Do You Need a Financial Advisor?

Back when life was simpler, your grandfather earned a pension and was set for life. Now many of us are on our own to manage our financial futures. A financial advisor could be a useful addition to your handling-life toolbox. But do you really need one?

Just want to get organized?

Do you know where you money is going every month? Are you focused only on today instead of also on tomorrow? You may not need a financial advisor. Try getting a money management software or online service. I searched for online money tracking software and found seven different prospects on the first page. Money-management software helps you organize your daily financial life. You might start with searching for advice on how to select the software. An online search for “how to choose financial software” is a good start.

Have you lost faith and want to hunker down?

If you think the stock market is legalized gambling and the country is going to pot, perhaps you want to only invest in cash or real estate or other hard assets. Financial advisors are not economists or futurists. If you are not interested in at least a diversified investment plan, then a financial advisor is not for you. Just keep in mind that you can lose money in hard assets just as easily as you can in the more liquid investments such as stocks and bonds. And we all know what kind of returns we can expect from cash investments.

Have you assembled your investment accounts without a grand plan?

In my work with divorcing couples, the most troublesome portfolios are the ones that are unfocused. When several investment accounts have been opened without a guiding plan, your investment portfolio is without focus. You need focus to get where you want to go. Simple is focused. Simple is easier to monitor and to understand. Do you have a small account that you opened back when you wanted to help out your cousin’s child when she got her first banking job? Are you an account holder at more than two investment companies? If you want to reach your retirement dreams, you may need to tidy up and simplify.

A financial advisor can look at your portfolio like a radiologist reads an X-ray. He or she can review your situation for risks and returns, redundancies, excessive fee costs and tax efficiencies. You can benefit from this forest-for-the-trees analysis.

Do you want to set a limit on helping family members?

Financial advisors regularly deal with family situations such as divorce, inheritance issues, jealous relatives and family-owned businesses. Maybe you just want to help some family members with college costs or health-care expenses. Whatever your situation, get advice and guidance from a financial advisor. Find out how best to set up accounts that will help you to help others without being tapped as the endlessly deep pocket.

Financial Planner or Investment Advisor?

Before you consider looking for help, you need to understand the difference between a financial planner and an investment advisor. Think of this like your general practitioner doctor versus your specialist. Your GP monitors your overall health and identifies isolated problem areas. Your specialist — such as a cardiologist or an oncologist — is focused on the specific problem area.

A financial planner can advise on such things as how much you can afford to spend on a house or a car, when to start taking Social Security, and whether you are saving enough to travel a lot during your eventual retirement. Look for these advisors to have credentials such as CFP® (Certified Financial Planner) and/or CPA/PFS (Certified Public Accountant and Personal Financial Specialist).

Investment advisors can help choose specific investments for your portfolio. You can expect investment advisors to recommend, monitor and rebalance investments in accordance with a documented investment policy. They harvest gains and tax losses when appropriate. These advisors can have the same credentials as the financial planners, but also having a CFA (Chartered Financial Analyst) is a significant plus.

Which one should you hire?

Here’s where you need to do some of your own analysis. Before you hire an advisor, be sure you really understand what they can do for you and what you want from this professional. In the first meeting with my clients, I seek to understand how they want their lives to be different after having worked with me. Ask yourself that same question regarding a financial planner. This will help you set your goals. Interview more than one advisor and ask each one the same questions. You are looking for expertise as well as a sense of “click.” You want to feel comfortable with this person.

Questions to Ask
Be sure to ask every advisor the same questions. With this method, you can more readily compare them. Ask questions such as:

• What services do you offer?
• What are your other clients like?
• What are your qualifications?
• How are you compensated?

If you would like to know what kind of answers you should get for these and other questions, send me an email at stewart@TexasDivorceCPA.com. I will send you a copy of one of my earlier 50 PLUS columns, Buyer Beware: Choosing a Financial Advisor.