From time to time I get emails from readers who have realized they need financial help that goes beyond searching around the Internet.
Maybe their finances have suddenly grown more complicated, either as the result of a new job or an inheritance. Or maybe they simply want personalized advice that helps them increase their savings or pay down debt.
While I consider myself well-versed in personal finance, I don’t have experience with individual counseling — which is something to consider if you’re seeking a financial advisor. Just like you don’t want to see a doctor who has 10 years of research and publishing experience but has never performed clinical exams, you want your financial advisor to have hands-on counseling experience.
If you’re considering getting a financial advisor, here’s how to know if it’s time, what it’ll cost, and how to choose the right one for your situation.
When should you get a financial advisor?
In my opinion, there are three reasons to hire a personal financial advisor:
- You feel “lost” in planning for your financial future and need a roadmap.
- You just don’t want to deal. When it comes to money, you’re not the DIY type, and you just want a professional to take care of it.
- You like managing your money, but realize your financial plan would benefit from an impartial and unemotional third-party opinion.
I think all of us fall into one of these three categories at some point in our financial lives. But let’s look at each situation and consider when it’s your time to hire a financial advisor.
1. You need help planning your financial future
This may be true for most of us when we’re starting out. There are so many goals competing for our limited financial resources:
- Paying off student loans.
- Funding a retirement account.
- Saving an emergency fund.
- Buying a house.
- Taking a vacation.
- Getting married.
- Having fun NOW.
It’s no wonder we find money so overwhelming as 20- and 30-somethings!
While it will cost you to get the help you need from a professional, if it will help you get ahead in the long term, then the price of a financial advisor is worth it.
Here’s my take: if you have a comfortable emergency fund and can afford a financial advisor’s fee without going into debt, a financial planner might be a good investment. In fact, the planner’s fee may pay for itself in a few years if they help you make better financial decisions in the meantime.
2. You hate dealing with money
Some people hate managing their money. And that’s cool; what’s important is that you recognize it and get someone to do it for you. In this case, hiring a financial advisor is a no-brainer.
What you’ll need, however, is enough investable assets for an advisor to take you on.
When it comes to investment advisors, most can’t afford to work with you as a client until you have $100,000 or so of investments. Some drop that to $50,000, while others won’t take clients until they have $500,000 or even $1 million to invest. So you’ll have to shop around.
I think the $100,000 level makes sense. If you have less than that invested, you’re better off sticking your money in low-cost index funds and leaving it be. If you’re still set on considering financial advice, however, see our page on how those on a low income can access financial advisors.
3. You want an impartial third-party opinion on your money
There are a lot of do-it-yourself investors who never hire a financial advisor. Their thinking is, “I like doing this myself and I’m fairly savvy, so why would I pay someone 1% of my money every year and reduce my returns?”
But to play devil’s advocate: no matter how much you learn about investing, you’ll never be on an even playing field with Wall Street. And no matter how much you learn about investing, you’ll always be human and, therefore, susceptible to making irrational decisions.
If paying a financial advisor saves you from one bad decision a year — or spots an opportunity that you overlooked — they may very well increase your investment returns, despite the fee.
How much does a financial advisor cost?
In a perfect world, everyone would have financial advisors with whom we could check in once a month or call before making a big purchase or investment decision.
Realistically, however, financial advisors are not inexpensive. As a result, the decision to hire a financial advisor requires a careful cost/benefit analysis.
And to make it even more complicated, different advisors work on different fee structures:
- Annual retainer. Financial planners typically charge a few thousand dollars for a comprehensive financial plan.
- Hourly rate. Rates by hour typically run a few hundred dollars an hour.
- Percentage of invested assets. You’ll be charged a flat percentage of your total account balance — usually between 0.25% to 1% per year. An unofficial industry benchmark is 1%, although advisors may charge slightly more or less.
Let’s look at some real numbers so you’ll get a sense of how much you may be paying if your advisor charges a percentage-based fee.
