Do I need a financial advisor? (2024)

Key points

• A financial advisor can help you identify and achieve your financial goals.
• Consider hiring an advisor if your finances are complex or you experience a major life event.
• Choose an advisor you feel comfortable with and whose expertise aligns with your needs.

Hiring a financial advisor is a big decision. Not only are you inviting a complete stranger into some of the most intimate areas of your life, but you’re paying for the privilege.

While 66% of Americans think their financial planning needs improvement, only 37% seek help from an advisor, according to Northwestern Mutual’s 2023 Planning and Progress Study.

The study also revealed how impactful a financial advisor can be, from helping clients save during the COVID-19 pandemic to making them feel like they’re on more solid ground.

Working with a financial advisor can be great, but it isn’t for everyone. Here’s how to determine if you need a financial advisor and what to look for if you do.

What does a financial advisor do?

Financial advisor isn’t a one-size-fits-all title. These professionals come from different backgrounds, offer different services and hold different credentials. But there are some common themes.

An advisor typically starts by evaluating your financial picture in relation to your goals so they can help you create a plan to reach them. They serve as a guide and confidant you can lean on for investment advice, retirement and estate planning, and countless other financial needs, from budgeting to insurance.

Above all, an advisor is a trusted partner and an investment in your overall financial well-being.

Do I need a financial advisor?

Deciding to work with a financial advisor is a personal choice. There is no set litmus test for whether you need one.

If you have investable assets, personal and financial goals, or questions about your finances, you may want to hire a financial advisor.

If it sounds like anyone with money should work with a financial advisor, that’s the gist of it, according to Kimberly Stewart, a financial advisor at Ameriprise Financial, whose personal philosophy is: “If you have money, you need a financial advisor.”

“Your finances are too important to leave to chance,” Stewart said. “Understanding money and its applications are paramount to achieving financial success.”

If you already possess that understanding and feel confident in your financial plan and ability to manage your money throughout life’s ups and downs, you may be fine on your own.

Still, you might want to engage a financial advisor for a second opinion and to ensure you’re on track to reach your goals.

At the end of the day, a financial advisor’s job is built around offering counsel and actionable guidance.

“If you’re the type of person who’d feel more confident and in control of your finances if you had someone to gut-check decisions and plans with, working with a financial advisor may be a smart move,” said Manuel Alvarez, a senior wealth advisor at Citi International Personal Bank U.S.

You may also want a financial advisor for peace of mind.

If money creates anxiety for you and you worry about your financial future, an advisor can help you understand your situation and suggest actions you can take to boost your financial confidence.

When it makes sense

Just like there’s no set litmus test for whether you need a financial advisor, there’s no definitive answer as to when you should hire one. But certain situations tend to benefit from financial advice.

Experts say it makes sense to hire a financial advisor in the following circ*mstances:

• You don’t have the time or inclination to manage your finances.
• You experience a major life event, such as a marriage, divorce, loss of a spouse, birth of a child, relocation or change in your employment status.
• Your financial situation changes, such as receiving an inheritance.
• Your financial situation becomes more serious and the cost of a financial mistake more costly.

“When we begin our careers, our finances can be comparatively simpler than when our families grow, our income grows and life becomes more complex,” said John Diehl, senior vice president of applied insights at Hartford Funds. This is when getting financial guidance can make sense.

While a major event could be the impetus for hiring a financial advisor, Alvarez recommended finding one before life gets crazy.

During busier and more stressful moments, you may feel rushed to choose an advisor and not give yourself sufficient time to vet candidates.

“As many advisors like myself can attest, it’s during those quieter times that you’re more likely to provide an accurate financial picture and, in turn, help your advisor get a clearer sense of your goals and any potential pain points and opportunities,” Alvarez said.

Then, when life gets hectic, you’ll have someone in your corner to help.

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The different types of financial advisors

Countless certifications differentiate financial advisors. This may be overwhelming as you consider hiring one.

The first step is determining your financial needs. Once you have a clear understanding of the services you want, search for advisors who specialize in those areas.

Tip: Remember that not all financial advisors are held to the fiduciary standard. Fiduciaries are legally obligated to act in their clients’ best interests. Nonfiduciaries may be held to lower or no legal standards.

Here are some common types of financial advisors.

Certified financial planner

CFPs take a holistic approach to your finances. They consider all areas of your financial life, from household budgeting to navigating major life changes and planning for the future.

