Do I need a financial advisor?

Join Sean Kernan as he answers all the burning questions about finding and working with a financial advisor. In this episode, he answers the burning question on many peoples' minds — whether they even need a financial advisor in the first place.

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One big question that you probably need to ask yourself if you're thinking about hiring a financial advisor or a financial planner is do I need an advisor at all? So there are lots and lots of resources online and elsewhere that can help you educate yourself on just about any topic related to personal finance. So there's also a ton of resources that would explain to you that you can do it yourself and don't pay someone for things that you can do yourself. So I'm a practicing financial advisor, but I definitely come across people that probably don't need an advisor at all because they are very interested in the topic. They like doing research, they like analyzing their own personal finances and diving into the weeds of any topic, even if they're kind of starting from scratch on the knowledge themselves. So short version of the answer is not everyone needs a financial advisor. However, here's kind of a good shortcut to figure out if you might be a candidate for hiring someone or continue to work with someone versus doing it yourself or dividing the responsibilities for what a more comprehensive advisor or planner might work on. So the the biggest thing I think I would consider is how do you feel about making decisions on your own about either your personal finance as a whole, uh, your investments, your retirement planning, uh different insurance coverages that you might need to consider, any kind of tax effects or planning of your overall situation or your investments specifically. If you have a business of some sort, you know, how comfortable are you making those decisions on your own in terms of strategy or taxes or how to reinvest in the business? So if you feel overwhelmed and anxious or nervous or worried that you're missing something, or you just don't enjoy or want to learn about the ins and outs of planning, I think that's the obvious sign that it's worth going down the road to look for someone to work with. So a lot of online uh talk will say, well, you can do it, you should you can learn, it's okay, you have to take charge of your own stuff. And I think that's good advice if you're if you're ready to do that and want to. But I find in my in my life a lot of things I don't want to learn about, I don't want to get in the weeds, I don't want to understand it, uh, or at least I don't want to invest the time, um, especially if it's home maintenance or vehicle maintenance or a lot of things that are um mechanical. I don't find them interesting, I don't feel confident in my knowledge, I don't really want to spend the time to learn what I would need to know, learn enough to feel confident to do things myself. So my time and energy is usually spent finding hopefully the right professionals to help me help my family with those things. So that's the number one thing that kind of helps you determine if you need an advisor or you might need an advisor or a financial planner is how comfortable I am with the uncertainty of things that I'm not yet knowledgeable on. So if you feel confident in your ability to go learn, dive in and keep up, I'd say go for it and always be looking to reevaluate that conclusion. Um, but you don't necessarily need a financial advisor or financial planner. Um if you uh definitely think you need somebody, I think I would go look for someone comprehensive, and there's other resources I'm I've put out about how to how to do that, but um start there. If you're not sure, if you're kind of in the middle ground, which is one reason you may have uh be watching this, is if you like to have um knowledge but you don't um want to do it all yourself, but you also don't like the idea of handing over all your uh trust and confidence to one person, one way you could kind of go through that is to is to look for a person or a resource or approach in each domain of financial planning, kind of the big things an advisor or planner would help you with. For example, for your uh your investment allocation and and ongoing decisions about um investment management, whether that's more active or more more passive buy and hold, um you know, you could look for a resource just for that. And a lot of advisors, unfortunately, focus just on investments, and a lot of uh consumers of financial planning think that the investments are the only thing. They're not, but um, it's very easy to find someone who'll help you focus on investments. It's a little harder to find someone who will do it on a limited engagement, but there are there's some um investing platforms where you can you know work through uh Fidelity, Vanguard, bigger places like that, or more uh newcomer, what you might call robo advisor. You could work work with them, go through their process and pick a portfolio. There'll be some cost, but usually it's lower than a more comprehensive full service uh financial planner or advisor might be, or at least a lot of the time. So you can work on the investment specifically and get that set up without having to commit to an ongoing uh relationship that feels um like you're getting married or something. You you can just do more of a this is I just need you for this job, and let's let's focus on the investment to get that set up, and at least take that off your plate. And I know for a lot of people that's what leads them to look for an advisor is I've got this money, either I've inherited it, I've gotten married, divorced, I'm retiring, I'm changing jobs. There's something driving um the feel the feeling that there might be a need to for someone to help with investments. So that's one big chunk, obviously, of what looking for an advisor or not is gonna become uh be part of. So um then if you then related but but separate to that is retirement planning itself. So just determining how much do you need to live on, um, when might you want to have your money be working for you instead of you working for money, or at least have the option, you know, sort of make make work optional. Um most comprehensive advisors are gonna are gonna also do retirement planning, not just investment management or allocation. Um, but you're gonna want to make sure that you or your advisor are you doing the math on how much you might need, are you checking your assumptions in terms of the rate of return, inflation, um, where you're gonna draw money from, which accounts, when to turn on Social Security. Um, and then a big thing I notice people are not that great at is knowing how much are you spending on a monthly or annual basis? And that affects people even that have very good incomes, but they have a good enough income that they're spending less than they make, so they don't really feel the need to track it, and it can get muddled pretty quickly on how much is actually going out the door, not just the things you can name like mortgage and food and car payment and whatever. What are you actually spending, including travel, including the one-time things that you don't think about as spending because it's only one time, but if it's every year, it's not one time. If it's Christmas, if it's travel, if it's etc. So retirement planning has all those pieces to it, and if you can find someone that will do that as part of the comprehensive package, and that's