The following is a guest post. Enjoy!
The decision to hire a financial advisor is a big one – and one that shouldn’t be taken lightly. It’s a decision that is extremely personal and most people will approach it differently.
While I am not here to say whether hiring a financial advisor is a good idea or a bad idea, I am here to offer several examples that motivate people to go the professional route.
Let’s look at the list.
1 – It’s too complicated to do on your own
Just because something is easy to do, it doesn’t mean it is easy to do well. Financial planning is one of these things. On the surface it’s simple to start a financial plan. However, financial planning becomes increasingly complicated as your success evolves.
For example, contributing to a 401(k) is easy. Sign up with your company, review the mutual fund options and choose the best one for you. But understanding the planning opportunities and tax implications of net unrealized appreciation of company-owned stock in a 401(k) plan can be difficult. See what I mean… does that sentence leave you cross-eyed?
Receiving restricted stock from your employer is easy. But understanding the benefits and drawbacks of incentive stock options and how different execution strategies impact alternative minimum tax and long-term capital gain treatment is hard.
Setting up a will is easy. But equalizing the estate of a family-owned business when some family members are in the business and others aren’t is difficult.
It’s important to realize what pieces of your plan are self-manageable and what portions may need an expert’s guidance. Just because you have executed some planning doesn’t mean you have covered it all.
2 – You need a second opinion
If you are a do-it-yourselfer, it may make sense to have an expert look at your plan to confirm it’s in good order (review reason #1 for hiring a financial advisor). Even the best do-it-yourselfers can miss a strategy or idea that could benefit them dramatically.
Because of this, it may make sense to pay an expert to confirm or challenge your plan.
3 – You don’t know what you are talking about
“I haven’t looked at my investment statement in years.” “I don’t know what insurance I have.” “I have no idea how much I am contributing to my retirement.”
Comments like these may indicate you don’t understand personal financial planning. But not knowing is perfectly normal. If you’ve never been educated in the topics related to personal financial planning, why should you know?
I have said it before and I will say it again…
In my opinion the most successful people in the world know what they are good at, and more importantly they know what they aren’t good at.
What should you do when you acknowledge you are not good at something? You can spend the time and energy to learn and become an expert. Or, you can make an executive decision to delegate and bring in an expert to help.
In most situations when you don’t know what you are doing, it makes sense to delegate. Look for a professional in the industry, someone with experience and credibility. I would suggest, however, avoiding friends or family members who do investment research as a hobby.
4 – You don’t have time to do it
Most of our adult life is spent balancing the various commitments of work, family, friends and other activities. Rarely do we have ample extra time to do what we want. My guess is that when you do find free time, studying up on personal financial planning rarely bubbles to the top of your activities list.
However, you shouldn’t overlook personal financial planning. It is too important.
Developing a financial plan that coordinates your investments, insurance, estate, retirement and other goals takes time. Additionally, it takes a trained eye to stay current on changes to markets, laws and other outside factors that could affect the plan through the years. Hiring a CFP® professional also means that when life changes occur you have someone to help you update your financial plan. Becoming an expert in the required specialties, and remaining an expert, is a full time job.
Next steps
More than anything, you should be looking at your own financial plan to make sure you are “doing the right things.” For some that may mean a financial plan developed and managed by yourself. However, for the majority of people, hiring a professional to build a plan not only gets the ball rolling, but quite possibly could lead to a significantly improved outcome.
