I hope you enjoy reading this blog post.

If you need help with your retirement planning, click here to see if we're a fit.

  • Mark Fonville, CFP®

How To Know If You Need A Financial Advisor

How to know if you need a financial advisor

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:

Definitions of fiduciary, fee-only, and certified financial planner.

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.