A question I get asked quite frequently from prospective clients, friends, and family is, “Do I need a financial advisor?”
Obviously, everyone’s situation is different, so I’ll tell you what one of my college professors would say anytime I’d ask him a difficult question…
“Well, it all depends.”
You might need a financial advisor if…
With that in mind, below is a list of seven reasons you might need a financial advisor, as well as a list of three reasons you might be able to manage your wealth on your own.
1. You’d like to save money
In a recent study published in the Journal of Retirement, researchers from the investment research firm, Morningstar, found that the added value of having a financial advisor help you make wise financial planning decisions is approximately 1.82% per year.
According to their research, that means if you have a $500,000 portfolio and are being charged 1% of assets ($5,000 annual fee), as is typical with many advisors, (click here to learn the different ways financial advisors get paid), then an advisor would SAVE you $4,100/year ($500,000 x 1.82% – $5,000 fee = $4,100).
Sounds like a pretty good deal to me!
2. Your time is valuable
Let’s say you’re a business owner who takes home $200,000 a year in salary and profits. Or maybe you’re a doctor who brings in $200,000 in W-2 income from the hospital. Either way, you’re spending approximately $4,000-$6,000 a year if you manage your own investments and finances.
If you work 40 hours a week for 50 weeks a year (2 weeks of vacation) then your “average hourly wage” is $100/hour [$200,000/ (50 weeks x 40 hours = 2,000 hours) = $100/hour].
Conservatively, it would take you 40-60 hours a year (about an hour a week) to do the following tasks:
- Research different investment options
- Manage your portfolio (i.e. make trades, transfers, etc.)
- Design and implement a comprehensive financial plan in line with your goals, needs, and values
- And everything else that goes along with managing your wealth!
That works out to $100/hour x 40-60 hours a year = $4,000-$6,000/year spent managing your wealth.
For a similar amount of money, why not have someone else take care of all that stuff while you take an extra week of vacation each year?
3. You don’t like dealing with numbers
Let’s face it, not everyone enjoys analyzing investments, choosing the right health or life insurance plan, or a thousand other tasks that go along with managing your wealth.
What’s that, you say?
You think financial advisors only deal with investments?
Then you need to find a financial advisor who bundles comprehensive financial planning and wealth management as part of their fee. A good financial advisor will cover ALL aspects of managing your wealth including tax mitigation, asset protection, wealth transfer, investment consulting, and much more!
4. You have a complex financial situation
You don’t have to be Bill Gates to have a complex financial situation. If you’re like most folks, you rely on a large network of professionals (i.e. attorneys, accountants, insurance agents, bankers, lenders, etc.) to help you sort through the different areas of your financial life.
A good financial advisor will come alongside you as your Personal “Chief Financial Officer” (CFO) to make sure all the moving pieces are working together to help you accomplish your goals.
Everyone has a CFO who is responsible for making sure all of these financial professionals are on the same page and are doing what’s in your best interests. If you don’t have a financial advisor who focuses on comprehensive financial planning and wealth management, then that CFO is you.
5. You’d like a second opinion
Even if you manage your own financial situation, it still might be helpful to get a second opinion. For example, you probably don’t make major medical decisions without consulting with a doctor first.
So, why would you make major financial decisions without consulting with a trusted professional as well?
Not asking for a second opinion when developing an investment plan or planning for major financial goals like retirement is the medical equivalent to not getting a second opinion before having one of your organs removed.
6. You don’t have the necessary knowledge or skill set
You can enjoy investing all day long and still not have the skills or discipline to do it successfully over a 30-40 year career and a 30-40 year retirement.
For example, I love building things, but my wife and I buy almost all of our furniture at the furniture store. I also enjoy playing golf, but you won’t see me donning an ugly green sportcoat in Augusta, GA on Masters Sunday anytime soon.
7. You get nervous about investing in the “stock market”
Odds are, this is because one (or both!) of the following reasons…
- You don’t understand the stock market, investing, and all the “stuff” that goes along with it and/or
- You don’t have a proper perspective on money.
Either way, you don’t need to read the rest of this blog post. You just need to contact an independent, fee-only financial advisor ASAP so you can get someone to help you work through it all!
You might NOT need a financial advisor if…
Now, with all of that said, there are a few reasons you might not need a financial advisor. Keep in mind, that you need ALL THREE of the below characteristics to comfortably get by without hiring an advisor.
1. You enjoy crunching numbers AND you’re good at it
Maybe you’ve always had a knack for and enjoyed making detailed plans of your financial future. If that’s the you, it’s possible you wouldn’t get as much benefit from having a financial advisor as most people would.
2. Your financial situation is simple AND you have plenty of free time
Let’s face it, if there aren’t very many moving parts to your financial situation you might not need a financial advisor on call 24/7 and if you’re retired or you’re a stay at home parent, then you might have plenty of time to manage your wealth.
If, however, you own a business or have a job, kids, a house, a car, pets, and would like any sort of social life, then this one probably doesn’t apply to you.
3. You have the discipline to stay invested, even in down markets
When the market goes down, if you think to yourself, “If only I had more money to invest right now!” then you might have the discipline to get by without a financial advisor.
On the other hand, if you think about making changes to your investment plan every time someone on television, a co-worker, or your crazy brother-in-law mentions some “hot” stock or fund, then you need to ignore the noise and hire a financial advisor to help you stick to your investment plan.
As you can see, there are many good reasons that you might need a financial advisor as well as a few good reasons you might not need one.
Still not sure if you need an advisor?
Most independent, fee-only financial advisors (including SageOak!) will be more than happy to talk with you to see whether or not their services make sense in your situation.
So, what are you waiting for? Click here to make an appointment with one today!