Do I Need a Financial Advisor & How Do I Hire One?

Do I Need a Financial Advisor?

As you’re sorting through your finances, you might be asking yourself if you finally need to get a financial advisor. The answer depends on your finances. In many cases, it's a good idea to do so.

When considering a financial advisor, you'll want to check your finances so you understand which type of financial advisor would best suit your needs. Then you'll want to review how much potential advisors cost and review their qualifications before making a decision.

What Does a Financial Advisor Do?

A financial advisor helps people manage their money and plan for the future, including retirement. Some financial advisors offer a wide range of services, while others narrow their focus to a specific area.

Among the tasks that financial advisors do for clients are the following:

• Plotting a long-term financial strategy, including a retirement plan
• Helping handle financial matters such as buying a house, saving money for a child’s college education, devising a tax plan, purchasing insurance, and coming up with an estate plan
• Researching and recommending investment prospects
• Managing investment portfolios

How To Evaluate Your Finances

Before deciding you need a financial advisor, you’ll want to take an extensive look at your finances. This will give you a better sense of where you stand financially and what a financial advisor may be able to help you with.

Here are four things to consider and ask yourself when figuring out whether you should tap the expertise of a financial advisor.

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1. What Is Your Net Worth?

Your net worth is not your income but a number that pulls together what you own, what you owe, how much you make, and so forth.

You can calculate your net worth by subtracting your liabilities (what you owe) from your assets (what you own). Assets include investments and bank accounts, while liabilities include credit card bills and mortgage payments. Of course, a positive net worth is far better than a negative net worth.

2. How Much Do You Earn and Spend?

Another key to assessing your financial situation is examining your monthly income and expenses. Even if you don’t hire a financial advisor, monitoring your income and expenses lets you know whether you need to cut down on expenses or bump up your savings toward retirement.

If you don’t have a budget, now might be a good time to set one up. For instance, you can use a spreadsheet or a budgeting app to keep on top of your monthly income and expenses.

3. What Are Your Financial Goals?

Do you dream of retiring at age 60? Do you hope to someday buy a home? Setting and working toward financial goals is a key part of healthy money management.

Figuring out your short-term and long-term financial goals can steer you toward a decision about hiring a financial advisor. 

4. How Much Investment Risk Are You Comfortable With?

Are you fearless when it comes to up-and-down movements in the stock market? Or do you get anxious when you see turmoil in the stock market?

Nailing down your risk tolerance regarding investments can help you determine an investment strategy—and can help you choose a financial advisor to match if you go down that path.

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When To Hire a Financial Advisor

Once you’ve evaluated your finances, it’s time to decide whether to hire a financial advisor. You don’t need to be wealthy to seek advice from a financial advisor, and if you already have an advisor, you might need to change advisors at some point.

In most cases, a significant life change or decision will trigger the decision to search for and hire a financial advisor. Below are six likely scenarios.

1. You Need Help Realizing Your Financial Goals

OK, so you want to retire at age 60. Or you want to buy a home. But how are you going to accomplish these and other goals? A trustworthy financial advisor can draw up a road map with you that can help you achieve both short-term and long-term financial goals.

2. You’re Unsure of How To Invest Your Money

A financial advisor can hold your hand, so to speak, as you make your way through the risky and often confusing investment landscape. They will help you with the following:

• How much money you should invest, along with how much money you put in an emergency fund
• What types of investments, such as a 401(k) or individual retirement account (IRA), would work best for you
• When to rebalance your investment portfolio to account for changes in your life and the stock market
• Which taxes you face when you withdraw money from retirement accounts

3. You’re Going Through a Major Life Event

You just got married and need help merging finances. A baby is on the way. Your divorce is pending. You’re nearing retirement. These and other major life events may prompt the need to visit with a financial advisor about your investments, goals, and other financial matters.

4. You Received a Lump Sum of Funds

Let’s say your mom left you a tidy sum of money in her will. Now what? How do you make the best use of it?

A financial advisor can help you make smart choices about your inheritance or any other large windfall, whether a lump sum of money, an investment account, or a life insurance policy.

