Why People Who Use a Financial Advisor Do Better Than Those Who Don’t

According to recent consumer data, 57% of Americans do not work with a financial advisor. In comparison, the percentage of those who do is as low as 37%. Money is one of the reasons for not hiring a financial advisor. Most investors assume that the money spent on hiring a professional can easily be used for investing more. Some others have reported a lack of time to find a financial advisor in their area. Many also feel that scheduling meetings with the advisor and following up can be strenuous and come in the way of their hectic schedules. However, the benefits of hiring a financial advisor easily overpower these hassles. 

When hiring a financial advisor, looking at the bigger picture is essential. Even though you pay them a fee or commission right now, you also stand to gain a lot more in the long run with professional advice on your side. Further, the hassles of finding the time or scheduling meetings are more or less removed in the current times. Online meetings, and catching up over messages, emails, mobile apps, and more have considerably simplified things. Today, you can hire a professional financial advisor from home, have meetings on your way to the office, and track your investments on your mobile while in the gym.

If you are still mulling over what to do, here are some things to know about a financial advisor and what the professional can bring to the table.

What does a financial advisor do?

A financial advisor helps individuals or organizations plan for their financial future by providing guidance on matters such as investments, tax, insurance, and retirement. They work with clients to develop a financial plan that includes setting financial goals, deciding an investment budget and savings rate, analyzing their current financial situation, and recommending strategies for achieving their objectives. Financial advisors also offer wealth enhancement advisory services through tax planning, estate planning, investment planning, and risk management.

Financial advisors help clients manage their investments, plan for retirement, select the right financial and insurance products, and monitor their finances over time. Financial advisors may work for a financial institution or a financial planning firm or be self-employed. These professionals can broadly be divided into the following categories:

1. Investment advisor:

Investment advisors offer investment-related advice, such as buying and selling securities, monitoring investments, etc. They have a fiduciary duty to act in the best interests of their clients.

2. Financial planner:

Financial planners offer general advice on a number of topics like budgeting, saving, retirement planning, debt reduction, and more.

3. Wealth manager:

Wealth managers work with high-net-worth individuals and help in asset management, wealth preservation and management, risk reduction, estate planning, etc.

4. Robo-advisors:

Robo-advisors use computer algorithms to provide automated advice on financial matters. They are not managed by humans and are, therefore, less customized but can provide basic financial advice on most topics.

5 reasons to use a financial advisor

Here are some benefits that financial advisors can offer to all investors:

1. They provide professional financial advice

It is hard to ignore the fact that no matter how well you research or read up on investing, financial advisors will likely always have better knowledge than you. Financial advisors are trained professionals with extensive knowledge of financial planning and investing. They can provide valuable advice and guidance to help you make informed financial decisions at the right time. Moreover, financial advisors have the foresight to look at the bigger picture. Financial planning is a lot more than just saving and investing. It also requires monitoring your debt situation, assessing portfolio risk, and tax planning. All of these aspects further depend on your income and expenses. External factors like inflation, recession, personal and professional changes, and more impact your financial decision. While you may or may not view these factors with the same level of detail, the financial advisor can.

A good financial advisor will take cognizance of all variables that can impact your finances and develop suitable strategies based on their judgment. This can lead to optimal risk management, asset allocation, and diversification. Whether you are going through a divorce, have received an inheritance, or are planning to have a child, you must know how these events can impact your finances. Hiring the right wealth enhancement advisory services can offer a professional outlook from a financial standpoint to help you plan for these life-changing moments.

2. They can offer objectivity in financial decision making

It can be difficult for individuals to make objective decisions about their own financial situation. A financial advisor can provide an objective viewpoint and make decisions that are in your best interests. This includes assessing the proper risk appetite, setting realistic expectations, and being rational when dealing with adverse situations. For instance, some young investors are willing to take on high risk even if it is not necessary, while others like to play it safe. The level of risk suited for your unique situation and age can be hard to figure out for yourself. However, a financial advisor can be helpful in this situation by offering you the right advice. Objectivity is also crucial during adverse times. For example, you may be tempted to liquidate your investments or take on debt if you face a financial emergency. However, each of these can have adverse effects. Redeeming your investments before time can trigger penalties. Your returns will also add to your tax liabilities.

On the other hand, debt will interfere with your expenses and add the burden of high interest for a long time in the future. A financial advisor can help you see the pros and cons of each option and help you decide the best course of action for your individual needs. They can also help navigate the situation by recommending an emergency fund that is solely meant for unexpected financial needs. This way, the question of debt or early redemption does not arise at all.

