6 Reasons Why You Need a Financial Advisor

Not everyone has the time or inclination to master the subject of personal finance. Luckily, it is not always necessary to master it. In the same way you can hire an electrician without understanding the inner workings of home wiring, you can hire a financial advisor to get your money in order. There are all sorts of reasons why you might choose to do this: lack of interest in personal finance, lack of time to study it or circumstances requiring urgent action, to name a few. No matter the reason, a financial advisor is a must if you cannot or will not manage your own money.

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Following are several situations in which it pays to use a financial advisor.

1. Big-Picture Analysis

The most helpful task an advisor can assist you with is developing a comprehensive, big-picture analysis of your finances. As any advisor will explain, personal finance is not just one thing, but an entire constellation of concerns: savings, investing, retirement planning, estate planning, tax preparation and more. To succeed financially requires devising some kind of overall plan that addresses each of these issues in an intelligent and responsible manner. From there, the advisor will seek input from you as he or she plans each specific area in more detail.

2. Defining Savings Goals

Any advisor worth using will tell you that savings is the bedrock of a solid financial foundation. With savings, your options expand. Vacations, starting a business, or helping a child attend college are all feasible. Without savings, your financial options will be vastly and perhaps painfully reduced. Yet advisors also know that saving for a reason is far more motivating than just “saving.” Therefore, most financial advisors will assist you in developing goals for your savings, both short and long term. These goals will include specific dates and targets (such as “$50,000 for our second home by August 2014) to keep you focused on progress.

3. Creating an Investment Portfolio

Most experts agree that 90% of your investment returns are a function of your asset allocation. That is, how much of your money is invested in stocks, bonds, mutual funds, etc. Unfortunately, some people are too intimidated by all the conflicting investment information out there to decide upon an asset allocation for themselves. This is another area in which financial advisors can help. As someone who has helped countless other people set up investment portfolios, the advisor is fully qualified to get you started. Best of all, advisors can set up automatic transfers so money is added to your investments at scheduled intervals.

4. Retirement Planning

The most important long-term savings goal most people have is retirement. No matter your age, it is important to have a strategy in place that lets you retire at a set age with a known sum of money. But where do you start — a 401(K) or an IRA? Roth IRA or Traditional? (Each has different tax implications.) And what do you invest the account’s funds in once you open it? All of these questions and more can be confidently answered in consultation with your financial advisor. Taking your stated goals (and income) into account, the advisor will suggest a step-by-step retirement strategy involving which account(s) to use, how much to contribute and when to begin taking withdrawals.

5. Tax Preparation

One of the most dreaded personal finance errands of all is tax preparation. Given the complexity of our tax code and the overall stress associated with tax time, it might seem that only a few sadistic minds would enjoy tax preparation. However, this is yet another area in which a personal finance advisor is completely capable of helping. Simply put, your tax return will look different depending on whether you are an employee, an independent contractor or a business owner. It will also look different if you buy and sell investment property. But regardless of these details, a competent financial advisor can help ensure that your return is done correctly and filed on time.

6. Estate Planning

Despite general assumptions, estate planning does not refer only to your home. Rather, an “estate” refers to the totality of your assets: legal rights, interests in property of any kind, including real estate, businesses, investments, insurance benefits and the like. Without a clear plan specifying who gets what when you die, your heirs will be left to fight over it in probate court (an unpleasant experience to put it lightly.) Instead, financial advisors will work with you on putting together a will and other documents to ensure that your estate as divided in accordance with your own wishes. In fact, estate planning is one area in which even those who generally handle their own money tend to seek professional help. The legal complexities (and consequences) are simply too complex for most people to adequately navigate on their own.

Reviewed and updated September 11, 2011.

About the Author

By , on Sep 11, 2011
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (6 Comments)

  1. NumberCrunch says:

    This article is helpful, but misses an opportunity to clearly explain what a financial advisor actually does. First, savings are not the bedrock or foundation of the plan. Protection is the first step: having the right amount of insurance in place in the event of your being sick or injured and unable to work for a time, and also, in the event that you pass away, leaving those who may depend on your income without the means to support their current lifestyle or just pay necessary bills. These events, especially the first one, happen all the time, and people turn to their savings, then their retirement accounts, to cover the difference. That’s just the beginning of what an advisor can help prevent. Accumulation goals, asset allocation and proper diversification of portfolios, mitigation, estate planning, long-term care planning, help with group benefits at work, charitable giving, budgeting and debt reduction (to a lesser degree), and structuring one’s “spend-down” retirement years so that the money lasts through one’s lifetime. Finally, when a person passes on, your advisor can work with your executor and attorney(s) to help you get through the process of transferring the estate to the decedent’s heirs. As you can see, there is far more to financial planning than what is touched on here. It is certainly not just something for people who don’t enjoy giving attention to their finances! Even financial professionals have to keep current daily on a myriad of information that might affect their clients.

  2. I think that the vast majority of people are capable of managing their investments themselves using things like index funds and the like. However, there is only a small minority that are actually interested enough in the topic to actually spend the time and energy to educate themselves and do things right. I’d estimate that 90% of the population is better off with an adviser. It’s not a matter of intellect, it’s a matter of effort.

  3. Jereme says:

    I think many times people can handle their own financial planning up to a certain point but when it comes to complicated financial scenarios it is important to consult with a professional that understands all the ins and outs completely.

  4. Azam Zaki says:

    The first and the most important step is to get out of debts. Once you do this , everything else should be easy to tackle.

  5. John says:

    in my point of view, all of us do need financial advisor. if you have a mound of money, we need a plan to spend that. in the case we don’t have good plan, we will loose all money someday. So, somewhat, somehow…some advisor will be needed..

  6. Jenna says:

    Can financial advisors help you with a get out of debt plan?

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