If you have $200,000 to invest, you would pay $2,000 a year. If you have $1 million, the fee would jump to $10,000 a year, although some advisors or wealth management services, like Empower, have a fee structure in which the percentage slides down as your assets grow.
Rule of thumb: always ask how your advisor is compensated.
Some financial advisors earn their fees from banks and investment companies. So although they offer free advice — which may very well be tempting — these advisors usually earn commissions from the investments they sell you. Over time, being in the wrong investments may actually cost you more than paying a fee-only advisor.
I’m not saying all advisors who work on commission are going to give bad advice, but a good advisor should be transparent.
How to choose a financial advisor
When it comes to choosing a financial advisor, you’ll want to make sure you’re matched with someone who understands your goals, has experience working with people in your situation, and, most of all, makes you feel comfortable. The last thing you want is to end up with an advisor who doesn’t answer your questions in a way you understand, or who pressures you into investments you’re not comfortable making.
You’ll want to ask a financial advisor several questions:
- Do they have experience working with clients like you? This doesn’t just apply to your financial situation, but also if you’re a member of the LGBTQ+ community; Black, Indigenous, or a Person of Color; single, married, or divorced; etc.
- What services do they provide? Do they offer investment advice, tax support, budgeting help, etc.?
- How much do they charge? Are they hourly, on retainer, or percentage-based?
- What’s their communication style and frequency? How often do you want to hear from your advisor, and what format is best for you: email, telephone, in-person, or all three?
- What firm has possession of your assets? If you’re investing with your financial advisor, make sure that the custodian is a major brand name firm that you have heard of, like Fidelity.
After you’ve “interviewed” your potential advisor, consider how talking to them made you feel — were you completely overwhelmed or are you now feeling confident about your financial future?
Don’t trust your finances with someone who leaves you feeling not right after this initial meeting period.
Where to find a financial advisor?
I recommend two websites that make finding the best financial advisor easier: Paladin Registry and SmartAsset.
Paladin Registry offers two free ways to track down a financial professional in your area.
- You can use the match service, which gathers information about you and your needs, then suggests pre-screened financial fiduciaries with the best qualifications. This is a safe and secure process where you start off by providing your zip code and a few basic questions, like when you would like to retire.
- Or you can use the free directory and go through the list of vetted experienced financial advisors in your area on your own.
Once you find an advisor you’re interested in, you simply schedule an interview.
Paladin Registry is a free directory of financial planners and registered investment advisors (RIAs). The registry has the highest standards for its advisors, and it works with your requirements to find the perfect match.
- Free to use
- Narrowed and vetted pool
- No obligation to move forward
- Requires at least $100,000 in investable assets
Another useful tool for your financial planner search is SmartAsset.
After answering a few questions about your current situation and future financial goals starting with your current age,, the built-in tool matches you with up to three prescreened advisors who serve your area. You can then easily set up an interview with each planner and choose the one who best fits your needs and preferences.
SmartAsset is a personal finance platform that matches people with highly qualified financial advisors for free. Only fiduciaries legally obligated to act in your best interest are in SmartAsset’s directory, so you know the provided advisors won’t just try to sell you something.
- Match process is free
- Free and interactive financial tools and information
- No mobile app
Alternatively, you may want to consider a robo-advisor vs a financial advisor if you find it’s a better fit for you.
Robo-advisors allow you to set goals and help you invest, rebalancing automatically depending on a number of factors like your shared risk tolerance, but a major financial event would need the expertise of a financial advisor. It depends on your personal situation and just why you’re considering assistance with financial planning.
The best time to hire a financial planner is when you aren’t feeling confident when it comes to dealing with your finances or need to take a major financial event into consideration. They can take over your wealth management or just give you a second opinion so you can make sure you are on the right track.
So many of us feel lost in our finances, but getting a second opinion from a financial advisor can be reassuring. It stirs up the pot (when the fee makes sense) — and that’s almost always a good thing!