whatever the case, if you find it difficult to keep up with your finances on a daily basis, you could benefit from a financial advisor.
Even if you think you can handle it on your own because it’ll be cheaper, that isn’t always the best move.
Not only could hiring some kind of financial advisor save you time; it could also help you find things you wouldn’t have considered on your own.
When You May Not Need a Financial Advisor
Financial advisors can help us navigate a lot of complicated financial situations. But there are times when they aren’t necessary or simply don’t make sense.
Let’s take a look at a few of those scenarios.
Your Finances Aren’t Complicated
Financial advisors can be a big help, but that doesn’t mean absolutely everyone needs one. If your finances only amount to a regular paycheck and a few monthly bills, it’s probably fine to manage your own money.
Everyone should be saving and investing for the future, and investments may be something you prefer not to manage on your own. But many people live paycheck to paycheck and may not make enough to set money aside.
Hopefully, those who find themselves in that situation can eventually start to put money aside. In the meantime, a financial advisor may not be necessary.
You Prefer to Manage Your Own Investments
Although wealth management is a common reason to hire a financial advisor, it’s still not necessarily a must. Many people prefer to invest their money in a handful of ETFs and call it a day.
That may still mean rebalancing your portfolio occasionally, but it’s certainly cheaper than hiring someone to help.
But, again, it depends on your preferences. You must be comfortable setting up your own retirement and/or brokerage account, researching which investments to select, and rebalancing as needed.
If you are comfortable doing all that (and don’t mind it), you may not need a financial advisor.
You’re Strapped for Cash
Some financial advisors are more expensive than others, but even a few hundred dollars can be too costly for many people.
If you could use some help managing your investments or finances in general, consider one of the alternatives in the next section.
What Are the Alternatives?
Although many people could benefit from meeting with a financial advisor, it’s not necessary for everyone. For others, the fee may not fit their budget.
Let’s go over some of the alternatives you can consider if you don’t need or aren’t able to consult a financial advisor.
Robo-Advisors
Robo-advisors are algorithm-driven tools that can help you manage your investments. If your finances are mostly un-complicated, but you need help managing your investments, a robo-advisor can help.
And these days, there are different robo-advisors for different types of investing.
Betterment investing manages general investment accounts, while Blooom can manage an employer-sponsored retirement plan.
In addition, Personal Capital can help manage your finances as a whole.
The benefit of using a robo-advisor is that they can help guide your investment decisions, then manage your investments for you. And they do this for a much lower fee than an investment advisor would.
In particular, robo-advisors tend to have fees of 0.5% or less, where the typical human advisor would charge around 1.5% on average.
See a complete list with our robo-advisors comparison.
Ask Your Bank or Credit Union
If you bank locally, you may be able to meet with someone to discuss your finances. Some banks and credit unions have worked out deals with financial advisor services for their members.
Considering the nature of the business, a bank may not offer much than advice on selecting investments – not for free, anyway. Still, if you happen to invest with your local bank or credit union, even that could be worth a try if you don’t know where to start.
Of course, every bank is different, but it’s worth asking your bank if they can help you navigate your finances.
Do I Need a Financial Advisor? It Depends
In reality, most of us could benefit from meeting with a financial advisor at least once. The reason is simple: they may be able to help in ways you hadn’t even considered.
They might be able to save you money because of some deduction you didn’t know existed. Or they may simply help make your finances more manageable.
Still, if your finances are straightforward, it’s possible that you can do without a financial advisor. If things become more complicated, you can always consider one later.
For those who don’t need a financial advisor, services like Betterment and Personal Capital can help manage your finances and investments.
But if you feel like you need help with your finances, feel free to contact an advisor. It could make a big impact in the long run.
