I was listening to a recent Best Interest episode (Spotify Link) about some of the help a financial advisor can provide. It gave me some thoughts, mostly about how it’s often maligned in the FIRE community to reach out to an advisor. I don’t always think that it’s necessarily a bad thing to reach out to a financial advisor if you need one. But let’s dig into a little bit more on when you might need to get one, when you might not, and my plans regarding financial advisors.
As always when I talk about my thoughts on finance, investing, and the like. I am not a financial advisor. Nothing I talk about should be considered advice. I have no qualifications to give advice. This blog is solely my opinion.
When you need one
Of course, the best place to start is with why you might want a financial advisor. I think mostly it’s for people who are new to investing, uncomfortable with investing, or need some other help. There are probably more reasons one could cite, but I think these are the most important reasons. I want to take a look at each one in turn.
I want to start this off with the following, it is okay to be uncomfortable with investing. If you aren’t comfortable with it, even if it’s just because you need to learn more, it’s not a bad thing to reach out to an advisor to help you get started. A lot of people aren’t sure what their risk tolerance is and want some help so they don’t make rookie mistakes like selling in the first market downturn.
If that’s you, that’s perfectly fine. You don’t have to be comfortable as a DIY investor if it’s not for you. Asking for help isn’t a sign of weakness, it’s about understanding where your strengths and weaknesses are. Even if the advisor is just doing an indexing strategy like I advise, if it helps you save money that’s the important part. If an advisor is what you need to keep you from panic selling, then by all means it is not a bad idea to have one.
With all that said I do want to note in some way, shape, or form you will be paying said advisor for their services which will lower your returns somewhat.
Maybe you’re perfectly comfortable with investing and you already have what you think is an air tight retirement plan. But have you thought of everything? Sometimes it helps to get a second pair of eyes to look over your plan. They can help you catch things you might have missed or considerations that may not be realistic.
This is actually my plan when I get a year or two out from retirement. I plan to find a fee only advisor to run my plan by and make sure that I’m not overlooking something. I’m fairly confident my plan is air-tight. But I don’t know what I don’t know. I could be forgetting about some costs that I should have considered.
Another one I’ll add is for those not interested in investing. Not everyone is a nerd, such as your humble author, and don’t find it interesting to read about investing. For some, it may be worth it to outsource these skills they’re not interested in working on.
The final reason I want to talk about is for people who are learning to invest. While the internet is a fine resource for learning how to invest. There’s lots of good information out there, and probably a lot more bad information. If you’re new to investing you might be overwhelmed by the sheer amount of information to sift through and evaluate. Where to start may be extremely difficult to decide on. A financial advisor can help you get started and find what path works for you, maybe they can even help you avoid that bad information until you’ve learned enough to work out good and bad information yourself.
If you take a look at the reasons I noted as most important for getting assistance from an advisor it’s mostly to help learn, double check something, or help fill a void in your skillset you don’t plan to develop.
When you do not to need a financial advisor
With why you might want to get a financial advisor out of the way, we should take a look at some of the reasons why you might not need a financial advisor. Namely, if you’re not getting anything, are comfortable with investing, or don’t need more advice.
The most obvious one is if you’re not getting anything from the financial advisor. You’ve already worked out your plan, gotten started investing, and worked out a path you can work on your own. Having a financial advisor may not make sense to you. You should ask yourself what they’re providing you. If you can’t come up with a good answer, maybe it is time to find a new advisor or ditch having one all together.
You’ve already gotten started investing. You’ve found something that works for you. You understand enough about investing to be able to research new ideas to see if they’re good or bad. You’ve outgrown the need for your financial advisor. Once again, they’re not providing you anything that you need. In such a situation, it might make sense to move on. But remember, financial advisors aren’t just for investing, they can help with other things such as tax planning, don’t forget to leverage these services as well if needed.
If you’re like me and just planning to get a second set of eyes just to verify that you haven’t forgotten anything, once you’re done and have the advice you set out to get, what more do you need them for? At some point You’ve gotten what you needed from the advisor and it’s time to cut that expense.
Most of these reasons are mostly geared towards advisors who take a percentage of gains or are paid a retainer. For fee only advisors most of these reasons do not apply, you’re only paying when you’re working with them.
What to look for
Now for those that have decided they need a financial advisor I thought I should provide some of what to look for.
Frankly, I could make my own list of questions to ask a financial advisor, but others have already done so and at a higher quality level then I could probably provide. Personally, I like this Best Interest set of questions. This White Coat Investor list is also pretty good. I think the big thing I like from both sets of questions is finding the biases, payment structure (fee-only, hourly, retainer, percentage of assets under management, etc.), and fiduciary status of an advisor
At the end of the day, a financial advisor’s job is to sell you something, be it their services or some other product. Identifying those in advance and verifying that you’re comfortable with those biases before you jump in is important. Make sure at the bare minimum you’re getting the services that you need (and those you’ll need in the future as you get there).
I’m more partial to fee-only financial advisors. That way you’re only paying for what you need and not on getting them to have as much of your money as possible or do as little work as possible. But I also am fairly comfortable investing and developing my skills in other areas of financial planning.
Making sure they’re a fiduciary is also a big one to me, that helps insure that you’re getting the services that you need rather than getting sold a product where the advisor is the only one making money. I have no plans to work with an advisor who is not a fiduciary.
So there you have it, my thoughts on financial advisors. I do believe there are some situations that it makes sense to reach out to one, the specifics would be dependent on your circumstances. If you don’t have that need though, it makes sense not to go that route. At the end of the day, the choice to seek out a financial advisor is your own, despite all that there are definitely things to verify while seeking out one that will work for you. In my opinion you should verify that they’re a fiduciary, the rest is finding the advisor that works for your specific circumstances and personality.