Do you need a financial planner?
Many people wonder if they need the help of a financial planner, especially parents with young children who are navigating a series of complex financial decisions during an expensive phase of life. A competent financial planner can be a great asset in helping you work through the complexities of financial management, debt reduction, and saving for the future.
Navigating life changes can be difficult without professional help. A skilled financial advisor can provide expert advice during transitional periods and adjust your plans after major life events. They offer a variety of services, from goal-setting to investment management and tax planning.
But do you really need a financial planner if you're good with money?
We'll explore this question by comparing DIY planning to hiring a professional. We'll also look at the different types of advisors available, such as robo-advisors or CFP® professionals.
As with any professional service, hiring a financial planner comes at a cost, which is a major factor to consider. Do you need a financial planner enough to justify the expense? We'll explore the cost-benefit trade-off by examining three different ways advisors are compensated, as well as the frequency and necessity of meetings.
Ultimately, the decision of whether or not to hire a financial planner is a personal one. There is no one-size-fits-all answer. The best way to decide is to weigh the pros and cons of each option and decide what is best for you and your family.
The Role of a Financial Planner
A financial planner is like a GPS for your money. They can help you navigate the complexities of your financial life by giving you step-by-step instructions on investing, budgeting, saving, and more.
Money Management Made Easy
Managing your finances can be overwhelming, but a financial planner can make it feel easy. They can help you build a spending plan, track your expenses, and discover ways to invest more in the process.
Debt Reduction Strategies That Work
Debt can be a heavy burden, but a financial planner can help you lighten the load. They'll suggest effective strategies for paying off debt faster, like consolidating loans or negotiating lower interest rates. A financial planner can also help you understand when to pay off debt versus putting more money in savings.
Secure Your Family's Future
Planning for your family’s future can be daunting, but a financial planner can make it achievable. They'll help you set up savings plans for future goals like retirement, college education for your children, or a special family trip abroad. With sound advice from a professional financial planner, you can secure your family's future.
Navigating Life Changes With a Financial Planner
Major life changes can have a significant impact on your finances. Getting married, having a child, or even changing careers can cause serious financial turmoil. That's where a financial planner comes in. They can provide expert advice and objective guidance during these uncertain times.
Adjusting Plans After Major Life Events
Your financial plan should evolve as your life does. An experienced advisor can help you adjust your budget, savings strategy, and investment portfolio to align with any new circumstances. They'll make sure your money is working as hard as you are and updating your plan along the way.
Expert Advice During Transitional Periods
In times of uncertainty, a professional advisor can offer invaluable guidance. They provide insights on effectively managing your money and making sound decisions that secure your present and future financial goals.
Types of Financial Advisors Available
Fortunately, there are many types of advisors to choose from, each with a unique set of skills and trade-offs. They can help you navigate the complex world of money management, tailored to your specific needs and preferences.
Understanding Robo-Advisors
A robo-advisor is a digital platform that uses algorithms to provide automated financial planning services, including portfolio management and asset allocation.
Its primary benefits include lower fees, round-the-clock accessibility, and automatic portfolio adjustments based on market changes or your financial goals. Examples of popular robo-advisors are Betterment, Wealthfront, and Vanguard's Digital Advisor, all differing in services offered, fee structures, and levels of human interaction.
However, while robo-advisors can be a cost-effective and efficient way to manage finances, they may not suit everyone, particularly those with complex financial needs or a preference for personal interaction. Ultimately, the decision between a robo-advisor and a traditional financial advisor should be based on individual needs and circumstances.
Benefits of CFP® Professionals
If you have more complex planning requirements or simply prefer to work with a human advisor, a Certified Financial Planner (CFP) may be the better option. These professionals provide comprehensive financial advice tailored specifically to your situation. Plus, CFP® professionals are held to a fiduciary standard, meaning they are required to act in your best interest at all times.
Ultimately, the benefits of working with a CFP® professional include the following:
Objectivity when making recommendations.
