Financial Planning

3 Reasons Why a Financial Advisor is Worth the Money

By  Fiona Smith

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Determining whether hiring a financial advisor or managing your money on your own is a big and important financial decision.

In fact, not everyone agrees that financial advisors deliver the value they promise for the money you pay.

However, there will likely be a time in your life when you’ll find yourself at a financial crossroad, where it could make more sense to pay for customized financial advice as opposed to managing your money on your own.

So how do you realize that it’s the right time to pay for a financial advisor?

Let’s explore the 3 main reasons when a financial advisor could be worth the money below.

1. You Don’t Have the Time or Know-How to Invest

When turning down the idea of hiring a financial advisor because you believe you can manage money on your own, take some time to consider whether you have the knowledge, experience, and patience to invest and build your financial plan.

If you find yourself Googling just about every question you have for your financial plan, it might be time to consider hiring a financial advisor who can customize their answers to your questions.

Keep in mind that to master a subject, you’ll typically have to put in thousands of hours.

Especially in the finance industry, laws and IRS rules are changing constantly. Do you have the time to dedicate yourself to these updates to optimize your financial plan?

You may also want to consider the extent of your financial knowledge.

To earn more and save more, it’s critical to be familiar with beneficial financial tactics such as mega back door Roth contributions or using a Qualified Charitable Distribution (QCD) as a means to avoid paying taxes if you are withdrawing your Required Minimum Distribution (RMD).

While the average Joe likely is not familiar with these money optimization methods, your financial advisor likely is. It is their knowledge and skill that you are paying for, and Google will likely not have these customized answers for you.

2. You Aren’t Sure How to Plan for your Financial Future

A financial plan will likely change the second you believe you’ve finalized it. That’s because the only constant in life is change.

If you have specific financial goals but aren’t sure how to achieve them, then hiring a financial advisor could be a good next step.

That’s because financial advisors are trained to look at your current situation, at your bigger financial picture, and at the potential financial routes you could pursue to achieve your goals.

When you hire a financial advisor, you typically also gain access to the advisor’s support team and analytical financial software. Your advisor could stress-test your current financial scenario for you to determine whether you would run out of money given your expenses.

Your advisor could also help you look at the bigger picture, such as identifying potential tax implications, estate planning tactics, and the like.

Gaining access to financial software platforms and a support team is something that you likely won’t have if you decide against hiring an advisor.

3. You Want an Educated and Impartial Third-Party Opinion

Even if you have experience in personal financial planning and a degree in finance or economics, humans tend to carry their own biases and predispositions when assessing a situation.

If you want to obtain an educated and unbiased third-party view on your financial situation, it might be a good idea to hire a financial advisor.

An advisor could review your scenario and develop an impartial financial plan and investment strategy that you may not have considered before.

Not only could an advisor identify financial opportunities for you, but an advisor can also serve as your accountability partner, which is someone who keeps you on track to accomplishing your financial goals.

As you start your search for a financial advisor, keep in mind that not every advisor is the same.

How Advisors are Paid

Not all financial advisors are created equal.

If you’re looking to hire a financial advisor, it’s important to understand the differences, because you could be paying more than expected if you don’t do your research.

To earn the biggest bang for your buck, one of the first questions you should ask your potential financial advisor is this: How are you compensated?

There are several ways financial advisors are typically compensated:


● Hourly – Typically best if you have a minor question, as hourly financial advisors often charge between $200 to $500 per hour
● Fee-Only – You pay your financial advisor directly for their services (could be hourly, annual retainer, percent of assets under management, etc.) and your financial advisor would not receive commissions on products they recommend you buy
● Fee-Based – You pay your financial advisor directly (could be hourly, annual retainer, or a percent of assets under management) plus your financial advisor could also earn commissions from financial products they sell you (such as annuities, life insurance, mutual funds, etc.)
● Annual Retainer – You pay your financial advisor an annual flat fee for a comprehensive financial plan
● Percent of Assets Under Management (AUM) – Financial advisors charge you an annual percent (typically between 1% to 1.50%) of the money they manage for you

While there are many ways financial advisors can be compensated, typically it is recommended to consider hiring a financial advisor who is fee-only (they don’t sell you products for which they are paid a commission).

If you prefer to have your financial advisor manage your money for you, then you would generally pay using a percent of assets under management.

For example, if you agree to pay your financial advisor 1% for your AUM, then your advisor would charge you $1,000 for the year if they managed $100,000 of your money.

Fiduciary vs. Suitability

As you embark on your search for a financial advisor, it is also critical to understand the difference between a fiduciary duty and the suitability standard.

Financial advisors typically offer advice on 2 levels:


● Fiduciary Duty – Your financial advisor is, by law, obligated to put your interests ahead of their own interests
● Suitability Standard – Your financial advisor just has to ensure the financial advice they give you is suitable for your overall financial plan

The suitability standard is typically very loosely defined and often sees financial advisors putting their interests ahead of their clients’ interests.

It is recommended to hire a fiduciary, as these advisors are typically the most transparent when it comes to giving financial recommendations.

A fiduciary financial advisor will recommend a product that is in your best interest – even if that might mean the advisor would lose money or would even lose your business.

If you see the CFP® credential (Certified Financial Planner) following a financial advisor’s name, that is often a good sign the advisor is a fiduciary, just by the nature of their credentials.

Closing Thoughts

While paying a financial advisor might cost you a pretty penny up front, a financial advisor could pay for themselves in the long run.

For example, an advisor could help you avoid making a poor financial decision that may cost you thousands or your advisor could help you identify an opportunity that you may have overlooked that may increase your investment returns by 2x.

Remember, a financial advisor typically has many years, often decades, worth of experience and they are your resource and guide to help you save time and money.

Money is not always a fun topic of discussion, so having a financial ally by your side is often assuring and comforting.

If you’re deciding whether hiring a financial advisor is the right next move for you, it’s important to do your research.

Finding the right match could save you so much more time, money, and energy than if you were to save the advisor fee and instead manage your money on your own.


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Fiona Millennial Money Woman

About the Author

Fiona Smith

Fiona Smith is the Founder of The Millennial Money Woman, she’s been featured on Forbes, she’s a speaker at the national FinCon 2021 conference, and she’s a co-founder of a local non-profit charity, promoting financial literacy with underprivileged minorities. Fiona earned her Master of Science degree in Personal Financial Planning and is a self-proclaimed finance ninja. Fiona’s passion is helping others take control of their money to build a better future. Newsletter: Fiona’s Newsletter

Disclaimer: In order to make Wealthtender free for our readers, we earn money from advertisers including financial professionals who pay to be featured on our platform. This creates a natural conflict of interest when we favor promotion of our clients over other professionals not featured on Wealthtender. Learn how we operate with integrity to earn your trust.

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