Should You Hire a Financial Adviser?

As you start to build up your net worth, the question of whether or not you should hire a financial adviser becomes more important. However, the answer is not a simple yes or no. Some people do quite well without a financial adviser, some people need one, and on rare occasions, some wish they never had one. Even though I’m a financial adviser, I don’t believe that everyone should hire a financial adviser.

Photo by Miguel Virkkunen Carvalho via Flickr

In fact, I don’t think anyone should hire a financial adviser unless and until they can answer two questions:

1. What do you want to get out of the relationship?

2. Are you ready to take advice?

What do you want to get out of the relationship?

Let’s tackle the first question, what do you really want out of your relationship with a financial adviser?

This may seem like a really basic question but I think you’ll see that it really isn’t. For example, some people hire financial advisers because they want better investment results.  Fair enough…but let’s look at this issue a bit more carefully.

Do you want an adviser who will beat the market every year?

If this is your real motivation, forget about it.  It’s impossible. No financial adviser can beat the market year in year out.  If they have a great streak for a number of years, chances are they’ll disappoint you sooner or later.  And you’ll bail on them exactly when that happens.  There are investment strategies that work, but nothing works all the time.

Don’t hire an adviser for above-market performance.  It’s not something you can hang your hat on.

Are you looking to hire an adviser because you need a financial plan?

If so, you may not need a money manager.  You should just hire someone who can put a plan together for you.  A plan you’ll understand and more important, one you’ll implement.

If you need insurance, you can get that online much cheaper than through a planner or an insurance agent.

Have I discouraged you from hiring a financial adviser?

I hope not.

Good Reasons to Hire a Financial Planner

I think there are two very good reasons to hire a financial planner:

• First, you admit that you don’t know what you don’t know and you need direction.  This would argue for hiring someone to create a financial plan.
• Second, you need financial discipline.  You need someone to manage your money because you need to be saved from yourself.  This may sound funny but for those of you who really understand what I’m talking about, you know it’s true — and not funny at all.

If you are your own worst enemy when it comes to investing or spending, just having someone to be accountable to can be worth multiple times the price you pay. Think about the last bone-head investment you made.  What would it have been worth to you had you not done it?  Think about the money you wasted last year because nobody scrutinized your spending.  How much would you have saved had you been under the watchful eye of someone else? What is your definition of financial success?  Are you on the road to achieving it or are you derailing yourself at every turn?

So these are the two reasons why you might want to hire an adviser.

But…are you ready to take advice?

But remember…. I said before that you need to be able to answer two questions before you hire an adviser.

The second question is, are you willing to listen?

I’m serious.  Many people hire an adviser when all they really want is someone to rubber stamp their mistakes.  Be honest.  If you’re not willing to take direction, don’t bother hiring a financial adviser.  You’ll spend a lot of money for nothing and just end up with a headache.

In fact, if you are that confident in your ability, why not just learn how to become a financial planner yourself?

Do you have a financial planner?  If so, how did you know you needed to hire one?