When Should I Engage a Financial Advisor?

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Financial planning is a professional service that’s often misunderstood. Some people assume wealth management is only for the wealthy or that advisors are only out to sell them something. But a fiduciary advisor helps you make the most of the money you have—they coach you through financial decisions that fall in line with your goals.

As financial planners, it’s our job to understand what you want to accomplish; educate you about potential roadblocks, setbacks, and opportunities to build your wealth; and help you achieve your financial goals in the most effective way possible. In short, a good advisor helps you optimize your financial world so it supports the life you want to live—and we do it all by putting your needs and desires above our own.

That said, not all financial advisors are created equal. Some advisors aren’t required (and/or don’t have the desire) to give advice that’s solely in your best interest. Depending on the organization they work for, licenses they hold, or what their planning ideology is, some advisors may suggest strategies or products because they receive higher compensation for them or have proprietary product requirements from their employer to recommend them—this means the product could be “suitable” or appropriate for you, but not necessarily in your best interest.

That’s why it’s incredibly important to do your research before engaging a financial advisor. Ask your friends, family, or colleagues for recommendations and find out if the advisor they work with is a fiduciary. If they are, it’s important to clarify whether the advisor is a fiduciary solely for the account they are managing or if they are required to give fiduciary advice regarding your entire financial situation. (You can also visit BrokerCheck.com to see if the advisor has any disclosures on their licensing.) Advisors working in a fiduciary capacity are required to serve your best interest, so you can trust their recommendations will be genuine and beneficial. (And yes, we at Strata operate in a fiduciary capacity!)

So, working with the right kind of advisor can be highly beneficial—but how do you know if you’re ready to engage a financial planner in the first place? Here are some indications you should hire a professional to help manage your wealth:

  • You have an ambitious financial goal (like buying a second home) and you’re unsure how it will affect your finances.
  • Your children are about to start college and you’re trying to determine the best way to fund their education.
  • You’re thinking about retiring in a few years.
  • You just experienced a significant liquidity event (e.g., your company was bought out, you received an inheritance, you sold property, or your stock options vested).
  • You feel uncertain about a specific financial decision or your finances in general.
  • You want a practical plan to prepare for the future and you’re not sure where to start.

If any of these scenarios sound like you, you’d likely benefit from talking to a financial planner. That said, we know people sometimes still have doubts about whether working with a professional is necessary, so we want to address those concerns. Here are some common questions people have about hiring a financial advisor.

What do financial advisors do, exactly?

Essentially, we help you achieve your financial goals. For some, that’s early retirement; others may want to buy a second or even a third home. We start by getting to know you as a person; then we discuss your hopes and objectives. From there, we review every aspect of your finances and look for ways we can improve your strategies or help protect you from unnecessary risks. Whatever your financial dreams are, it’s our job to show you what steps you can take to achieve them.

Can’t I just do financial planning myself?

1 2Yes, but consider this: most people only retire once, but we as advisors have “retired” dozens of times. We’ve walked multiple clients through multiple scenarios, and we’ve seen what works and what doesn’t. A 2019 whitepaper, quantifying ‘Advisor’s Alpha’1, says an investor could increase their net returns by 3 percent by working with an advisor. 1 This study is not alone – Russell Investments estimates that the value gained in working with a dedicated financial planner could mean as much as a 3.75 percent increase in returns. 2

So you can take a DIY approach, but you likely won’t reap the same benefits you would when working with an advisor. Just like you can go to court and represent yourself in matters of the law, you can manage your wealth without the help of a professional—but you’ll lower your chances of getting your desired outcome. When you engage the help of someone who specializes in wealth management, you’re more likely to achieve your goals and enjoy the process.

Many people also don’t realize the time they can save when working with an advisor. Engaging a professional allows you to focus on things that matter to you, rather than worry about financial details.

I work in finance for a living—why would I need help managing my own money?

More than half of our clients work for a financial institution, and they value our guidance. One reason is that not all financial professions are the same—just like you wouldn’t go to a podiatrist for heart surgery, an accountant or financial analyst won’t necessarily understand all the intricacies involved in personal (or business) wealth management.

For example, here’s something people–even those adept in financial concepts–often misunderstand: life insurance is not always completely tax free. Life insurance benefits are exempt from income tax, but not from state or federal estate tax. Depending on where you live, if you purchase a life insurance policy under your name rather than having your trust purchase the policy, you may subject your estate to estate taxes because the death benefits would be included in the calculation of your estate—potentially putting you over the limit for estate tax exemptions. If you live in a state like Massachusetts or Oregon, where the state estate tax exclusion is a mere $1 million, this could potentially affect your heirs.3

Something else to know is that many people who work in finance are subject to restrictions or pre-approval when making investments. But if you sign over your investment discretion to an advisor, you can avoid that compliance hassle and benefit from the knowledge of someone who specializes in professional money management.

Am I too young to work with an advisor?

If you’re worried an advisor won’t agree to work with you (some do have minimum net worth or assets-under-management requirements), know that there’s an advisor out there for everyone—the key is finding someone you feel comfortable talking to and sharing the details of your life with.

Beyond that, “young” is a great time to start financial planning because you have so much time to save for your goals. And the more time you spend in the market, the less that you need to save. Hypothetically if you start saving $5,500 a year beginning at age 25 and continue until you’re 65, you’ll end up with $1,174,852 after those 40 years (assuming a 7% net rate of return). If you start saving the same amount at age 35 and get the same return, you’ll only earn $555,901.

Remember, you don’t get time back. We’ve met too many people who reach retirement and regret they didn’t start planning sooner. The best time to start planning is now, because the earlier you visualize your goals, and the earlier you take those goals to a financial planner, the better chance you’ll have of accomplishing them.

Is there ever a time someone shouldn’t work with an advisor?

If you feel overwhelmed by all the financial decisions you have to make, worry you might be missing something, or simply want greater confidence about your future, talk to an advisor. In our experience, this is the number one reason people seek financial guidance. Not only can an advisor help you clarify and prioritize your goals, but they can also show you the impact of financial decisions before you make them, so you don’t end up further from your goals.

That said, for a financial planner’s advice to be effective, you’ll need to keep an open mind and be willing to change—so if you’re not ready to make adjustments, it might be best to wait.

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This article is intended to be for general information about the topic(s) described only, and should not be used as financial advice specific to your situation. For financial advice pertinent to your lifestyle, goals, risk tolerance and opportunities, please contact a financial professional.

Carmine Coppola and David D’Albero are financial advisers offering investment advisory services through Eagle Strategies LLC, a Registered Investment Adviser. They are Registered Representatives offering securities through NYLIFE Securities LLC (Member FINRA/SIPC), a Licensed Insurance Agency. They are also agents of New York Life Insurance Company. Strata Capital, LLC is not owned or operated by NYLIFE Securities LLC or its affiliates.

Neither Strata Capital nor, NYLIFE Securities LLC and its affiliates, nor its representatives, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.