Should I Hire a Financial Advisor? What are the benefits and process?
Becoming financially educated or knowledgeable about investing, managing wealth and retirement options is a very important part of planning for your financial future. But, let’s be candid for a moment: not every person has the time to study and become a true financial expert. An article in Investopedia explains “if you would rather have an easy plan you can execute without having to constantly worry about changes in legislation or the economy or financial products, you might consider hiring a financial advisor.” Consulting a financial planner could be a smart move if a significant life change is on the horizon or if you're a high net worth individual.
But finding the right financial advisor, who you can trust and is a good fit can sometimes be a daunting and confusing process. First, let's talk about the term “financial advisor” which in reality is a little ambiguous and inconsistent due to the fact that the actual job titles, roles and even responsibilities can differ, depending on the financial firm. Also, referred to as financial planners, they are professionals who advise their clients on decisions related to wealth management, retirement planning, and personal finance. The investment management landscape can be so confusing at times, that some people may even give up looking for a financial advisor before they even begin.
Some of the benefits to working with a qualified financial advisor include:
Industry studies estimate that professional financial advice can add between 1.5% and 4% to portfolio returns over the long term, depending on the time period and how returns are calculated.
A one-on-one relationship with an advisor is not just about money management. A financial advisor can help you with your financial planning so you can have peace of mind while pursuing your life goals.
The financial planning process includes defining your goals, understanding your current situation, and identifying the key steps to move forward.
Beyond long-term goals like retirement, and shorter-term ones like buying a house, education, or travel, holistic financial planning can also include legacy planning, family support, health care, insurance, and charitable giving.
What is a Financial Advisor?
A financial advisor’s job is to listen to their clients, understand their financial objectives and goals, and work with them to identify strategies that are likely to move them closer to their goals. These strategies include, but are not limited to, investment management, tax planning, wealth transfer, financial planning as well as integrating "the rest of your financial life" — your insurance coverage, estate planning strategy, real estate, and philanthropy.
While definitions are helpful, they can lack enthusiasm. Here’s a list of some of the less obvious roles financial advisors play:
There are other roles, but hopefully this conveys the point that good financial advisors go beyond making investment recommendations.
Do Your Research
A recent CNBC article stated that with the plethora of financial information readily available online and the costs involved with hiring a professional advisor, it might seem overwhelming or unnecessary. But in many cases, it can be a worthwhile expense.
And as you are reading this article you might be thinking, “maybe I could benefit from a financial advisor,” and we always encourage our clients to do some more in-depth research beyond the starting point of searching on Google or a social media platform for a “financial advisor near me.”
Another place people can start is their natural networks, such as if you log into your LinkedIn profile and scroll through, you might be surprised that you are connected with a lot of professionals in the personal finance space. Now, of course, their title could range from things such as wealth manager to certified financial planner to financial consultant to financial advisor and their approach to working with clients can vary as much as their job titles.
But before making the commitment to move your portfolio or move forward with any personal finance professional, it's highly advised that you learn as much as you can about the person, and the firm they represent.
Here are some questions you can ask to help you get a better understanding of their values as an advisor and business model as well:
How are you compensated?
Are you a fiduciary?
What are your certifications?
What are my all-in costs?
How will our relationship work? How often will we meet?
What is your investment philosophy?
How do you measure and evaluate investment performance?
This is by no means an all-inclusive list of questions to ask potential financial advisors. If you are interested in talking with or interviewing a financial advisor, take some time to add your own questions to this list.
Consider the three T’s: Time, Technique and Temperament
Another way to think about if it's time to consider getting a financial advisor is the three T’s: time, technique and temperament. Reflecting on the “three T’s” means determining if you have the following:
- Time -
do you have the time, patience and interest in educating yourself about personal finance topics, such as IRS rules, or different types of investment or asset allocation strategies?
- Technique -
do you have the technique, or technical knowledge, to understand how to avoid mistakes and leverage the best financial strategies?
