“When should I hire a financial advisor?” is a reasonable question, and it can be a very hard one to answer.
If you listen to people online, the answer varies from, “You never need a financial advisor. You can do it all on your own” to “hire one immediately.”
Those people don’t know you, and neither do I, but here’s what I’ve seen both in my own experience as well as talking to people who have hired other financial planners. This should help you think through whether it may be time to hire a financial planner.
And to get the bias out of the way, I’ve previously written about 7 reasons you don’t need a financial advisor, but let’s talk about when you should hire a financial advisor.
Lack the Knowledge and Don’t Want to Learn
The best example of when you may want to hire a financial advisor is when you don’t have the knowledge to manage your finances and don’t want to learn.
Said another way, maybe you want to understand what’s happening, be educated along the way, but don’t want the ultimate responsibility for piecing together your financial puzzle. I find quite a few folks fall in this camp.
We have limited time. If you’d rather be hiking, playing pickleball, working, spending time with family, playing tennis, sewing, or something else, you don’t have to feel guilty for not wanting to learn about tax planning, investments, and estate planning.
I don’t feel guilty when I don’t want to watch a YouTube video about how to change a light fixture, put up drywall, or fix my toilet. I’m not a very handy person, so I’m perfectly fine hiring a professional to do it.
Could I save money learning how to do it? Absolutely!
Do I want to? Absolutely not!
If you’ve ever felt like you are missing opportunities, aren’t sure if you are doing everything right, or confused by online advice and how it pertains to your specific situation, a financial planner may be able to help.
It’s easy to get stuck in the weeds trying to learn, give up, and take no action.
The basics can be easy to learn, but tax planning, common estate planning mistakes, and figuring out how to meaningfully use your money not only for you, but your whole family — that can be a challenge.
Have the Knowledge, But Don’t Want to Spend the Time
I’ve also met people who have the knowledge, but ultimately decided they don’t want to spend the time managing their investments, staying up to date on tax legislation, and would prefer to do other things.
A good example of this in my own life is preparing our tax return. I could prepare our multiple tax returns each year, but I chose to hire an accountant.
It was like a heavy weight lifted off of my shoulders. I have the freedom to scan our documents, send them to our accountant, and then review the tax returns before she files them.
This gives me time to work in my business, play tennis, and have more time with my wife.
What’s interesting about this reason is that sometimes this happens when people end up with more time. For example, as someone retires, they theoretically have more time than they have ever had, but this is also a crucial juncture where many people choose to hire someone because they want to travel and spend time with family without worrying about their financial picture.
If you think about other aspects in your life, this could include hiring a house cleaner, going out to eat, and other areas of life where you “outsource” what you know how to do.
Even if you have the knowledge, you may reach a point where you don’t want to do it anymore.
Want a Sounding Board, Thought Partner, or Accountability Help
I rarely hear from people that they want a sounding board, thought partner, or accountability help, but it’s one of the things people often end up appreciating most.
Have a random question about something financial or maybe not even financially related and want to talk about it with someone who knows you and your family?
I get that email or phone call.
Most people who have never worked with a financial advisor think it may be limited in scope, but below are examples of conversations I’ve had:
- Is travel insurance worth it and which should I get?
- Should I give money to my kids and if so, how much?
- What’s a good way to buy a car?
- How should I think about XYZ thing happening in the world?
- Should I save money in a 529 plan, and if so, how much should I put in a 529 plan?
- How should I help my parents as they age? Should I contribute financially? How can I protect them?
- What benefits should I use at work?
- How should I take my sick leave when I retire?
- How do I rebuild my life after divorce?
- What do I need to do to make sure my child with special needs is taken care of after I’m gone?
- Where should I live in retirement?
I don’t have the answers to every question, but I do my best to provide advice when I know, research when I don’t, and ask good questions to help people reach the right answers for themselves.
Most of personal finance isn’t black and white. It falls in a grey zone.
That grey zone is where competing priorities live where there are no universally right or wrong answers. There is a spectrum of options and people need to discover what works best for them. That’s what good financial planning does for people.
If you’ve ever felt like you have a hard time sorting through financial (or other) options and thought having someone who knows you and what you value available to talk it through would be helpful, a financial planner may be able to help.
Spouse Has No Interest in Finances
People often hire financial advisors as they get older when the spouse has no interest in managing the finances.
The biggest mistake I see when people do this is trying to time hiring the financial advisor. I’ve had plenty of people reach out to me to say something along the lines of, “I’ve been managing our investments and doing our taxes for decades, but my spouse has no interest. It’s good to know someone like you is available.”
Kudos to them for identifying different options for their spouse to hire. Many people don’t do that.
The problem is that it takes years to establish a relationship and trust.
I’ve worked with folks who have hired me during a terminal illness and we had time to set things up properly, get to know one another, and build trust.
I’ve also helped pick up the pieces for widows and widowers after a spouse has died. It’s infinitely harder. They are grieving, there are usually financial accounts everywhere, and there are many things that could have been done prior to death that can’t be done after death. And those are the people who actually do reach out for help. There are plenty who don’t reach out for help because they are paralyzed by grief, different options, or for other reasons.
I’m not saying widows and widowers shouldn’t hire financial advisors. That can be a great time.
An even better time is years before you need it. Give the financial planner time to strategize, help simplify things, and establish a relationship.
In a perfect world, you’d know when you die and could set things up for that date. But, we don’t live in a perfect world.
