Whether you’re 27 and starting a career or 57 and planning
for retirement, you may wonder, “Do I need to hire a financial planner?” Will
paying an adviser’s fee result in substantially better financial decisions and
fewer costly mistakes?
If you’re a diligent saver and competent investor, you may
figure there’s little reason to purchase an adviser’s services. If you don’t
know something, such as whether converting to a Roth IRA makes sense or not,
you’re comfortable researching the answer on your own.
Before you conclude you’re equipped to go it alone, ask
yourself these questions:
1. Do I need help with financial planning — or am I
looking for stock tips?
Say you’re weighing whether to buy a new home, unsure how
much to spend on it or what kind of mortgage to get. Or you’re saddled with
student loans, trying to save for your kids’ tuition and looking for tax-saving
strategies.
Advisers are well-suited to address those concerns. It’s all
part of what they call “holistic financial planning.”
“You don’t need a financial planner to tell you what the
next Tesla will be or if Apple stock will go up over the next five years,” said
Harold Pollack, co-author of “The Index Card: Why Personal Finance Doesn’t Have
to be Complicated.” “You’ll be disappointed if you expect that.”
2. Am I ready to follow this person’s advice or do I just
want to hear what I want to hear?
Some investors hire an adviser to get a stamp of approval
for what they’re already doing. They want to be able to say, “Look, this sharp
adviser didn’t tell me anything I didn’t already know.”
But if you’re genuinely eager to learn and you’re receptive
to fresh ideas, you’re more likely to enjoy a beneficial working relationship
with an adviser.
“Be ready to hear from a financial planner what may not in
that moment be stoking your ego,” said Pollack, a professor at the University
of Chicago’s Crown Family School of Social Work. “What the planner says might
be unpalatable in the moment. And that can be great” because it offers insight
you might otherwise lack.
3. Do I have the discipline to stay the course?
For many advisers, a big part of their job is hand-holding
clients during crises. For example, urging investors to “stick with the plan”
and avoid panic selling during a stock-market downturn can prove invaluable.
“Money is very emotional,” said Rishi Bharathan, chief
executive of Fairfax, Va.-based WiserAdvisor, an online firm that matches
consumers with advisers. “Most people don’t recognize that,” so unless they’re
highly disciplined and capable of controlling their emotions, they may want to
pay a financial planner to provide a voice of reason.
4. Do I have a good understanding of risk?
Soon after hiring an adviser, you might fill out a
questionnaire to assess your risk tolerance. If you’re already well-aware of
your attitude about risk — and your ability to weather large swings in your net
worth without flinching — then an adviser may not add much in the way of
portfolio construction.
On the other hand, some investors don’t know their comfort
level with risk until it’s too late. An adviser can position your portfolio to
preserve your sanity if you might otherwise feel distraught when sustaining
steep short-term losses. “Most people think they understand risk, and that can
be dangerous,” Bharathan said.
5. To what extent would access to advisers’ knowledge and
technology (to assess and manage investments) improve my financial life vs.
doing it myself?
You can go without an adviser if you possess sufficient
knowledge of financial markets, investments and other aspects of money
management from budgeting to estate planning to retirement planning. But the
real issue is how your knowledge stacks up against an adviser’s knowledge.
“Financial advisers have access to solutions and technology
that the general public does not,” said Angie Herbers, chief executive of
Herbers & Co., an independent management consultancy for advisers in
Austin, Texas.
6. Who do I know and trust — experts and friends — who
are willing to help me gain a deeper understanding of my financial life?
Even do-it-yourselfers benefit from a support network. “The
truly wealthy person will tell you that wealth is who you surround yourself
with,” Herbers said. “If you choose to do it yourself, you are simply saying,
‘I’m smarter than an expert,’ and that better-than mentality is not how the
wealthy build and sustain their money.”
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