Is a Financial Advisor Worth It?

Have you considered hiring a financial advisor? Many use guidance from professional advisors to help make more informed decisions about their money and better prepare for the future.

However, financial advisors are not free, so it’s important to weigh whether you are at a point when working with a financial advisor would be beneficial. Let’s look at what financial advisors do, what they might charge, and when they’re worth the cost.

What Does a Financial Advisor Do?

A financial advisor is a professional who helps you to manage your money and build strategies to invest and develop your wealth over time. Advisors can offer assistance for all aspects of your finances including:

  • Saving for retirement
  • Investing
  • Tax mitigation
  • Estate planning

How Much Does it Cost to Hire a Financial Advisor?

Some financial advisors charge a flat fee (hourly or yearly) while others charge a percentage. Although rates will vary, the typical fee for a financial advisor is between .25 and 1% AUM (assets under management). This is a term used to describe how much money the advisor is managing on your behalf. 

For example, suppose you’ve saved $1 million in your nest egg and would like a financial advisor to help you invest it. If their fee is 1% AUM, then they would charge $10,000 per year to act on your behalf.

When is a Financial Advisor Worth the Expense?

There are some scenarios when talking to a professional makes a lot of sense. It’s always important to look at an advisor’s credentials and expertise to make sure they line up with your goals. That said, let’s look at some situations when a financial advisor might be able to help: 

If you’re not sure what you’re doing or if you don’t enjoy managing your own finances. Some people don’t like managing their own finances. This is a full-time skill that takes education, time, and effort, and is an ongoing process. Other benefits aside, sometimes it’s worth it to let a professional handle a task you don’t enjoy. 

If your finances are disorganized. You’ve had four jobs over the past ten years and your retirement accounts are with five different financial institutions. You have three credit cards and two checking accounts, so you’re not sure how much you’re spending on a monthly basis. In this scenario, it’s difficult to take stock of where your finances stand. The right financial advisor can help you get on track and develop a strategy going forward. They could help you consolidate your retirement accounts and build a budget and strategy for the future. 

If you’re about to make a big choice or have a major life event and need some guidance. Are you about to have your first child? Are you thinking of retiring to a different state? This could be a situation where a professional can help you assess the decision and what is at stake financially. What other areas of your life would this impact? Advisors can know what questions to ask, where to look for answers, and can help you decide what to do next.

There are many situations where a financial advisor is worth it. Of course, there are plenty of situations when it might not make sense to hire a financial advisor, like if you’re a college junior who hasn’t started their first job yet.

If any of the above scenarios describe you, or you just want to build a roadmap for the future, it never hurts to check in with a professional and assess your financial health.

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