It’s like people who want to live in their home for as long as possible as they age. The people who move to a more supported living environment sooner often have far better outcomes and quality of life than people who drag their feet until they are hospitalized and can never go home again.
If your spouse has no interest in finances, I’d encourage you to at the very least, identify people they could reach out to if something happened to you. Even better, if you are in your 70s, consider hiring someone to make sure the relationship is a good fit and they have time to begin working together.
Cognitive Impairment and Aging
Another situation where hiring a financial advisor can make sense is before or right as cognitive impairment begins.
Like anything else, I wish I could tell you the exact day that will happen, so you can be prepared. Unfortunately, it varies for every person. Some go a lifetime with a sharp mind. Others start seeing issues in their 60s.
It’s estimated that “approximately two out of three Americans experience some level of cognitive impairment at an average age of approximately 70 years.” In other words, your 70s is likely a good time to start getting help with your finances. That could be in the form of a financial advisor, family member, or friend.
I’ve personally seen people start to make riskier investment decisions, not pay bills, and make other financial decisions they would have never made in the past — even with the most financially sound people.
While a financial advisor can’t guarantee they can prevent you from making poor financial decisions (after all, it’s still your money), they can put a plan in place, get introduced to family, and become a trusted part of your team. That can help prevent severe mistakes because the advisor can be the first call when someone is confused, agitated about finances, or attempting to make a large withdrawal.
Yes, financial advisors have a cost, and many people are resistant to it. I’ve also seen people make mistakes due to cognitive impairment that would pay an advisor’s fee many times over.
Major Life Transition (Retirement, Birth, Inheritance, Equity Compensation)
Another ideal time to hire a financial advisor is before a major life transition, which could be retirement, a birth in the family, receiving an inheritance, or receiving equity compensation.
You may be sensing a theme that it’s important to hire an advisor before something major happens. That’s when the best planning tends to take place. It’s okay to hire someone during the transition, but if you are farther along in the transition, you may have fewer options.
For example, when someone retires, we can look at how best to take sick leave payouts, when to do Roth conversions, and how to manage a 0% long-term capital gains tax bracket. If you’ve already been retired a few years, there may have been missed opportunities. I’ve seen situations where people could have recognized $100,000 or more of income and pay zero in additional taxes.
When people are having children, it’s important to talk about life insurance, estate planning, and 529 plans.
When people are receiving an inheritance, it’s critical to talk about increasing insurance coverage (auto, home, and umbrella), do tax planning, and map out how to use the money for their ideal life.
When people are receiving equity compensation, it’s vital to check tax withholdings, make a plan for diversification (or make a conscious decision to stay concentrated), and model a path to retirement.
As a former mentor one told someone sitting across the table, “You get the chance to retire once. I get to help people do it everyday.”
During a major life transition, it’s helpful to have an expert talk you through your options, take care of the parts you don’t feel comfortable doing or don’t want to do, and help you plan the best course of action for you.
Make Poor Investment Decisions and/or Try To Avoid Market Downturns
The people who should be hiring financial advisors are people who make poor investment decisions and/or try to avoid market downturns (i.e. market timing).
Unfortunately, in my experience, they often talk up their wins, downplay their losses, and rarely hire a financial planner. Or, they hire someone after recognizing the need, but often fire them during the next market downturn thinking it was preventable and they should have “gotten out of the market in time.”
If you know you struggle with market declines or chase whatever investment has been in the news recently, I’d urge you to work not only with a financial advisor, but potentially a therapist.
Usually, the problems are not only money related. It’s often deeper.
When is the Ideal Time to Hire a Financial Advisor?
As you likely know by now, waiting until the big transition or change happens in your life is less than ideal.
The ideal time is to hire someone before a change, as it becomes apparent that it’s happening, or as soon as you know.
I often have prospective clients reach out to me in December asking if we can do tax planning before the end of the year. More often than not, I have to turn them away or tell them we can start the next year. It’s not simply plugging some numbers into a software.
We have to have an initial meeting to make sure we are both a good fit for each other, agree to move forward, start to build a retirement plan, model different scenarios, look at existing investments, open accounts, start transfers, decide on an investment transition plan, and then start to talk about tax planning and other financial planning items.
It usually takes a few weeks at minimum to get through the initial onboarding process. And that’s just talking about the administrative items.
In the case of cognitive impairment, it’s harder to build a relationship during cognitive decline. For widows or widowers, trying to hire someone while grieving is very hard.
I’ve worked with someone who hired me shortly after being diagnosed with cancer. I’ve also worked with someone who hired me after their spouse passed away.
The first person had a much smoother transition when their spouse died.
The second person felt guilty about hiring me (their late spouse would have never hired a financial advisor), it took a lot more time consolidating financial accounts, and every single thing that had to get done felt like it took four times as long.
My best advice is not to wait until you are inside of the major life event. If you can, do it before. It’s not always possible, but in my experience, people often know there is a possibility for change before it actually happens.
Trying to find the right financial advisor during that transition is much more challenging, and sometimes not possible.
Final Thoughts – My Question for You
Hiring a financial advisor is a big step.
Trying to find someone who offers the services you need and with whom you’d enjoy a working relationship takes time. The first person you choose may not be the best long-term fit. That’s why it’s important to establish a relationship early.
As you evaluate your own financial life, consider whether you have the knowledge to do a good job, ask yourself whether you want to do it, how involved your spouse is in the finances, if there is a major transition on the horizon where it would be beneficial to have expert help, and if cognitive impairment may be an issue in the near future.
I’ll leave you with one question to act on.
When will you hire a financial planner?