5. You Need Accountability

You may have sketched out your financial plan but find it difficult to stick with. A financial advisor can offer the accountability you need to keep your financial plan on track. They can also recommend how to tweak your financial plan to maximize the potential returns.

To get a sense of how much most Americans save, below is a chart of the national savings rate. Note that most financial advisors suggest saving 10% to 20% of your disposable personal income.

6. You Need Help Getting Out of Debt

Many people in the U.S. struggle with managing their student loans, credit card balances, auto loans, and mortgages. To get a sense of where you stand against the average or median American (depending on the statistic used), here's a table of recent personal and household debt levels:

No matter how much and what type of debt you're working to pay off, it can feel overwhelming to tackle it alone. A financial advisor can help ease the burden by creating a personalized debt payoff plan, identifying strategies like consolidating high-interest loans, setting realistic goals, and prioritizing payments to save you money over time.

Types of Financial Advisors

Several types of financial professionals fall under the umbrella of “financial advisor.” In general, a financial advisor holds a bachelor’s degree in a field like finance, accounting, or business management. They may also be licensed or certified, depending on the services they offer.

It's worth noting that you don't have to keep an advisor permanently—many will work with you on a one-time basis to knock out a particular problem you're having.

In 2023, an estimated 330,300 Americans worked as personal financial advisors, according to the U.S. Bureau of Labor Statistics (BLS). Most financial advisors are self-employed, the BLS notes.

Generally, there are five types of financial advisors:

A. Registered Representative

A registered representative, also known as a stockbroker, buys and sells stocks, bonds, mutual funds, exchange-traded funds, and other investment products on behalf of their clients.

Brokers typically earn commissions on trades they make. Brokers are regulated by the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and state securities regulators.

B. Registered Investment Advisor

A registered investment advisor (RIA), either a person or a firm, is much like a registered representative. Both buy and sell investments on behalf of their clients. However, RIAs do much more, and since they are regulated directly by the SEC or state securities authorities, they fall under more stringent standards than stock brokers.

For example, unlike a registered representative, RIAs are fiduciaries, required to act in a client’s best interest. RIAs earn advisory fees for managing clients' investments; they don’t receive sales commissions.

C. Financial Planner

For instance, a financial planner might be a registered representative or an insurance agent. However, the term most often refers to a certified financial planner (CFP).

A CFP must adhere to specific education and training standards the Certified Financial Planner Board of Standards sets. For example, they must hold at least a bachelor’s degree and have at least three years of full-time financial planning experience or an equal amount of part-time experience. They also must complete 30 hours of continuing education every two years.

However, financial planning professionals aren’t overseen by a single regulator since it depends on what work they're doing for you. For instance, an accountant can be considered a financial planner; they’re a licensed professional who has passed an examination administered by your state's board of accountancy.

Meanwhile, RIAs are governed by the SEC or a state securities regulator.

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D. Wealth Manager

A wealth manager advises wealthy clients on their financial goals and investment approaches. Offerings can include retirement, estate, and tax planning, along with investment management.

Wealth managers are generally registered representatives, meaning they’re regulated by the SEC, FINRA, and state securities regulators.

E. Robo-Advisor

A robo-advisor is an automated online investment manager that uses algorithms to manage a client’s assets. Clients generally don’t receive human-supplied financial advice from a robo-advisor service.

For this service, you'll generally be charged a flat monthly fee or a percentage fee based on the amount of assets being managed.

Questions To Ask a Potential Financial Advisor

Investors looking for an advisor should ask specific questions of any potential choice, including the following:

1. Do You Have Experience Working With a Client Like Me?

If you have yet to build even a modest nest egg, it's perhaps best to seek out someone who isn't focused on managing portfolios $50 million and over.

You may be looking for someone who specifically works with retired people, same-sex couples, divorced people, surviving spouses, a woman, a Black or Indigenous person of color (BIPOC), an LGBTQ+ individual, or any applicable niche. You might also simply be looking for someone who can handle just about any financial situation you can throw at them, from insurance to taxes to wealth management.

2. What Services Do You Offer?

This question will be important, depending on whether you’re looking for a comprehensive financial plan or investment guidance.

