When Do I Need to Hire a Financial Advisor?


Brett Pechersky


April 27, 2021

To save you some reading: the sooner the better. Life, however, is not that simple, and there are many ways in which your financial situation differs from that of your neighbor, your best friend, your boss or your employees. Not everyone needs to shop around for financial advisors, and, certainly, not everyone would have the investment capital to be able to secure a meeting. But for those of you who have, or expect to have, a major change in your life—a new house, a marriage, a child, an inheritance—talking to someone can help you find your best path to monetary success

First up, some good news: people are living longer than ever before. Technology has improved our way of life and our healthcare system to such a degree that we now face a new challenge. Running out of money during retirement. Of course, this is not the case for everyone, nor do many of you younger readers really need or want to worry about that right now. Chances are, you have a lot of other things to worry about, and growing old is not on that list. What might be, are the rising costs of healthcare. Or the student debt that you’ve been paying down for years. Octogenarian you won’t have a chance to retire in the first place if those debts keep mounting.

So where should you begin? Our advice is to start saving now, no matter where that money is going. Not only does saving early build strong habits, it promotes long-term success in the form of compound interest [link to blog post: 2020 Personal Finance to do list] and overall wealth. So whether you put $20 into a savings account at your bank every month, $1,000 into your E-Trade account or a chunk of your paycheck into a 401k, starting is the most important thing you can do right now. 

What are your options?


Sidelining the easiest answer (do nothing, and hope your 401k does well), the newest addition to the financial planning market is the robo-advisor. Robo-advisors grew out of software that has been used by financial advisors since the early 2000’s. Basically, they are online platforms that use algorithm models to trade securities. Because they are computers, they can trade almost instantaneously, and without the overhead of a salaried worker. 

Robo-advisors are a good option to those of you who are just starting out. By using a survey to gage your financial situation and risk tolerance, they can build a points-based picture of “you”. Because there are few humans involved, their commissions are low (between 0.2 – 0.5%), as are start up costs. Many robo-advisories don’t require a minimum balance to open an account, so for those with little to invest, they are a very good option. 

Due to their trading models, they work extremely well with lump sums of money, and can show promising returns on your investments. Just as with their human counterparts, these automated traders must meet the same SEC standards, and receive all of the same “qualifications”. As they have gotten more sophisticated, robo-advisors have shifted into other streams of investment and planning, and may eventually be able to accomplish complex tasks like tax planning, estate preservation and retirement decision making. 

In-Person Financial Planning

If robots aren’t your speed, there are plenty of options that provide a more human approach to financial planning. Principally, asset managers and wealth managers. The main difference between these is the scope of work they provide. Asset managers typically oversee investment accounts and portfolios. Wealth management entails everything to do with your money. From life insurance, to 401k’s, estate conservation, debt consolidation, homebuying, brokerage accounts and retirement planning, a good wealth manager [link to services page] will basically handle everything you throw at them. 

The differences go beyond the types of accounts they handle. Some asset managers at large brokerages, or the folks behind the counter at your local bank that offer “free” advice, get compensated very differently than wealth managers. Many are employed on the basis of commission, so the more “X” they sell you, the more they put into their pockets. This isn’t necessarily the case for all asset managers, brokers, banks, etc., but it is certainly something that’s worth asking about before plopping your savings in another person’s lap. Even if the product that they’re selling is good, diversification is a key part of building a financial plan.

Along these same lines, transparency is another reason one might decide to invest their money in a more-personal approach. Wealth managers typically charge a flat rate based on the amount of money that their clients invest with them. As a percentage of total assets under management, rather than how many of Product A, Product B and Widget X they sell you. While this can be more costly than a robo-advisor, at least these contractual fee structures don’t incentivise the sale of subpar products, or service. If you’re making money, your wealth manager is making money, and vice versa. 

Pros and Cons

Most notably, the biggest (and perhaps only) downside to hiring and meeting with a wealth manager is the cost associated with the services. If the typical robo-advisor charges between 0.2 – 0.5%, the average fee incurred by handing your assets over to a person lands in the 1 – 2% range. For many people, those 50 extra basis points are worth taking the time to do their own trading. There are also higher barriers to entry. As mentioned above, a wealth or asset manager won’t typically accept very low sums of money, so if you only have a few hundred, or even a few thousand, finding someone to manage your money full time might not be feasible for you.

