When the Time Comes
Professional advisors say there is no magic asset number that pushes an investor to seek advice. Rather, it is more likely an event that spooks a person and sends him scurrying through an advisor's door.
According to Charles Hughes, a certified financial planner in Bayshore, N.Y., the event typically involves either the receipt of or access to a large sum of money that the individual didn't have before. Or it could be something that requires the individual to manage assets himself – like beginning to take required minimum distributions from a tax-advantaged account, like an IRA or 401(k) plan.
"When you reach a point in which you're constantly afraid that you're going to make a mistake with your investments, then you need professional advice," says Raymond Mignone, a certified financial planner in Little Neck, N.Y.
Often, someone who has never spent or managed more than a few thousand dollars is looking at managing six figures or a group of accounts. If this happens to someone just about to retire, the decisions that need to made are more critical, as there's a need to make this money last. Take the 401(k) plan, for example.
When you're contributing to the plan, you may feel like it's not your money: you can't withdraw and spend the funds, because you'll be penalized. But when retirement is coming and you can access that money, the question often arises about what you are going to do with it. For many, this can spark the realization that they need some portfolio management from an outside authority.
The need for critical self-evaluation is vital when determining whether to hire a financial advisor. The following questions should help you sort it out:
If you answered "yes" to the above questions, you may not need an advisor or financial planner. But if you thought "no"....
Finding the Right Financial Professional
How should you go about finding the right advisor? Begin by asking for referrals from colleagues, friends or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. A Certified Public Accountant or a lawyer might make a referral. Professional associations can sometimes provide help. These include the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).
The client must also consider how the advisor gets paid. Some advisors charge a straight commission every time they make a transaction or sell you a product. Others charge a fee based on the amount of money they have been given to manage. Some fee advisors assess an hourly fee.
Fee advisors claim that their advice is superior because it carries no conflict of interest: Commission-based advisors receive their income from the company behind the products they sell, which can influence their recommendations; they might also have an incentive to "churn" your account – that is, rack up transactions to generate more commissions. In response, commission advisors argue that their services are certainly less expensive than paying fees that can run as high as $100/hour or more.
The Wrong Advisor
If your advisor only records some transactions from time to time but never sits down and discusses long-term goals with you, you may want to look for a new advisor. Similarly, if your advisor never writes an investment plan or strategy to lay out your needs and aims and assess whether they are being reached, you may be better served elsewhere.
A written plan for each client is critical. In addition, good advisors have semiannual conferences with clients and talk to their clients on a regular basis. In addition, a good advisor who is just beginning to work with a client should never recommend a product until he has learned a lot about circumstances and goals.
Finally, the individual should ensure that any financial professional has the proper credentials. Avoid any advisor who is little more than a broker but calls himself a financial planner or advisor. In fact, the term "financial planner" has been a much-abused one. A person can label himself or herself as a financial planner, but not be a certified financial planner unless he or she has fulfilled the necessary education and training. Therefore, don't allow yourself to be impressed by the title on an advisor's business card until you understand what qualifications and certifications he or she actually has.
The Bottom Line
The decision about whether to seek advice can be critical. If you do choose to seek advice, carefully choose the right professional for the job, and you should be on your way to a better financial plan. If you decide to go it alone, remember if at first you don't succeed, you can try again – or call an advisor.