You may think that financial advisors are just for wealthy families and corporate CEOs. But the truth is, just about anybody can benefit from the support, knowledge, and insight of a financial advisor. As the financial landscape becomes more complex and dynamic, the challenge of navigating the world of investments, retirement planning, tax strategies, and wealth management has grown only greater.
Most everyday Americans aren’t experts in finance. Even the most knowledgeable among us have day jobs and hobbies to worry about. We may leave the deeper complexities of finance to the pros.
But with so many financial products now available to everyday consumers, it’s sometimes hard to know which options are the best for you and your household. This is where a knowledgeable and experienced financial advisor can play a pivotal role as you work to secure your financial future.
So whether you’re looking to save for major life events, prepare for retirement, or refine your investment portfolio, having a certified financial planner can be a major difference maker in your long term financial situation. Simply stated, a financial professional is a valuable resource to anybody seeking expert guidance, personalized strategies, and data-driven insights in the pursuit of their personal financial goals.
But Aren’t Financial Advisors Just for Rich People?
While traditional financial advisors have often been costly and reserved only for the wealthy, a growing number of financial services have been built to match the needs of middle class Americans. As a result, financial advisors are becoming more cost effective for those with more modest assets under management (AUM).
According to an article from U.S. News & World Report, for instance, “Financial advisors typically charge fees based on how much money you have with their firm, called assets under management, or AUM. The industry average is around 1% of AUM per year, although some firms can go up to 2% per year. This fee is typically deducted from your accounts on a quarterly basis. So if you have $250,000 with an advisor charging 1% per year, you can expect to pay $625 every three months.”
Provided you trust the reputation and knowledge of your financial advisor, you will recoup this cost many times over by incorporating expert advice into your personal finance strategy. So how exactly can a professional financial advisor improve your financial outlook?
Read on to find out…
10 Reasons You Should Have a Financial Advisor
1. You’ll Gain Access to Knowledge and Insight
The single most important asset that a financial advisor brings to the table is knowledge. A good financial advisor can offer a deep understanding of financial markets, investment options, tax planning strategies, and retirement planning.
When you employ the services of a personal financial advisor, you are gaining access to this deep well of knowledge. You have the ability to ask questions, receive insights, and request advice as you prepare for a major life event like the purchase of a new home, saving for a child’s college education, approaching retirement, or preparing for the end of life.
In other words, your finances cover a lot of ground. The right financial advisor will bring a body of knowledge that likewise covers a lot of ground. When you hire a financial advisor, you are essentially paying for direct access to years of experience, practice, and education in the field.
2. You’ll Create a Personalized Financial Plan
So how can you leverage that knowledge and expertise to your benefit? Most financial professionals will work directly with you to create a comprehensive financial plan that aligns with your unique goals, risk tolerance, and timeline. This personalized approach ensures your investment advice and financial strategy are built around your specific needs and goals.
It’s important to note here that different financial advisors will carry different certifications and areas of expertise. Some financial advisors will specialize in personal finance, while others may specialize in tax planning, and others still may be registered investment advisors whose focus is mutual funds and equities.
You need a financial advisor that specializes in your particular areas of need. Make sure you take this into account as you vet potential financial advisors.
As long as you find a financial advisor that caters to your financial concerns, you gain the added bonus of perspective. Indeed, you should find that your financial advisor helps to raise considerations that you may not be actively considering. This is a significant benefit of having access to a financial advisor.
Forbes notes that your financial advisor can play a central role in ensuring that you’re considering the full picture, from long term health care and tax planning to creating an estate plan and preparing for end of life expenses.
As Forbes notes, “You can pull all these pieces together yourself — just keep in mind that the landscape is always shifting. New laws and regulations are passed every year that can impact your plan. If you want to keep track of it, go for it. The other option is to outsource it to an advisor whose job is making sure that your plan stays updated and you stay on track toward your goals.”
3. You’ll Get Clarity on Your Short- and Long-Term Goals
For some households, it can be difficult to begin the process of saving and planning for the future. Many Americans aren’t entirely sure how to articulate their goals, especially as the landscape changes so rapidly around us. A financial advisor can help you identify realistic financial goals, take steps to prioritize these goals, and give you the tools to stay ahead of said changes.
As Motley Fool notes, “Typically, planners are happy to lend insight into which areas of your financial life need more focus, such as cash flow management or tax-efficient investing. Then, a planner will help create goals that will set you on the right track without becoming overwhelming. A good goal is not just specific, but attainable and timely too.”
Whether you’re working toward the purchase of a home, saving for your child’s college education, planning for retirement, or leaving a legacy behind for your loved ones, the right advisor will help you identify these goals and make them into a reality.
4. You’ll Develop Strategies For Effective Risk Management
Life is full of risk and most of these risks threaten to cost you money. From unexpected job loss to medical emergencies; from catastrophic weather events to unforeseen home repairs, risk is simply a part of life. Therefore, understanding, preparing for, and managing risk will be critical to securing your financial future.
A financial advisor can help you make smarter financial decisions today in anticipation of these future risks. Advisors can help you diversify your investments, create an emergency fund, and develop strategies to mitigate potential risks. And financial advisors can help you leverage the resources you have in order to handle those unforeseen life events when they do occur.
5. You’ll Receive Valuable Investment Guidance
When it comes to building an investment strategy, the options available to you are innumerable and growing. So how can you choose the best financial products for you while diversifying your portfolio and balancing your risk and return?
In short, you need to know what your options are in order to devise the best investment management strategy for you. With so many products, financial services, and options at your fingertips, how can you build that strategy? Well, you could take the time to learn the landscape entirely on your own.
