When Do I Need a Financial Planner?

Many times in life, it’s a pretty straightforward decision to contact a professional service provider. For example, if a strong thunderstorm tears through your neighborhood, rips some shingles off your roof and you end up with a puddle in your living room, you know it’s time to call a roof repair person. Or, if it’s 95 degrees outside and your air conditioner suddenly decides to stop working, it’s pretty obvious that it’s time to have the AC guy out for a visit, right?

However, deciding if and when to hire a financial advisor can be less obvious for three reasons:

  • Financial planners usually aren’t helping you with an emergency that needs to be fixed within the next few hours, days or weeks. They are helping you plan for your long-term financial future.
  • Hiring an advisor can be expensive. You want to make sure that you’re getting good value for the money you’re paying.
  • There are lots of different reasons and ways to work with a financial advisor and deciding which category you fall into can be difficult.

So if you find yourself asking, “When do I need a financial planner?” read some of the common situations below to find out. (For more, see: 5 Steps to Getting Started in Investing.)

Reason 1: You Have Money in the Bank

Perhaps the simplest reason to hire a professional advisor is that you’ve reached a stage in life where you’ve accumulated a decent chunk of money and want the peace of mind that comes with knowing it’s being managed by a competent professional. This money can be floating around in a checking or online savings account, parked in a 401(k) from a former employer or recently acquired from the sale of a property or an inheritance.

A good rule of thumb is to start interviewing potential financial planners when you have $100,000 or more in the bank. Some advisors will take you on as a client with a lower balance, while others look for asset minimums of $500,000 or even $1 million. 

If you have less than $50,000 in the bank, your best bet is to work with an online provider such as Betterment, Wealthfront or Charles Schwab Corp. Each has a different approach and fee structure and may be better suited to you based on your specific needs and preferences. (For more, see: The Advantages of Automating Your Financial Life.)

If you do decide to go the professionally managed route, you can expect to pay about 1% per year for a financial planner to manage your account. This would mean that if you have a $100,000 portfolio, your advisor would charge you $1,000 per year to manage it on your behalf. If your financial situation is pretty straightforward otherwise, it makes sense for you to seek out the help of an advisor with this kind of fee arrangement.

Reason 2: You Feel Lost and Want a Financial Roadmap

You may have lots of unanswered financial questions in your mind—questions like:

  • How do I prioritize my spending and savings for things like retirement, college for my kids, and paying off student debt while still having money to live my life and have fun now?
  • Am I on track for retirement?
  • Am I saving enough?

If you’re looking for an overall financial framework to guide your spending and savings decisions, you’re a great candidate for a comprehensive financial plan.  This multi-year plan will help you by: 

  • Providing savings goals each year both in terms of a percentage of your income and in terms of your total net worth.
  • Prioritizing your savings goals so you know which accounts to fully fund first and which can wait until later.
  • Setting money aside for you to enjoy life now by creating memories with family and friends and pursuing your passions.
  • Giving you peace of mind to know that you’re planning for a retirement that is full of the best life has to offer and a celebration of your years of preparation to get there.

Plan on spending between $1,500 and $3,500 to work with a professional advisor for a comprehensive financial plan, depending on the complexity of your personal finances and how many different planning scenarios you’d like to evaluate. (For related reading, see: How Much Is a Financial Planner Worth?)

Reason 3: You’re Changing Jobs

Depending on the circumstances, this can be one of the biggest financial transitions that you face and is an area of expertise for me. You can seek the assistance of an advisor in any one of three ways. We’ll start from simplest to most complex.

You Have One or Several Old 401(k)s Laying Around

If you’ve moved from one corporate employer to another, it’s likely you’ve left one or several old 401(k) plans behind. These retirement plans are a great benefit to you as an employee, primarily because of the matching contributions offered by most employers. However, once you leave and go somewhere else, the company match no longer happens and you’re often left with a plan with a limited number of options and in many cases, higher fees than you need to be paying. 

These high fees can hamper your returns over time and you’d be much better off transferring those old 401(k)s to your own IRA. Consider either doing this yourself using one of the online providers listed earlier in this article or working with a financial planner to set up the account and manage it on your behalf. (For more, see: Should You Roll Over Your Old 401(k)?)

You Are Perusing an Encore Career

If you’re in your fifties or sixties and looking for more freedom of schedule or to try a new field, then an encore career may be right for you. In most cases this can result in a temporary or permanent reduction in income and you may be wondering how this affects your plans for retirement.

If this describes you, consider working with an advisor to develop a retirement plan similar to the comprehensive financial plan mentioned earlier. This can help guide your decisions and provide financial peace of mind as you pursue this exciting new career. (For more, see: 3 Reasons Why Pre-Retirees Make Good Entrepreneurs.)

Your Finances Just Got More Complicated

Perhaps your new line of work has just made your financial situation get a lot more complex. Seeking the help of an experienced financial advisor can help you if:

  • You’ve opened a new business and are looking for guidance on things like how and when to pay yourself a salary, major equipment purchases and capital expenditures or setting up retirement plans for yourself and your employees.
  • You’ve advanced in your career and need help with topics like understanding how stock options work and with estate planning considerations for your immediate family and heirs.
  • Your income has increased and you need help prioritizing among a wider set of financial priorities as well as managing the income tax implications of your decisions.

If you have money to invest, you can seek out the services of a financial professional who will not only manage your money but also work through these kinds of topics with you.

And if you haven’t yet accumulated assets, but still have lots of unanswered questions, many advisors will now work as your financial advocate on a monthly retainer basis. Plan on spending somewhere between $150–$350 per month for this retainer service, depending on the complexity of your financial situation. You can engage an advisor for a year or two to help you put your financial house in order or can make this a permanent part of your personal financial planning process to always have access to a financial professional  as you work through major financial decisions in your life. 

A seasoned financial professional will pay for themselves not only in the decisions they direct you toward, but also in the avoidance of costly financial mistakes.  Avoiding just one of these every year or two typically more than offsets the monthly fee you’ll be paying. (For related reading, see: 6 Questions to Ask a Financial Advisor.)