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Do I Need a Financial Advisor? Is It Worth It?

What a Financial Advisor Does
When Hiring One Makes Sense
How It Can Save Money
How To Choose One
Is It Worth It?

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A financial advisor can help you with any number of planning needs, from retirement savings to tax consequences to basic financial strategies. But this type of financial advice doesn't come without cost. Some advisors charge annual fees for their services, while others might only earn commissions when you make a trade.

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If you're asking yourself whether a financial advisor is worth it, read on to learn about the services these professionals provide. Then, assess whether or not the benefits outweigh the costs so you can better decide if it's time to find a financial advisor.

What Does a Financial Advisor Do?

While you might not need help planning every aspect of your financial life, it's good to have a professional to talk to during times of uncertainty. Some of the services you might want to reach out to a financial advisor for include:

Budgeting
Retirement planning
Estate planning
Cash management
Tax planning
Charitable giving strategies
Debt reduction
Investment planning
Income planning
Wealth management

Consider hiring an advisor if you find that you would manage your money better in some of these areas with the help of professional advice. Within these broad categories, an advisor can tailor services to your exact financial needs. For example, a good advisor should be able to consider your investment needs and risk tolerance to suggest an appropriate asset mix for your portfolio.

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Who Might Benefit Most From Working With an Advisor?

Although there's no denying the services that an advisor can provide, they might not be worth the cost. You might not need to spend the money for professional advice if you have a simple portfolio and a good handle on your finances.

Here are some scenarios where hiring an advisor can make sense:

You're worried about having enough saved for retirement.
You're getting married or divorced.
You're starting a family.
You're making a lot more money.
You're saving for your child's education.
You're losing your job.
You're starting a business.

You don't have to wait until you have a major change in your life to seek out financial assistance. Anytime you feel overwhelmed by money management decisions — whether you can't seem to make ends meet every month or you just want to feel more secure about your future — you should consider that a sign to seek professional help.

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How Paying for an Advisor Can Actually Save Money

When hiring an advisor who charges an annual fee, you can expect to pay a small percentage of your assets or a commission for services. Believe it or not, paying these fees can actually save you money because sound advice is valuable.

Here are three key financial areas where you would benefit from an advisor's services.

Taxes

One example is in the area of taxation. When you buy and sell securities like stocks in a regular investment account, there are tax implications.

Trading can prove costly if you don't know the difference between short-term and long-term capital gains. For example, delaying a trade by a day might save you hundreds or even thousands of dollars in taxes — savings well worth your payment to a financial advisor.

Life Planning

Another area where a financial advisor can save you money is in life-planning issues. For example, you might be able to save money on your investments if you do some research and only select high-performing, low-cost mutual funds. But if using a no-fee broker means you won't get in-depth, money-saving advice regarding long-term care or the costs involved when assets are transferred after a death, then you're not really saving money by avoiding fees. If you don't understand all of your options in these types of situations, you can end up spending far more than necessary.

Retirement

Once you've reached retirement age, a good advisor can help you save money by devising an efficient income strategy. For example, withdrawing too much money from your individual retirement account when you retire might cause you to pay more taxes than necessary. Additionally, you might not have enough money left in the account to last you through retirement.

Another consideration is when you should file for Social Security. Making your non-revocable selection at the wrong time could cause you to end up with less money in your pocket than you should have.

Related: How Much Does a Financial Advisor Cost?

How To Choose a Financial Advisor

There are several types of advisors from which to choose:

Robo-advisors are fully online and are usually the most cost-effective option.
Traditional financial advisors allow you to meet your professional in person or reach them by phone.
Hybrid financial advisors provide a combination of online and in-person services.

Deciding how to choose a financial advisor depends on your personal preferences. Another consideration is looking for a professional who specializes in your area of interest, whether it's investments, retirement, budgeting, debt management or something else.

You could also consider using a certified financial planner. The difference between a financial planner and a financial advisor is that a CFP has education requirements. People generally use a planner when they want to use a long-term approach of financial advice with periodical follow-ups with their professionals.

Find Out: What Is a Fiduciary Financial Advisor?

Is It Worth It To Hire a Financial Advisor?

Like any financial decision, when determining whether or not you should hire a financial advisor, you should weigh the benefits against the costs. A good financial advisor certainly does have the ability to save money for a wide range of investors.

Additionally, if you're unsatisfied with the investment results you're getting on your own, or you're faced with confusing life-planning issues, a personal financial advisor might be just what you need. Beyond the financial planning support, some investors benefit from having a professional hand to hold when financial markets become uncertain.

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Cynthia Measom contributed to the reporting for this article.

Last updated: July 26, 2021

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.