Or you can trust your portfolio to a registered investment advisor with a comprehensive understanding of the options available to you. To an extent, making investments on the stock market will always be a form of gambling. But you can reduce your exposure to risk with sound investing advice.
6. You’ll Get Support for Tax Planning and Reduction of Your Tax Burden
Just like the stock market, taxes are complicated. Even if you have a pretty good understanding of the tax laws and how they impact your take-home pay, there’s a whole lot more to it, especially as you approach retirement.
One of your top goals in retirement will be to minimize your tax burden. In short, you will need to take some clever steps in order to dramatically reduce the portion of withdrawals from your retirement accounts that you have to pay out to the government. But this can take some serious maneuvering. A good financial advisor can help you optimize your tax strategy and ultimately lower your tax burden by pointing your toward tax-efficient investing options, savvy and entirely legal retirement account management strategies.
7. You’ll Build Sound Strategies for Retirement Planning
This is likely one of the strongest imperatives for most Americans who need a financial advisor. Indeed, for most Americans, retirement means an end of working. This, in turn, means a change in your income situation. And while we’re all rooting for a long healthy life, a greater life expectancy comes at a greater cost.
According to an article from investment advising firm Edward Jones, “Your portfolio has to provide income for as long as you’ll need it. And according to a Society of Actuaries study, there’s about a 60% chance that a 65-year-old couple will have one spouse reach age 90, spending an average of 20 to 30 years in retirement. That’s when your investment portfolio no longer has to get you to retirement; it has to get you through retirement.”
So how can you prepare for the long run? Well, planning for a long and comfortable retirement requires careful consideration of factors like inflation, life expectancy, and lifestyle expectations. A financial advisor can help you design a retirement plan that takes these factors into consideration, and can give you a sense of how realistic your retirement goals actually are.
8. You’ll Learn How to Make the Necessary Lifestyle Changes to Secure Your Financial Future
For many households, it can be difficult to identify and make the changes required to achieve certain financial goals. This is especially true for those who are only beginning to consider retirement planning. Financial advisors can help provide you with some of the tools required to make the necessary adaptations to your lifestyle as well as to your spending and saving habits.
According to an article from Investopedia, a financial advisor can also help you take on a greater sense of financial accountability. As Investopedia hypothesizes, “You may have sketched out your own financial plan, but have a hard time sticking with it. A financial advisor may offer the accountability that you need to put your financial plan on track. They also may recommend how to tweak your financial plan in order to maximize the potential outcomes.”
In short, financial advisors can help provide you with practical and achievable strategies for remaining focused on your long-term goals, avoiding impulsive decisions, and ultimately normalizing healthy financial lifestyle habits.
9. You’ll Get Help with the Often Challenging Aspects of Estate Planning
A good financial advisor will also serve as a wealth manager, somebody who can guide you through the difficult end of life steps that everybody must take. For many households, financial planning isn’t just about a personal financial outlook. For just as many, the imperative for hiring a financial advisor is to provide a strong financial future for their loved ones.
A financial advisor can collaborate with estate planning professionals to ensure your assets are distributed according to your wishes. Financial advisors can also help you establish trusts, wills, and other legal documents, or refer you to legal professionals who can help.
10. Your Financial Outlook Will Benefit From Continuous Monitoring
Anybody who has lived through the last several years of volatility knows that markets are subject to constant fluctuations. Change can be sudden and unpredictable or sustained and persistent. While you may take the time to check in on your investment portfolios and crypto wallets a few times a week, you may not have the bandwidth to watch over a financial landscape that is in a constant state of change.
By contrast, your financial advisor is trained to have that bandwidth. Effective wealth managers will keep constant watch of your portfolio, and discuss opportunities to adjust your financial plan as conditions change. And this insight is driven by information and data that we, as everyday investors, may not have access to.
According to the article from Edward Jones, “The stock market’s ups and downs can lead to rash investing decisions. But a financial advisor can help you to stay on track using toward your long-term goals, and course correct if necessary. And they’ll do all of this based on data and the guidance from experienced market strategists instead of simply reacting to short-term market fluctuations.”
To reiterate a point made at the start of this article, your financial advisor brings access to knowledge and insight that you may not have. When it comes to oversight of sometimes rapidly changing markets, knowledge is power. Investing in a financial advisor is an investment in that power.
And of course, it helps a lot that you’ll have somebody with a background in finance to help you wield that power. Financial advisors take the extra steps that you can’t, from researching investment opportunities and monitoring fluctuations in the markets to keeping up with consequential events in the business world and legislative initiatives that have the potential to impact your personal finances.
Having a financial advisor gives you a window into these factors. While the big events in the world of finance may be outside of your control, a good financial advisor will put you in a position to respond to these events with agility.
Perhaps more than any other imperative, the best argument in favor of hiring a financial advisor is the peace of mind you’ll gain from having a sound financial plan, a diversified portfolio, and a strategy that minimizes your exposure to risk. Especially as you approach major milestones like retirement and end of life planning, the insights you’ve gained through the support of your financial advisor can be a major source of comfort and stability.
As we noted from the start of this discussion, hiring a financial advisor is generally advisable for most households. While this service comes with a commission cost, it may be wise to think of this as an investment rather than an expense. Indeed, in an ever-evolving financial landscape, enlisting the services of a skilled financial advisor can have a major impact on your financial outlook.
Financial advisors offer expertise, personalized guidance, and the ability to adapt to changing circumstances in ways that the everyday investor simply can’t do alone. To put it simply, a reputable financial advisor can significantly improve your financial literacy, your approach to financial planning, your retirement outlook, and your long-term financial life.
Now that you have a greater appreciation for what financial planners do, check out our article on how to choose the best financial advisor for you.