Personalized advice based on your individual goals and financial situation.
Professional guidance that takes into account all aspects of your financial plan.
But you can expect to pay more when working with a human advisor, so weigh the pros and cons of each option.
Expect Comprehensive Wealth Management With a Professional Advisor
If you are considering hiring a financial advisor, be prepared for in-depth discussions about your financial situation, goals, and priorities. These conversations will help shape both your short-term priorities and long-term strategies for comprehensive wealth management.
Collaborative Goal Setting
During goal-setting sessions, advisors will work with you to establish clear objectives that align with your lifestyle choices and personal preferences. This collaborative approach ensures your plan is tailored specifically to meet your needs.
Preventing Costly Emotional Decisions
A significant benefit of hiring an advisor is their ability to provide unbiased counsel based on expertise rather than emotion. By keeping emotion out of the decision-making processes, they can help prevent potentially costly mistakes, helping you maintain steady progress towards achieving your financial goals.
DIY vs. Hiring Professionals
It is possible to create a financial plan on your own, especially with the abundance of information available online about different types of investments like stocks, bonds, cash, and more. However, there are some undeniable benefits to hiring a professional.
Here are a few to consider:
Professionals have the expertise and experience to create a plan that is tailored to your specific needs and goals.
They can help you stay on track with your plan and make adjustments as needed.
They can provide peace of mind knowing that your financial future is in good hands.
If you are serious about achieving your financial goals, it is worth considering hiring a professional to help you create and implement a financial plan.
Pros & Cons Of DIY Plans
Pros: You have complete control over your investments and save money on fees.
Cons: It requires time and expertise to understand market dynamics and puts you at a higher potential risk of financial mistakes.
The Importance Of Professional Help
A professional advisor can offer a deep understanding of the complexities of different investment products and financial strategies. This is especially helpful when dealing with increased complexity or any type of disagreement with your spouse or partner about money. A trusted advisor can help you navigate these challenges and provide expert advice tailored to your specific situation.
In a nutshell, the decision of whether to take a DIY approach or seek professional assistance largely depends on your individual circumstances, expertise, and comfort with handling your finances. Of course, don't be afraid to ask for help when you need it.
Costs Involved When Hiring an Advisor
A major factor when deciding whether to hire an advisor or handle your own finances is the cost. Plain and simple, can you afford it, and does the benefit outweigh the cost? While advisors can provide a valuable service, they are typically well-paid to do so. So, it’s essential to understand the costs involved when making the best decision for you and your family.
Here are some of the factors to consider:
Fee-Only vs. Fee-Based vs. Commission-Based
Financial advisors have three primary ways to charge for their services, each with its unique characteristics.
The first is the fee-only model, where the advisor's compensation comes directly from the client without any third-party involvement. This typically takes the form of a flat fee, an hourly rate, or a percentage of the assets being managed. Clients favor this model for its transparency, as it minimizes potential conflicts of interest since the advisor does not earn commissions on the financial products they recommend.
The other two models, fee-based and commission-based, involve third-party commissions.
In a fee-based model, the advisor charges fees to the client, similar to the fee-only model, but also earns commissions from selling certain financial products. This dual income stream can potentially create a conflict of interest, as advisors may be incentivized to recommend products that earn them higher commissions.
On the other hand, commission-based advisors are solely compensated through these third-party commissions. While this model can make financial advice more accessible to those who might not afford upfront fees, the potential for conflict of interest is even more pronounced, with advisors possibly favoring higher-paying products.
It's crucial for clients to understand these payment structures to select a financial advisor that best suits their needs and preferences.
Frequency and Need for Meetings
Another factor when determining how much you can expect to pay for a financial advisor is the frequency of your meetings.
Of course, it depends on the fee model and services your advisor offers, but if you want to meet more times per year, expect to pay more in fees. That said, most advisors offer a set number of meetings per year, ranging anywhere from once a month to once a year. Often, you can expect to meet with your advisor more frequently in the beginning as you build the initial plan. Then, most advisors move to a regular meeting cadence, often checking in once per quarter.
