Almost no one wakes up one morning and says, out of the blue, “I can’t wait to hire a financial adviser.”
After all, if you’re contributing a good chunk of your salary to your company’s 401(k) plan and any extra money you’re investing on your own seems to be generating good returns, then you probably feel like you’re the master of your financial domain.
So when do most people start feeling a need to look for professional guidance? When life gets more complex and finances seem to become more like a multi-layered onion than a pancake.
The real reason people pay for financial advice is to gain peace of mind, so they can sleep easier knowing they’re doing the right things with their money.
Uncertainties are what lead to a desire for guidance. Many times this is connected to career changes or life events that have happened or are about to happen. Here are some common examples:
- A mid-career working couple with children is struggling to figure out how they can possibly save enough to pay for their kids’ six-figure college costs and still retire comfortably.
- A couple in their early 60s worries whether their investments, combined with Social Security, will provide enough income to let them live the way they want to for a retirement that may last 25 years or more. They know they can’t afford big missteps.
- Self-directed investors whose confidence in their own stock-trading prowess has been shattered by losses they’ve suffered by panic-selling in falling markets and want to avoid making similar mistakes in the future.
- Employees in startup firms that are “pre-IPO” and who want to turn their stock options into cash windfalls without taking huge tax hits.
- Parents of a special-needs child who have a third retirement they need to save for and are looking for the best ways to plan and protect that child after they’ve died.
- Anyone concerned about changes in tax policy and who wants to keep Uncle Sam and their state from taking a huge bite of the wealth they’d plan to pass on to their heirs.
People hire advisers when they feel the need to become better educated about financial planning and investing. Often one spouse has had no interest in family money matters but suddenly realizes it’s necessary to participate in the decision-making.
In short, people hire financial advisers when they realize that their goal is no longer to simply beat the markets but to become more confident that they are making the right decisions to build their wealth, reduce taxes, and provide long-term financial security for themselves and their families.
Choosing and finding the right kind of adviser
The term “financial adviser” is a generic term that covers a wide range of financial professionals. But not all advisers are alike, and it’s important to understand the distinctions.
Some are basically investment salespeople — also called brokers — who earn their living on the commissions they earn by selling mutual funds and insurance. Advice that comes from a broker or insurance agent isn’t exactly unbiased or necessarily in your financial best interests.
Many people already know that advice should be kept separate from sales pitches. That’s why they seek real advice from a fully vetted, fee-only adviser who is legally held to the fiduciary standard.
Unlike brokers, fee-only advisers are paid solely by their clients. Their fee models vary but usually don’t exceed 1% of the value of your assets and can also be paid on retainer.
This may seem like a lot, but in practice adviser fees often pay for themselves when the adviser’s guidance or actions keep their clients from making costly mistakes that could affect their future financial security.
Take an employee who has stock options worth millions of dollars. An adviser can help them avoid a seven-figure tax bill from selling them too quickly and instead reduce the tax impact by selling the options gradually.
Or consider a couple that has either purchased or inherited income-generating rental properties. The adviser can help them incorporate these “hard assets” into their overall investment strategy or suggest strategies (such as placing these properties in a trust) that can shield them from having to pay taxes on the rental income or capital gains taxes.
It’s important to fully research the background credentials and disciplinary history of any adviser recommended by a friend or family member or that you’ve found on your own.
For people who need help finding fee-only advisers with the highest standards of professional integrity, Wealthramp is an online adviser referral service I created that matches individuals with carefully vetted investment and financial planning professionals who fit their specific needs.
A partnership that delivers results
People who have managed their own personal finances and investments on their own may feel that if they hire a fee-only adviser to handle some or all of these activities they’re admitting that, financially, they’re in over their head.
But, in reality, the opposite is true. In fact, financial do-it-yourselfers actually benefit most from working with a qualified financial adviser professional because they know the right questions to ask, fully understand the pros and cons of any advice or solutions an adviser offers, and have the knowledge to evaluate the results.
The best financial advisers prefer clients who are fully engaged, since these kinds of collaborative relationships nearly always produce the best results for everyone. At the end of the day, this is what provides real peace of mind.