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Key takeaways:
- Almost everyone can benefit from working with a financial professional; here are 15 times when it makes the most sense.
- A financial professional is not a stockbroker; they can help with everything from planning to portfolio management.
- Don’t be afraid to ask how your financial professional is compensated, then choose someone with a fee arrangement that best fits your needs.
Who needs a financial professional? You might be surprised.
A financial professional is someone who helps you work towards growing your wealth using investments, retirement planning, and strategic decision-making. They can help you pursue your goals by learning what’s important to you, then designing a plan that aligns with your needs, risk tolerance, and timeline. Once your plan is put into action, a good financial professional will continue to check in regularly to make sure you stay on track.
Many people make the mistake of thinking they can’t afford a financial professional, or they can manage their money on their own. However, it takes a lot of time, effort, and knowledge of the financial industry to make sure your money is working at its fullest potential. Plus, a financial professional can help you avoid common financial pitfalls, such as delaying good decisions or prolonging bad ones.
Most importantly, a financial professional helps you avoid emotional decision-making. With their personalized guidance, you can rely on data to make informed decisions about your financial future.
15 Times when you need a financial professional
While anyone can benefit, a financial professional will help the most when you are facing changes in your life, when you need help making important financial decisions, or when you are working toward a specific financial goal.
Here are some situations when a financial professional can help :
- Planning for your retirement
- Deciding whether to consolidate 401(k)s, IRAs, and other retirement accounts
- Choosing when to start taking Social Security
- Deciding whether to take an early retirement buyout package or a pension
- Exercising stock options
- Getting married or divorced
- Having a baby or adopting a child
- Saving for your child's college education
- Deciding what to do with the proceeds after selling a home or business
- Changing jobs or careers
- Developing a plan to pass investment or retirement assets on to heirs
- Managing money such as an inheritance
- Deciding whether to pay off your mortgage
- Helping your parents manage their finances as they get older
- Getting a second opinion or advice on a specific money matter
Regardless of whether you’re just starting out or getting ready to retire, a financial professional can help you make objective, informed decisions.
How a financial professional can help
The beauty of working with a financial professional is that you have lots of options. Here are examples of ways a financial professional can help you:
- Develop a plan to work toward your goals, such as planning a sustainable retirement, protecting your assets with insurance strategies, managing the effects of taxes, and more. Planning gives you a roadmap and helps you avoid overreacting to market swings or worse—being so overwhelmed that you do nothing.
- Manage risk by consolidating investment accounts to give you better control and a clearer picture of your asset allocation.
- Track and modify your investments and diversify your portfolio to help manage volatility, ensuring that your money is set up to fit both your goals and your timeframe.
- Evaluate options, look at ‘what if’ scenarios, and review possible investment performance outcomes.
Common misconceptions about financial professionals
You probably have questions about beginning a relationship with a financial professional. Here are some of the most common misunderstandings people have.
1. Most people don’t need a financial professional.
While you certainly could manage your money yourself, the financial world is complicated and getting more so every day. A financial professional can help you protect your money while putting it to work for you.
2. Financial professionals are only for wealthy people.
While some financial professionals specialize in clients with high net worth, many more are focused on people with everyday needs—planning for retirement, saving for college, or working towards other goals. When you interview financial professionals, be sure to look for one who fits your specific needs.
3. Financial professionals are all the same.
There are many types of financial professionals. Some specialize in specific products like insurance, while others focus on broader issues such as retirement planning. Wealth managers consider tax and estate planning, charitable giving, insurance, and more. Take time to choose a financial professional who is best suited to your goals.
4. Financial professionals are only needed for developing financial plans.
While a strategic plan provides a good roadmap for decision-making, you can consult a financial professional to help you with specific decisions, such as a what to do with an old retirement plan or to how to invest an inheritance.
5. A financial professional won’t act in my best interest.
The Securities and Exchange Commission (SEC) Regulation Best Interest (Reg BI) requires that they act in the best interest of their client., and laws require that a financial professional tell you about any potential conflicts of interest they have with their recommendations. Financial professionals must also disclose if and how they get compensated when they make an investment recommendation.
6. Financial professionals are too expensive.
Certainly, financial professionals get paid for the service they provide, but the value they add often more than pays for the cost. For example, the implementation of the SECURE Act, which went into effect in 2020, is having a big impact on retirement and estate planning. While you may not know how those changes will impact you, a financial professional does and can walk you through your options.
How does a financial professional make money?
Everyone—those looking for a financial professional as well as those who already have one—should understand how a financial professional is compensated. While specifics vary, there are generally two types of fee structures:
- Fee-only: These financial professionals don’t sell products or accept commissions. Fees can be charged in several ways. The most common is where fees are charged as a percentage of the assets managed, which means that as your assets grow, your financial professional is paid more. A fee-only financial professional can also charge a fixed annual retainer or even an hourly rate.
- Fee-based: This blends the fee-only arrangement with the ability for the financial professional to receive a commission on the products (mutual funds, insurance, etc.) that you purchase through them. This commission is often, but not always, paid by the company offering the products.
Don’t be afraid to ask how your financial professional is compensated and consider how the fees you pay will be offset by the benefit your financial professional provides.
Is a financial professional worth it?
While it depends on your situation, most people who use a financial professional say the value they receive is worth it, for several reasons:
- Developing a plan with a financial professional gives you confidence in your roadmap to your financial future.
- Financial professionals help you stay on track, manage your asset allocation, reduce your tax liability, and make sure your retirement expenses are sustainable.
- Money management can be time-consuming and complicated. Working with a trained financial professional can help you avoid costly mistakes.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Asset allocation does not ensure a profit or protect against a loss.