what you're looking for, great. If you're gonna do it yourself and you really enjoy it, that works too. Um you could probably find someone to do these each of these pieces on a project basis. Again, the investment management, they're a plethora of options. Uh, retirement planning, if you're just doing that, uh, there are some good resources and podcasts, YouTube channels, and advisors who do a flat fee consulting where you're paying a fixed dollar amount, and that could be a great investment if you're comfortable with taking the plan and sort of monitoring yourself or going back and paying for advice when you need it. That those people are out there. So that's a good middle ground for do it yourself versus hire someone and work with them for the rest of your life. So there are resources in between. The other main areas that I find a good comprehensive financial planner or financial advisor can help with is life insurance, especially the deciding how much and what kind you might need. Um, there's always people who will sell you as much life insurance or any kind of insurance or any kind of product for that matter as you want, but deciding determining how much do you need with some objective logical method is a big deal, and that's where a true advisor or true planner versus a salesperson will show their kind of their colors because if you're just saying you need 10 times your income, you need 20 times your income, or you need three million dollars without any methodology to determine that number, uh that's less likely to be someone you want giving you advice. You want someone who's saying, Here's how we calculated this need, and um then determining the need is the biggest part because getting the insurance is not obviously you want to have the reasonable cost or least cost for the same coverage, but um, for a lot of people that need more basic term type coverage, that's not very hard to figure out, and for more complex cases, you might need a more uh educated, knowledgeable uh insurance agent. Um, but again, that's ideally going to be follow-on from the advice part. Um, I like like there's a needs analysis calculator at the lifehappens.org website, which is uh like a trade industry group of life insurance companies, but the there's a needs analysis calculator on that website that is very detailed, just the right level of detail. It gives you kind of basically asks you all about your situation, eight or ten questions, and says, here's what you probably need based on these needs. You know, you want to pay for your kids' college if you if they're still at the house, how much would your spouse or significant other need for um retirement planning? Uh how much do you want to pay off a mortgage? All these questions. How much how many assets do you already have that would reduce the need for further coverage, etc.? So that's a lifehappens.org. Same thing with long-term care insurance. Um, do you need it at all? That's some of that personal preference, or at least the decision to get it is, but a knowledgeable advisor or planner that doesn't make money by selling long-term care insurance can help you with that. Um a long-term care insurance product person, agent, that that's what they do, that's going to be harder for them to say no, you don't need this at all. Um, property and casualty insurance, less common in advisors and um, but many comprehensive financial planners will look at your property and casualty insurance uh needs and then and then refer that out or make sure your current agent uh has the right uh policy or coverage in place. And then tax planning, it should usually be a part of any well-thought-out personal finance uh system. And a comprehensive advisor or planner should at least be aware of the taxes on your investments, the taxes on your withdrawals in retirement either now or later, and depending on the complexity of your situation, how to be most tax efficient with your current income. Uh if you're if you're a W-2 uh employee, that's harder to do. If you own a business, there's a lot more flexibility there. But um if if your advisor or if a potential advisor doesn't mention taxes at all, um I think that's missing a big piece of most people's uh finances because uh taxes is often the biggest expense we have in any given year, is what we pay in federal, state, social security, etc. taxes, employment taxes. And then if you're if you do own a business, that can be a big part of how you might use an advisor or not, because if you're a lot of business owners, you have a lot of your net worth tied up in the the current and future income of the business, and so you want to make sure you're thinking through uh not just the the money you've carved off for your for investing outside the business, but the impact of the business could be way more dramatic than anything in your investing portfolio, especially early on as you build as you shift your your potential assets from in the business, and if you're you're saving outside the business, uh certainly want to take care of both sides, but I think it's easy to for advisors that focus on investments to only focus on what's outside the business without really thinking about what's in the business and is this money that's coming out is it best used there or should it be reinvested in the business? Uh tax impacts, uh etc. So those are some of the things that you'd be thinking about. How comfortable am I either doing in those uh disciplines myself? That's investing, uh, retirement planning, life insurance, long-term care insurance, property casualty potentially, tax planning, and business consulting. So if those none of those uh do you feel comfortable doing on your own, maybe looking for a comprehensive, ongoing relationship with a with a good financial advisor or planner is the way to go. If you love doing all that diving in yourself, probably don't need an advisor at all unless you want to do a sort of a one-time or every now and then flat fee consulting engagement, which you can find uh professionals that will do that. Uh, and you might do that just to validate what you're doing or see if you're missing anything. And if you're in the middle there, I think you you can work through each of those areas. And if you if you enjoy the process of learning but you're not confident in your knowledge, you know, find an expert or or some resources in each area and then make a decision on each one. Uh, as a comprehensive sort of advisor, we are going to be biased towards obviously the more holistic uh approach because that middle ground where you're hitting each part on your own, you have to be real careful that you you think through how each relates to each other. And if you're really diving in to understand things, that shouldn't be a problem, but um that could be a risk there if you're building this great uh investment plan, but you're not really thinking about the tax consequences of the plan in terms of how you're deferring money now to build up a you know a taxable account later. And so again, there's a lot of moving parts, that's why there's a lot of different professionals and some confusion about who does what. But that's a good way to kind of sort through. Do you need an advisor or a planner at all? If I can help, uh give me a shout and I'll kind of give you my uh my thoughts on which direction might be best. That do it yourself, the the the do it each part at a time, or kind of find that guide and that person you can work together in the long term to get you where you're going. Thanks.