3. What Fees Do You Charge?

Financial advisors have different methods of charging their clients, and it will often depend on how often you work with one. Be sure to ask if the advisor follows a fee-only or commission-based system.

4. What Education and Credentials Do You Have?

If you’re working with a human advisor, you’ll be curious about their education. For instance, do they have a college degree in accounting or finance? You want to ensure their education matches the advisory services you need.

In addition, are they regulated by the SEC, for example, or certified by an organization like the National Financial Educators Council? Resources that can help you investigate whether an advisor is registered, certified, or has faced charges include FINRA’s BrokerCheck tool, the CFP verification tool, and the SEC’s Action Lookup tool.

5. How Often Will They Contact You, and How? Are There Any Limits on How Frequently They Can Be Contacted?

The nature of the advisory field is also changing. Investors now have digital access to their accounts. Thus, besides traditional in-person meetings, they may meet with their advisors virtually for some or all of their portfolio review sessions.

What Kinds of Financial Matters Can You DIY?

If you're looking to take control of your financial life while saving on the time and money needed for a financial advisor, there are several areas where a do-it-yourself (DIY) approach can be effective. While some financial matters require professional expertise, others are straightforward enough for individuals to handle independently with a bit of research and planning.

Here's a breakdown of some key areas where you might take the reins:

Budgeting and Expense Tracking

Budgeting is the cornerstone of financial health and doesn’t require complex tools. A simple spreadsheet or budgeting app can help you monitor income, expenses, and savings goals.

• Tip: Set realistic spending limits, review expenses regularly, and use automated payments for recurring bills to avoid late fees.

Savings Goals and Emergency Funds

Determining how much to save and setting aside funds for emergencies is a personal decision. Tools like high-yield savings accounts make it easy to stash your money while earning interest.

• Tip: Aim for at least three to six months’ worth of living expenses in an emergency fund. Focus on this before you start investing.

Simple Investing

Thanks to platforms like robo-advisors and commission-free brokerage accounts, you can start investing with little capital and minimal expertise.

• Tip: Start with index or exchange-traded funds for diversified exposure. Follow a buy-and-hold strategy to minimize the risks associated with trying to time the market.

Paying Down Debt

Whether it’s student loans, credit card debt, or personal loans, creating a repayment plan can save on interest and cut down on your financial stress.

• Tip: Two methods many use are called the snowball (starting with the smallest debt) and avalanche (tackling the highest interest debt first) approaches for paying down their debts. Choose one and stick with it.

Tax Filing (Basic Returns)

For individuals with straightforward financial situations, tax software can handle basic tax filings effectively and affordably—as it does for millions of Americans each year.

• Tip: Use tools provided by the IRS or reputable software companies—you might even qualify for free filing.

Assessing Your Insurance Needs

Reviewing your insurance policies for health, auto, and home ensures you're not overpaying for coverage you don’t need.

• Tip: Compare quotes annually and make adjustments as your life circumstances change.

Retirement Planning

Starting with retirement accounts like 401(k)s or IRAs is straightforward, especially if your employer offers matching contributions.

• Tip: Do whatever you can to maximize any employer match your company might offer, and consider target-date funds for easy, hands-off investing.

Estate Planning Basics

Tools for creating basic wills and assigning power of attorney are readily available online.

• Tip: For more complex situations—and with certain heirs and families, things get complex pretty quickly—consulting a professional is well worth the investment.

When To Get Professional Help

While DIY is cost-effective and can feel empowering, there are times when consulting a financial advisor, tax specialist, or estate planner is a wise decision.

Complex tax situations, large investment portfolios, or significant life events like marriage or starting a business make it prudent to seek out expert advice.

The Bottom Line

Deciding whether you need a financial advisor involves evaluating your finances, determining which type of financial advisor you need, and diving into the background of any financial advisor you’re thinking of hiring.

Before hiring a financial advisor, be sure to ask about what menu of services they offer and what they charge for those services. While you may need to put in some work to find the right financial advisor, the work can be worth it if the advisor gives you solid advice and helps put you in a better financial position.