Many robo-advisors also claim to have a speed advantage over traditional brokers. While, yes, a robo-advisor’s algorithms can trade much faster than a human could, brokers have been, and continue to use these same computer-based technologies to manage your investments. So if speed is your only concern, there isn’t much of a difference between a traditional advisor and robots.

As far as the idea of cost is concerned, those who prefer to do their own investing, or get more involved in day trading and shopping around, one of the biggest pros of having another person manage your investments is diversity. Sure, you might save $500/year on each $100,000 of invested capital; that’s not an insignificant sum of money. But with another set of eyes (and in the case of advisories with teams, many more sets), the cost of spotting an opportunity, or missing a market downturn, will typically be a lot higher. Afterall, you can only track the market so much before you run out of time. Giving up those extra 50 – 100 basis points might be worth it to have another few hundred hours of watchful eyes scanning on your behalf.

Taking that further, a financial advisor will be impartial to your situation. With the amount of experience on their side, chances are, many have seen a position like yours, and have seen similar things play out in a variety of ways. Divorce, mortgage refi’s and debt reduction are all common services, so having someone experienced in these areas can greatly broaden your outlook. Sometimes, it’s just nice to know that you’re not doing it alone. 

The personal touch cannot be overstated, here. Not only will you have someone to lead you through the difficult processes of the aforementioned hurdles, but the peace of mind to know that, somewhere, someone else is looking out for your best interest. Robo-advisors are adept at what they do, but for some, a dedicated person adds an invaluable peace of mind.

Circling back to robo-advisors, there are limits to their capabilities and services. Yes, some have begun to study tax avoidance and estate planning by collecting massive amounts of worldwide data, but will the decisions made be valid for your situation? They absolutely might be. That being said, the ability to discuss the intricacies of your financials with a person who can give you both feedback, and local, experiential advice may be a massive relief during times of heightened stress.

The more detailed and varied your financial picture becomes, the more robo-advisors begin to fall short. Wealth managers employ teams of people who are experts in their field, and who have local experience in life insurance, investments, estate planning and more. As you continue on in your financial journey, you will undoubtedly pick up a variety of vehicles and accounts that suit the specific purposes for which they were designed. The farther you progress, the more complicated your financial picture becomes, and the more managing it on your own becomes a drain on your time.

When is it Time to Hire a Financial Advisor

“When” because, at some point, most of you will seek outside advice on your investments. So the question shifts from “why do I need one?” to an inevitable measurement of time. As mentioned above, if you’re young and only have a single mortgage, a 401k and an investment account, you probably don’t need to rush out and hire someone. But if you’re planning on taking your relationship to the next step, having kids or have recently experienced a loss, maybe it’s time to take a look. 

Expanding on the life changes category, sometimes it makes sense, sometimes less so. Truthfully, only you know how well-equipped you are to handle your next step, so ask yourself the following: 

Have I ever gone through this before?

Do I know anything about this topic?

Can I spare the time to thoroughly research it?

Do I know anyone with first hand experience?

Is the money I can save by doing this myself worth it?

If you answered “no” to any of these, maybe it is time to start your search . Of course there are many more questions, many unanswerable, that go into the decision of tying your future to another person, but this is a good baseline to gage your position.

Just as the robo-advisor solution becomes more and more tenuous the more complex your finances become, so does doing it yourself. Chances are, if you’ve managed to accrue a handful of assets, you’ve managed to increase your earnings potential. This ties immediately back to asking yourself whether you’re actually saving money by going solo. What is your hourly rate? Can you “afford” to hire yourself to do the work? 

Maybe you’ve just had your first child and made the mistake of checking the average college tuition in your state ($22,794/year in PA). Or thought about how important your salary and ability to earn for 30 more years is to their prosperity. Beyond life insurance, perhaps it makes more sense to name them as a beneficiary of a trust. 

Perhaps as a first-generation college student with no more college debt,  you see that your parents are finally on their way out of the job market. College costs might be soaring, but not even those can keep up with the high prices of assisted living and retirement homes. The burden of care is a heavy one that can feel both constricting and impossible to manage.

Whatever the case, change can seem immense the closer you are to it. With time and the confidence gained with experience, those once-massive impediments shrink down to size. Getting someone to help, or even talking-through tough questions can help to put these things in perspective, so that you can deal with them now, instead of wishing that you had done things differently as you move away from them. 

Not everyone requires a full-time financial advisor. It would be foolish for anyone to suggest that. But for those people who have either grown too complex a menagerie of financial instrumentation, or for those who have recently encountered a major life event, it might be well worth looking into


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