Invest Financial Planning

When Does It Make Sense To Hire A Financial Advisor?

Pam Krueger  |  November 20, 2020

Nope, you don’t need to have a lot of money or a complex financial situation to benefit from working with a financial planner.

At what point should you consider bringing a financial advisor into your life? Professional planning and investment advice costs money. How do you know whether the benefits are worth the fee? The answer depends on what you’re trying to accomplish and how effectively you can collaborate with an advisor to reach those goals. Contrary to what you might think, you don’t need to have a lot of money or a complex financial situation to benefit from working with a financial planner. In fact, the earlier you get started, the sooner you can start making smart financial decisions that can accelerate building a solid foundation for your finances. You’ll also be able to acquire the knowledge along the way that will help you reach your long-term goals.

Even when you’re early in your career – in your 20’s and 30’s – a financial planner can help you develop good habits that can stay with you for the rest of your life. For example, you can work together to make spending decisions around the holidays (especially in a year with such uncertainty), build up an emergency savings cushion, make the most of year-end tax moves, and take advantage of every employee benefit available to you during open-enrollment season. Most people have a lot of big financial decisions coming up soon, and this year is different from ever before.

A qualified financial planner can also help you juggle competing priorities – such as paying down debt, saving for kids’ college tuitions, and investing for your own future – and help you adjust your plan throughout major life changes, such as if you get married, buy a home, have children, start a new job or possibly lose your current job. You’ve probably heard the old adage, time is more valuable than money. It’s true with money because the smallest changes add up over time if you get started early. A study by researchers at Cirano and the University of Montreal found that people who worked with financial advisors accumulated 290% more in assets over 15 years than comparable non-advised investors, in part because of their investment performance but also because they saved at a higher rate than people who weren’t working with an advisor.

What you gain by working with a competent financial planner is clear. But now back to their fees, because competent advisors cost money: fees can run $250 per hour to meet with a fee-only planner, but a solid plan can be affordable at $750 to $2,000. Most advisors will be happy to offer flexible arrangements for ongoing planning to make the fees affordable,  such as monthly payments. Over time, as your investments grow your financial life will become more complex. The planning and portfolio management will then become more sophisticated and advisor fees will likely go up. But if you’re just getting started, any fee may be difficult to justify– and you surely don’t want to hurt your finances in order to pay an advisor’s fee. When you’re weighing this decision, it’s key to make sure to hire a fee-only financial planner who works for you, not for a brokerage firm.

READ MORE: What The Different Types Of Financial Advisors Really Do, And How To Choose

The reality is the planning fees often pay for themselves. That’s because the planner may find ways to save money right away by making some simple and immediate changes. Take your 401(k) plan as an example. The planner can do an audit of your 401(k), IRAs and any other investments and find ways to cut hundreds of dollars in annual fees, help you build a better portfolio for your long-term savings, avoid duplication of investments, and find ways to save money on taxes – which can all help earn that money back for you. Making these moves when you’re young can make it easier to reach your financial goals – rather than waiting until you’re close to retirement and trying to catch up. In addition to becoming better educated about money, the four main ways people improve their financial outcomes by getting fiduciary advice from a fee-only advisor comes from decision making that boosts portfolio/investment returns, improving your cash flow, changing behaviors, and ultimately reducing stress about money.

If It’s Not In Your Budget Right Now, That’s Okay! 

If hiring a financial planner just doesn’t fit your budget right now, you can still benefit from some (nearly free) resources and tools designed to help you build a solid financial foundation that can help you for years in the future:

You Need A Budget 

This app may be the next best thing to having a financial planner to help you develop great money habits. YNAB makes it easy (and fun) to track your spending and map out a plan for your money. The tool helps you prioritize everyday expenses, identify how much you can spend in each category, break down long-term goals into manageable monthly “bills,” and become more purposeful about your spending. The service costs $11.99 a month or $84 per year.

Blooom

Blooom can help you make better decisions with your retirement plans. Blooom is an online robo-advisor that helps you manage the complicated task of choosing the most cost-efficient funds in your 401(k) or other retirement-savings plan that align with your specific investment goals. It’s easy to use and it can connect with almost any account that has online access. Blooom can conduct a quick analysis of your 401(k) account for free, or you can pay a flat fee of $45 a year for a personalized portfolio, regardless of your account size. It’s not unusual to see your portfolio returns increase immediately from using Blooom.

Acorns

Acorns rounds up the prices of everyday purchases and then invests the change in an investment account. While this “savings roundup” feature is the key benefit, Acorns has some pretty robust education and messaging that will keep you motivated to turn your spare change into money in the bank. It’s really easy and fun to use, and you can sign up for as little as $1 a month.

YOUR ADVISOR IS STANDING BY

Need a financial advisor but aren’t sure where to start? Fill out this brief questionnaire we created in partnership with Wealthramp. You’ll be matched with a fee-only fiduciary advisor who specializes in your area of need. Don’t worry about unsolicited calls during dinner — it’s up to you to reach out when you’re ready to tackle your “to do” list!

Find your advisor

MORE ON HERMONEY: 

SUBSCRIBE: Own your money, own your life. Subscribe to HerMoney to get the latest money news and tips!

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

Next Article: