What is a financial advisor and why should you hire one?


Kumiko Ehrmantraut
Kumiko Ehrmantraut

Latest posts by Kumiko Ehrmantraut (see everything)

If you are having difficulty managing your money, you could benefit from working with a financial advisor.  Learn the pros and cons of working with one and how to tell if you are ready to work with one.

I often have people ask me if they should work with a financial advisor, and my answer is, “It depends.” There can be many benefits to working with a financial advisor, but that doesn’t mean that everyone should or that you are necessarily ready to work with one.

That said, some people will reach a point where they will need help beyond what a financial book can offer. So let’s take a look at what a financial advisor does and how to know when to hire one.

What is a financial advisor?

A financial advisor works with clients and helps them manage their money. They provide financial guidance and receive payment for their services.

However, the term financial advisor can be a general term that describes a wide variety of people and services. For example, people refer to financial planners, advisers, and investment managers as financial advisers. It really comes down to your target audience and who you serve.

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What does a financial advisor do?

A financial advisor meets with clients and helps them assess their current financial situation and develop a plan for the future. They will consider your income, debts, and investments and make recommendations for improvement.

And a good financial advisor will always start by understanding where you currently are financially and seeking to understand your goals. That way, they have the information they need to help you reach those financial goals.

The job of a financial advisor is to really understand where you are and educate you on your options. At first, this may seem like it helps you pay off debt and save an emergency fund. As your knowledge increases, your financial advisor can help you with more complex financial problems, such as taxes and investments.

Pros and cons of hiring a financial advisor

Pros

  • Access to your experience: Financial advisors have extensive experience and knowledge of investing and planning for retirement. And in all likelihood, they have spent years working with clients in situations similar to yours.
  • Save time: By working with a financial advisor, you won’t have to worry about figuring out your financial options on your own. Your financial advisor will help you put together a financial plan and can even help you implement and manage it.
  • Personalized advice: Robotic advisers have become popular in recent years as a low-cost alternative to traditional financial planning. But the benefit of working with a financial advisor is that you get personalized advice for your situation. This personalized advice can be beneficial if you are going through a significant life transition or if your finances are quite complex.

Cons

  • The cost: For most people, the biggest disadvantage of hiring a financial advisor is the cost involved. Some financial advisers charge a flat annual fee to use their services, while others take a percentage of your portfolio. Either way, you will need to find out what these charges are and decide how much you can afford.
  • It is difficult to find the right person: Finding the right financial advisor can take time, and not all of them will be right for you. And if you choose someone who offers poor financial advice, you could end up hurting you financially more than it helps.

Why You May Want To Hire A Financial Advisor

Now that you understand what a financial advisor does and the ins and outs of working with one, when does it make sense to hire one? Here are some situations in which you could benefit from outside financial help.

Your financial situation changes

If your assets suddenly increase substantially, such as receiving an inheritance or a significant increase, you may want to consider working with a financial advisor. That person can help you develop a plan for how to use the extra money to increase your financial wealth. They can also help you avoid the lifestyle inflation trap that so many people fall into.

But in addition, a financial advisor can also help you if something negatively affects your finances, such as a divorce or job loss. That person can help you reallocate your assets and determine where you need to downsize. And they can help ensure that you stay on track with your financial goals.

You are approaching retirement age

If you’re approaching retirement but aren’t sure you’re ready, a financial advisor who focuses on retirement can help. These people help you navigate the changes that come with retirement and identify your options for the future.

A retirement financial advisor will make sure you are on track with your retirement goals and help you develop a plan for your retirement years. Their guidance can help protect you from any market volatility and will likely give you greater peace of mind as you approach retirement.

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You need solid, unbiased advice

It’s easy to make emotional decisions about your money, but this leads many people to make decisions that they later regret. A financial advisor can be a good source of unbiased advice and help you avoid overreacting to a market downturn or temporary financial setback.

Plus, the right advisor can help you identify investment opportunities that you might have otherwise missed. The bottom line is that it’s always good to get the opinion of a neutral third party when it comes to your finances.

The bottom line

If you are ready to change your financial situation but don’t know where to start, hiring a financial advisor might be the right solution. It will cost you some money to get started, but many people find that the rewards make the expense worth it.

To get started, identify what type of services you are looking for and how much you can afford to pay a consultant. From there, you can start asking friends and family for recommendations.



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