Americans are uncomfortable talking about money. In a 2017 study by Acorns, nearly 2/3 of respondents would rather talk about their weight than their finances.
Likewise, investors struggle with the question of whether to and when to engage the services of a financial advisor. When they do decide to work with an advisor, few are certain whether they should engage him or her for a one-time project or issue, or if you need advice on an ongoing basis. Before making the decision, investors and savers should consider the following:
When to Seek Out Financial Advice
Many savers seek out the services of a financial advisor to deal with specific changes in their lives. These stages differ from investor to investor, but can include:
- I’m nearing retirement and I want to ensure that I’m on the right track.
- I just inherited some money from a parent and I want to get some advice on how to invest the money.
- I was recently married, and we need help managing our finances as a couple.
- I was recently divorced or widowed and need help moving forward financially as a single person.
- Mom and dad are getting older and they/we need help managing their overall finances.
- I hate investing and financial planning and want professional help to ensure that I don’t mess up my future.
- I enjoy financial planning and investing, but want a second opinion to see if I could do it better.
One-Time Financial Advice
Many financial planners and advisors will work with savers on a one-time basis, either to develop a financial plan or help with a specific issue or question. Generally, these advisors work on an hourly basis or agree to take on the project for a flat fee.
For example, if your company has offered you a buyout package to take an early retirement, you might engage the services of a financial advisor to help you sort through your options. He or she can help you evaluate any incentives your company may be offering, such as enhanced pension benefits, and help you visualize the long-term costs or benefits of such a decision.
As another example, you might ask a financial planner to put together a comprehensive financial plan or a review of your current situation. In addition to helping you better understand your finances, you would likely walk away with actionable steps or a roadmap to follow.
Keep in mind that it is not uncommon for a one-time engagement to evolve, either into a full-time advisory relationship or more regular financial "check-ups."
When to Hire an Advisor Full-Time
Just as there are many good reasons to seek out the services of a financial advisor for a one-time or short-term need, it can also make sense to engage the services of an advisor on an ongoing basis.
Many investors may look for ongoing investment advice and management of their accounts. They may be uncomfortable making weight financial decisions themselves, are unable to allocate the time to pay attention to their investments or feel their needs will be best-served by a full-time advisor.
Various advisors and firms all work in different ways, but it is common for an advisor in one of these arrangements to provide ongoing investment management services as well as ongoing advice on financial planning issues that an investor might encounter. These topics can include estate and tax planning, preparations for retirement, saving children's college and a host of other considerations.
Payment for these services is often a percentage of the investment assets under management (AUM) or, increasingly, a flat retainer. Typically, under this type of arrangement, the investor and advisor would formally meet (in-person or virtually) twice per year or quarterly, with the client having access to the advisor as often as needed for any questions or issues that might arise in the interim.
The benefit to this sort of arrangement is that the investor not only has a professional watching his or her assets, but also receives advice on his or her overall situation throughout the various stages. Investors looking for the "right" advisor should ask a number of questions, including:
- Do you have experience working with clients like me? This could retirees, pre-retirees, same sex couples, divorcees, widows or any applicable "niche."
- How much and how do you charge? Will you make any money from the investments we use?
- What services do you offer?
- How often will we meet to review our investments/our situation?
- How often and by what method will you contact us? Are there any limitations on how frequently we can contact you?
The nature of advice is also changing. Beyond traditional, in-person meetings, investors now usually have access to their accounts digitally and may meet with their advisors virtually for some or all of their portfolio review sessions. Additionally, many robo-advisors offer a hybrid advice model, which combines the typical asset allocation and advice services of a traditional advisor with a purely digital platform.
The Bottom Line
When deciding on the type and the scope of advice that you might need from a financial advisor, it's important to ask the right questions about your money needs and to assess your own level of comfort in managing your own finances. These factors will help you decide the type of advisor and the level of advice you may need.