Becoming a CFP is no easy feat. These professionals undergo rigorous education and training as part of the certification process. They also commit to acting as fiduciaries while providing financial advice to clients.

Investment advisor

Investment advisors, otherwise known as asset or portfolio managers, give clients advice about securities. They typically focus on investment advice but may provide other services, such as portfolio management.

Wealth manager

Like investment advisors, wealth managers help manage your investments. But their expertise can extend to other aspects of your wealth, such as retirement and estate planning and tax services.

Wealth advisors typically work with high-net-worth individuals, generally defined as those with at least $1 million in highly liquid assets.

Insurance agent or broker

Insurance agents and brokers both help clients buy insurance. But they can differ in important ways.

Insurance brokers are independent salespeople who can help you shop for policies from several providers. In contrast, captive agents work for specific providers and sell their insurance products.

Because brokers are not required to sell particular policies, you may feel more confident about their recommendations. But that doesn’t necessarily mean you should avoid captive agents, particularly if you like the products they sell. Do your research to ensure you are getting the best deal on the right products for you.

Retirement advisor

Retirement advisors guide people who are near or in retirement. They can help you transition from earning a regular income to living off your savings and with other changes when you leave the workforce. Retirement advisors are well versed in Social Security, long-term care, tax and estate planning.

Financial advisor vs. financial planner

While the terms financial advisor and financial planner are sometimes used interchangeably, they describe different types of financial professionals, each providing unique guidance.

“A financial advisor typically focuses on a specific area of your finances,” Stewart said. “Conversely, a financial planner typically helps clients with a more holistic, comprehensive approach that encompasses several aspects of one’s finances, such as budgeting, savings, investments, retirement planning, insurance planning and estate planning.”

Another potential distinction between a financial planner and a financial advisor is the compensation model:

• Financial planners are more likely to be paid a percentage of the assets they manage for you.
• Financial advisors are more likely to be paid through commissions on the products they sell you.

Understanding these points is more important than what a financial professional calls themselves.

Questions to ask a financial advisor

Once you decide to hire a financial advisor, it’s time to begin the interview process.

You may want to meet several professionals to compare their services and fees. Questions to ask before hiring a financial advisor include the following:

• What services do you offer?
• What is your investment philosophy and strategy?
• How are you compensated, and how much will it cost me to work with you?
• How will we work together?
• Do you specialize in any areas of financial planning?
• How is your business structured? Do you work as part of a team or are you a solo practitioner?
• Who will be my primary point of contact with your office, and how will we communicate?
• What is your professional background?
• What credentials do you hold?

Ultimately, while titles and certifications matter, it comes down to whether you feel comfortable working closely with the financial advisor long term. Ask yourself if you trust them and believe in their ability to manage and grow your wealth responsibly. If the answer is anything other than a resounding yes, keep looking.

Tips for choosing a financial advisor

When choosing a financial advisor, consider the following expert tips.

1. Tap your network for recommendations

Your network is a great place to begin looking for a financial advisor. It can include your friends, family, colleagues and neighbors. The best recommendations often come from people whose financial situations resemble yours or who share similar financial goals.

But don’t take a recommendation at face value. “Play the field and meet with multiple candidates to see who you mesh with,” Alvarez said.

2. Identify the factors that are most important to you

Ask yourself what you want most in a financial advisor. What would your ideal advisor be like?

You might prefer working with a financial advisor whose background is similar to yours. For instance, Alvarez speaks Spanish and finds that many of his clients whose primary language is Spanish appreciate being able to communicate that way.

3. Find someone who listens

You could be working closely with this person for decades to come, so it’s crucial that you feel comfortable with them. Ask yourself if the advisor is receptive to your personal and financial goals and confident in their ability to create a financial plan to help you achieve them.

4. Vet their background

Personality traits are important, but so are professional qualifications. “You will want to know about their background, their expertise and if they often work with clients in similar circ*mstances to yours,” Diehl said.

You can check an advisor’s credentials and disciplinary history using the Financial Industry Regulatory Authority’s BrokerCheck tool or the Securities and Exchange Commission’s Investment Advisor Public Disclosure website.

The former is often used by financial advisors working at broker-dealers, while the latter is likely where you’ll find financial planners working at investment advisory firms. If the professional isn’t listed on the first site you check, try the other.

Frequently asked questions (FAQs)