Are you thinking about getting professional financial advice? How do you know if you need a financial advisor in the first place?
The answer isn't always black and white.
After all, it takes time to find a financial advisor who has the competence, integrity, and communication skills you need.
Good financial advisors also cost money. Some are compensated directly by their clients in the form of hourly fees, fixed fees or even flat fees based on a retainer model. Others are compensated via commissions or simply charge on a percentage of the investments they manage on your behalf.
For example, at Covenant Wealth Advisors we charge a fixed fee of $2,500 to $3,500 for a comprehensive financial plan for retirement. We charge between 0.40% to 1.25% per year on the investments we manage. This is called an AUM fee.
But, investment management fees can differ across advisors as we see in the chart below from Kitces.com:
But every advisor is different.
To make matters more complicated, financial professionals can provide a lot of different financial services including:
Developing a personalized plan to help you toward your financial goals.
Provide investment portfolio advice that includes mutual funds, stocks, or bonds.
Estate planning and life insurance strategies to help ensure your assets transition to your heirs the way you intend.
Budgeting to help you gain control of your cashflows.
Tax planning to help reduce taxes now and in the future.
Investment management to help grow, preserve, and utilize your investments.
Create a retirement income plan that takes into account social security decisions, pensions, and other sources of income.
Then, you have to make sense of industry jargon. You'll see words like Certified Financial Planner (CFP), fiduciary standard, and fee-only posted to advisor websites.
We even use the same terms on our website:
Now, you might be thinking, "wow, that's a little to consider! Maybe it's not even worth it."
The good news is that financial advisors have the potential to add a lot of value.
Vanguard, one of the world's largest investment firms, has been studying the value provided by advisors for years. Based on their study, advisors may add 3% or more of return to your investment portfolio.
A 2020 study by Russell Investments concludes that advisor's may add 2.88% in return per year.
Better returns can be an enticing reason to work with a financial advisor, but there are many more reasons to consider including peace of mind, financial security, and clarity going forward.
The first step in your journey is to determine if you need to hire a financial advisor in the first place.
Here's four signs to help you determine if you need a financial advisor.
1. You only focus on the small pieces, not the big picture.
It’s not uncommon to find individual aspects of financial planning to be straightforward.
Saving money in a 401k, buying insurance, and creating a budget on their own aren’t complicated.
However, by themselves, they don’t constitute a financial plan.
A financial plan is an amalgamation of your financial needs and unique lifestyle considerations.
Someone with a goal to retire early will require a different savings strategy than someone who wants to work in their golden years, for example.
Financial planning isn’t just about mastering the individual pieces, it’s about harnessing your resources to enhance and enrich your life.
While you know you need to save money and contribute to your 401(k), you might not be able to create a lucrative strategy to withdraw those funds in retirement, understand how those withdrawals affect your tax liabilities and know the way your 401(k) interacts with your other savings vehicles—all of which impact your daily life. Each of these pieces fit together to bring about your ideal retirement lifestyle.
In financial planning, everything is connected.
Each decision you make has an impact on another area, making it crucial to evaluate how each piece influences the others.
Let’s say your dream retirement location requires an out-of-state move. That move ripples into your daily life, your new state’s tax requirements, proximity to your children and loved ones, estate and inheritance laws, and so much more.
If you aren’t familiar with these nuances, it’s easy to miss something.
The adage “You don’t know what you don’t know” certainly applies here. Blind spots can pop up at any time and without an objective perspective, can easily snowball into costly mistakes.
A properly trained and experienced financial advisor can help you see these blind spots, create a coordinated plan, and help you monitor it to make adjustments as needed.
If you keep questioning yourself or losing sleep over whether you are doing the right thing, it may be time to hire an expert.
2. You don't have a clear retirement plan.
There’s a lot more to having a successful retirement than deciding to not go back to work.
Though you likely know that much, have you taken the time to think through and plan for all the necessary components of a well-crafted retirement plan?
Retirement planning is a complex process. From cash flow to lifestyle to healthcare to taxes and more, a robust retirement plan can help you feel confident and secure as you prepare for and move through your golden years.
