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Should I use a financial advisor or do it myself?

When you have financial goals you're working toward—whether those include buying a home, paying off non-mortgage debt, or saving for retirement—creating a plan for getting there can be daunting. Working with a financial advisor can offer some advantages as you shape your personal money management strategy.

But when is it better to work with a financial advisor versus taking a DIY approach? How much will a financial advisor cost, and does hiring one make sense if you haven't accumulated many assets yet? Getting answers to these kinds of questions can help you determine whether working with a financial advisor is the right move.

What Is a Financial Advisor and What Do They Do?

In simple terms, a financial advisor is someone who offers financial advice or services to their clients. The scope of advice you might receive from a financial advisor can include:

  • Budgeting
  • Saving and investing
  • Retirement planning
  • College planning
  • Estate planning
  • Tax management
  • Long-term care planning
  • Insurance planning

Financial advisors work with their clients to help them establish realistic financial goals and then formulate an actionable plan for reaching those goals.

When Is It Time to Hire a Financial Advisor?

The simple answer to this question is that you need a financial advisor when you’re considering implementing a plan that can last across all stage of your life.  The more detailed answer requires you to consider a few questions, such as:

  • Do I need a certain amount of assets or income to hire an advisor?
  • What do I need an advisor to help me with?
  • How much can I afford to pay an advisor for their services?

Financial advisors may have certain criteria that they require new clients to meet as a condition of working with them. For example, an advisor may expect you to have $50,000, $100,000, or $500,000 in assets at a minimum. Or they may look at your total net worth, which is your total number of assets minus liabilities, to decide.

If you have less than $100,000 in assets, that may narrow the list of potential advisors you may be able to work with. So you'll likely need to do some comparison shopping to find an advisor that meets your needs in that respect.

Consider What You Need an Advisor to Do

As mentioned, financial advisors can take a broad approach to help you craft a financial plan. But it's important to consider any specific issues or challenges that would make hiring a financial advisor a better option than trying to manage your finances on your own.

For example, using a financial advisor could make sense if you:

  • Want to implement a budget plan.
  • Need help paying off student loans, credit cards, or other debt.
  • Experience a major life change, such as getting married or having a child.
  • Want to get started with retirement planning.

In some cases, the decision to hire a financial advisor can be motivated by things other than your financial situation. If you just don't have time or you'd rather rely on a professional's advice for managing finances because you feel lost, then a financial advisor could take the burden off your shoulders.

How Much Do Financial Advisors Cost?

Hiring a financial advisor means paying their fees, and it's important to understand how and what they're paid.

Financial advisors can take different approaches to their fees. For example, advisors may charge:

  • A flat hourly rate for their services.
  • An annual retainer for helping to manage your financial plan.
  • A flat percentage of assets under management.
  • A commission based on the products selected for investment. 

The percentage of assets under management model is typical, and the average advisor fee is around 2%. For example, if you have $50,000 in assets to manage, you'd pay an annual fee of $500 to your advisor.

If you're just starting on the path to building wealth and you still have debt to pay off, you'd need to consider what kind of fees you're comfortable paying. A digital or online tool, like our Digital Advice solution may be preferable, as they can cost a fraction of what you might pay a traditional advisor. But the trade-off is that you lose the personal touch that a human advisor can offer.

One more thing to note concerning financial advisor fees: consider whether an advisor is fee-only or fee-based. Fee-only advisors only make money on the fees they charge, while fee-based advisors can earn commissions from the products they sell.

Hiring a Financial Advisor: Next Steps

For many people, the sooner they begin working with a financial advisor, the sooner they can begin making progress toward their financial goals. Before hiring an advisor, first consider whether it's necessary and affordable, based on your financial situation.

If you've determined that you could benefit from an advisor's expertise and you have room in your budget to pay their fees, you can begin your search for the right one. Starting with your bank can be helpful, as it may offer advisory services. You can also search for advisors online.

When vetting potential advisors, be sure to ask questions about the services they offer, how they're paid, and the type of clients they typically work with. It's also good to ask if they're a fiduciary. Researching advisors can take a little time, but it can be time well spent if you're able to connect with the right professional for your needs.

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