Recognizing the Importance of Sound Planning
Research shows that about one-third of working adults and retirees seek professional help, indicating a growing recognition of the importance of sound planning. If you're experiencing significant changes, such as taking on caregiver responsibilities for an elderly parent or receiving a promotion, it may be beneficial to engage with a financial professional.
The Significance of Consulting with Professionals
Hiring a professional can help ensure efficient and effective management of your finances. And it's not just about accumulating wealth but also protecting what you've earned from potential pitfalls. Financial advisors can provide valuable insights and guidance on investment strategies, tax planning, and risk management.
Managing Sudden Life Changes
Unexpected life events can have a significant impact on your financial situation. Fortunately, a financial advisor can help you through this process and make the most of the situation. Financial guidance can help you prepare for unforeseen circumstances and ensure that you are on the right track to achieving your financial goals.
Anticipating Major Shifts
It is smart to ensure that your financial plan is flexible enough to deal with life's unexpected events in anticipation of major changes. Additionally, hiring a financial planner may be beneficial when preparing for larger future commitments. If you are already managing your finances effectively but anticipate major changes such as planning a wedding, purchasing a home, or saving for retirement, it could be advantageous to hire a financial planner.
Preparing for Future Events
A financial planner can help you avoid potential pitfalls and maximize opportunities during pivotal moments in life. They can help you create a plan that will allow you to make the most of your current income and savings while factoring in future events. Additionally, they can provide guidance on how to best manage debt and save for your goals.
Deciding on Hiring Based on Personal Preferences
The decision to hire a financial planner comes down to personal preference and lifestyle choices.
On the one hand, a financial planner can help you understand your current situation, outline your financial goals, and walk with you each step of the way to bridge the gap between the two. They are experts in managing money, investing for the future, and protecting yourself and your family’s financial situation using various types of insurance.
But of course, all of the help comes at a cost.
And for some, between the cost and the desire to manage their own finances, hiring a financial planner could be a bad fit. It just depends on your unique preferences, situation, goals, and expertise. Fortunately, if you feel you can’t afford the expertise of a human advisor but still want some help getting on the right track, there are a number of affordable robo-advisor options available. These can be a great middle-ground for those with a smaller budget and less complex financial goals.
The bottom line is that although getting help with your financial planning can be beneficial, hiring an advisor isn’t the right fit in every situation.
FAQs in Relation to Do I Need a Financial Planner?
Do You Need a Financial Planner?
If managing your finances becomes complex during major life changes or when planning for long-term goals like retirement, you may need a financial planner.
Why Would You Need a Financial Planner?
A financial planner can help with investment strategies, tax planning, estate planning, and setting realistic savings targets to achieve your financial goals. NerdWallet offers a list of reasons why you might need a financial planner.
Should You Get a Financial Planner?
The decision depends on your individual circumstances. If you're comfortable handling finances yourself and have simple needs, it might be unnecessary. However, in more complex situations, such as estate planning or investment management, a professional could be beneficial.
Is It Okay Not to Have a Financial Advisor?
It is possible to manage your money without an advisor if you have the knowledge and time. However, an advisor can provide expert guidance, especially during major life changes.
Conclusion
Is a financial planner worth the investment?
It all depends on your unique circumstances.
For some, a planner may be beneficial in terms of providing guidance and expertise. Others might not need one, depending on their level of knowledge and experience with finances. Ultimately, it is best to consider all the factors before making a decision about whether or not to hire a financial advisor.
If you decide to manage your own money, be sure to keep track of important financial milestones and remember to review your plan regularly. Taking proactive steps can help you stay on top of your finances and reach your long-term goals.
Ultimately, the choice is up to you. Whatever route you choose, make sure that it fits within your individual situation and lifestyle.