In the chart below, you can see different expenses and goals to consider when developing financial cash flows for retirement.
An advisor can help you structure a plan that supports your lifestyle needs and can give you the tools to prepare for them.
One of the most important decisions you’ll have to make concerning retirement is choosing how to withdraw from your savings to cover your spending needs.
Which accounts should you tap first for income in retirement?
Conventional wisdom says to tap your taxable brokerage accounts first, but we've found that this rarely makes sense.
A thoughtful approach to retirement withdrawals can allow you to spend more, pay less in taxes, and even add years to the length of time your savings will last. Considering how drastic it would be to run out of money in retirement, that one benefit alone would make it worth having an effective withdrawal strategy.
If you are retiring before 65, how will you pay for healthcare until you qualify for Medicare?
There are strategies available that can nearly eliminate your healthcare premiums but, you must plan to make sure it's done right.
3. You're paying too much on your tax bill.
The catch here, of course, is knowing if you are paying too much in the first place.
We are passionate about being tax-savvy at Covenant Wealth Advisors, and there are potentially numerous recommendations we can make to help you save money on your tax bill.
Proactive tax planning touches nearly every aspect of your financial life from saving to investing to withdrawals and more. High-earners can particularly benefit from a strong tax strategy.
If you are in your 50s, it's important to start building a game plan to have control over your taxes when you retire. This goes beyond simply maximizing deductions on your annual return and more to thinking about the multi-year tax consequences of how you position your retirement savings.
How you spread your savings across 401(k), Traditional IRA, Roth IRA, Trust, or brokerage accounts matters from a tax standpoint. Getting advice on the best location for your investments can potentially save tens of thousands of dollars in taxes long-term.
For example, it sometimes makes sense to intentionally increase your tax bill in one year so that you can lower it even more in future years.
Roth conversions can be a powerful strategy to help reduce taxes in the future. Partial Roth conversions can also be used to give you the lowest average tax rate possible.
4. You're navigating life transitions.
Life is full of changes.
We are continually growing and evolving, and changes in your personal life often affect those in your financial life and vise versa.
What makes these transitions complicated from a financial planning perspective is that you often only experience them once, so you don’t have any prior experience to draw from.
Financial planners are especially helpful in times of change, such as moving into retirement, receiving an inheritance, building an estate plan, marriage, or divorce.
This is particularly true if you work with one that focuses on your specific matter since not all financial planners are the same. There are unique financial considerations in all of these moments, and the right planner can help walk you through your options to help you make the best financial and personal choices.
These changes are sometimes unexpected and can be overwhelming, such as losing a spouse.
Without your spouse, you’ll have to take the lead on your finances, a task that can be even more overwhelming when compounded by grief.
A financial planner could be a comforting and stable resource to help you take control because while it might be your first time undergoing this challenge, your advisor has likely had years of experience serving people just like you.
Understanding whether or not you need a financial advisor isn't always easy.
But, working with a financial advisor is a great way to bring structure, balance, purpose, and intention to your financial life.
The best financial advisors should be able to help you craft a plan that makes the most of your resources to live a meaningful and fulfilling life.
Our team at Covenant Wealth Advisors specializes in helping individuals age 50 plus who have over $1 million in investments and retirement savings. As a registered investment advisor, we are gladly serve as a fiduciary. This means that we are required by law to put your interests ahead of our own, all the time. As a fee-only advisor, we never receive commissions which can reduce conflicts of interest.
If you are anxious about retirement, have questions about how to make your money last, or simply want financial peace of mind, give us a call. We help clients all over the United States using Zoom video conferencing.
If you’d like to learn more about how we can help you with your finances, set up a call today.
About Mark Fonville, CFP®
He is the President of Covenant Wealth Advisors and a Certified Financial Planner professional specializing in retirement income planning, tax planning, and investment management. Mark has been featured in the New York Times, Kiplinger Magazine, and the Chicago Tribune. Mark's company is the #1 fastest growing company in Richmond, VA and maintains a 50:1 client to advisor ratio.
Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.