- Temperament -
do you have the temperament to make wise financial decisions without outside advice or counsel? Can you make investing decisions without letting your emotions drive your decision-making?
If you feel you’re lacking in the three T’s, then you should absolutely consider getting a fiduciary financial advisor.
Everyone needs a game plan
We all have heard the stories of how some professional athletes fall on hard times when they retire. In fact, According to Sports Illustrated, 78% of NFL players who are retired for only two years file for bankruptcy, and after five years of retirement, 60% of NBA players suffer the same fate. Here at Sirchia CPAs and Financial Advisors we work with pro athletes to help create a game plan around making smart financial decisions. A recent Business Insider article stated “and while many people believe that only those who are approaching retirement age or earning a high income need a financial planner, that's not true. Even 30-somethings can benefit from a session or two with a financial planner.”
They can help you can get ahead of the retirement savings curve, and save yourself trouble later
Saving for retirement is a process that takes many years to accomplish. Our firm works with a lot of dentists and veterinarians, who make a good income but need some expert tax and investment guidance to grow their retirement portfolio. Having someone who knows the process to help the start will be a big help over the years. Savings grow with interest over time, and the sooner you start saving for retirement, the sooner you can start taking advantage of that growth. Waiting until you're almost ready to retire to perfect your savings game isn't the right move. You might find that you need to start saving more or save in a different type of account.
Ongoing management and communication is key
Working with an advisor can provide a disciplined process for your ongoing financial planning, regular check-ins, portfolio reviews, and progress reports. An advisor can also help with updates to reflect new goals or life events, as well as help you manage risk and seize opportunities as markets or tax laws change.
A financial advisor can work for you through market ups and downs—and provide the guidance and encouragement you may need to stay on track to avoid the sometimes costly mistakes investors make during volatile markets. We live in a complicated and uncertain world. And advisors should not try to predict when the market will go up or down. No one can know that for sure. A good investment advisor will take a long-term market perspective. We control what we can — like the risks we take, the costs we incur, and the taxes we pay. And you hedge against what you can’t control, like the performance of any one particular company or country. Although smart investment managers can try to beat the market, not by market timing or stock picking, but by weighting portfolios to areas of the market that academic research indicates have higher expected returns over time.
What are the next steps?
So if you have made it to the stage where you have decided to set up appointments with a few financial advisor candidates, the next step is to have more in-depth conversations.
Usually, this meeting is called a discovery meeting. If it’s done well, the advisor will spend most of the time asking you thought-provoking questions about your life and goals.
During this initial consultation, the advisor will learn about your values, financial goals, family, and current financial situation. The information gathered from the conversation will be used to create a comprehensive financial plan that the advisor will present at the next meeting. That takes into consideration all they have learned about you and your current financial position, to create a blueprint covering their analysis and recommendations. Which could include many aspects of your finances, from asset allocation to charitable contributions; and their connections with what you want to accomplish in life; and where unnecessary stress and complexity can be alleviated. While it can thoroughly cover recommendations for your investment portfolio, the perspective it provides can look at the bigger picture.
As a potential client, it’s very important to be open and honest about all the financial aspects of your life. Advisors are not interested in passing judgment, but rather in providing valuable solutions based on your financial circumstances.
It takes a bit more work upfront but following these steps to hire a financial advisor will save you time in the long run and can deliver peace of mind. Finding a good match, romantically or professionally, is a process and, if done right, takes time and requires honest and open communication.
Our firm Sirchia CPAs and Financial Advisors and our trusted partner, RNC Genter Capital Management, a Registered Investment Advisor (RIA), who provides clients with investment portfolio management, financial life planning, retirement plan design services to financially established individuals, physicians, dentists, veterinarians, PGA professionals and tour players, professional athletes, and business owner entrepreneurs as well as accounting, tax planning and preparation, payroll and consulting solutions.
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