Financial advisors are particularly helpful during market downturns. A decline in stock prices, recession, inflation, etc., can wreak havoc on your investment portfolio. All of this can be overwhelming and lead to panic. Panic selling can be created due to a baseless rumor. In most cases, it is a reaction to fear and can be detrimental if accurate data and reason do not back your decision to sell. Financial advisors can bring perspective and objectivity during such times and help you cope with difficult times without making wrong decisions. Since the professional is not impacted by the downturn personally, they are able to think far more clearly. Moreover, their professional expertise, experience, and education help them make sound judgments in a given situation.

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3. They can instill financial discipline in you

If you are wondering when to use a financial advisor, your level of financial discipline can help you answer the question. Financial discipline, although hard, is immensely important to ensure financial success. From saving and investing to ensuring you do not overspend or live too frugally, it all boils down to financial discipline. If you find it difficult to stay consistent and disciplined, it may be time to hire a financial advisor.

Working with a financial advisor can help you stay disciplined and on track with your financial goals. A lot of people find it challenging to follow through when they have no one to answer to. Even though the financial advisor is not in charge of your finances and basically only advises you on matters of concern, they can hold you accountable for following the plan they create for you. Having someone you may have to answer or explain to ensures that you stay on track. Financial advisors also regularly review your financial plan and identify errors or lapses, if any. If you are not disciplined and consistent enough, the advisor will be able to spot it and recommend the remedial steps straight away. This can help you focus better and avoid unnecessary delays.

Discipline can be particularly important for long-term investing. Goals like retirement, a child's higher education, etc., can take years to fulfill. The most crucial thing in such a situation can be to be regular with your savings. If you keep up with the desired frequency, you will be able to meet your goal eventually, even if it is a seemingly large goal.

Discipline is not only a must in investing but also in managing your expenses. Impulse buying, unplanned expenses, and going over your budget for months on end can lead to compromised long-term goals, financial stress, and high debt. While it is important to enjoy a good lifestyle, it is also critical to keep your spending in check. Non-essential expenses should ideally not tower over your essential expenditure. However, if you find it hard to keep your spending in check, hiring a financial advisor can be advised.

4. They can help you save time

Financial planning and investing can be time-consuming. By working with a financial advisor, you can save time and focus on other areas of your life while still achieving your financial goals. Financial planning is an elaborate process. Depending on your needs, income, and family situation, you may have multiple goals. You would need an investment plan for each of these goals. For instance, if you are planning for a financially secure retirement, you would need to invest in retirement plans like the 401k, Individual Retirement Account, annuity plans, etc. If you are saving for a child's higher education expenses, you can use a 529 education savings account. You could also invest in stocks, bonds, mutual funds, exchange-traded funds, real estate, commodities, etc., to create wealth for miscellaneous needs. The correct asset allocation and portfolio diversification would depend on your risk appetite, budget, income, age, market situation, investment horizon, etc. It is essential to factor in all of these to adopt a foolproof investment strategy, which can be time-consuming. You may not have the time or interest to get into such details, but the financial advisors can do this on your behalf.

Financial advisors simplify other processes like monitoring your investments and advising timely entry and exit from the market. Further, they can help you with tax planning – one of the most time-consuming components of your finances. Tax rules change every now and then, and staying up to date can be challenging. However, not knowing the latest regulations, provisions for deductions, tax slabs, etc., can result in higher taxes. A financial advisor can help you lower your tax by recommending the right strategies like tax loss harvesting, charity, lifetime exemption gifts, etc. They can also help you select suitable tax-advantaged investments that can help you pre- and post-retirement. Some financial advisors may also help with filing your income tax return. This can be useful to save time and eliminate errors.

5. They can provide expertise in multiple domains

Expertise in a wide range of financial topics is one of the greatest reasons to use a financial advisor. Financial advisors have expertise in diverse financial issues, such as tax planning, retirement planning, succession planning, estate planning, investment management, debt management, budgeting, portfolio rebalancing and asset allocation, wealth management, and more. They can help you navigate complex financial issues. By hiring just one professional, you can pay attention to multiple aspects. This ensures comprehensive financial growth that is not concentrated solely on one area.

Moreover, financial advisors can help people of all ages, income groups, and experiences. Whether you are a high-net-worth individual or otherwise, you can hire a financial advisor for wealth preservation, appreciation, and more. The professional can also help at different stages of your life, from your first job to when you retire and even post that.

Is it worth it to have a financial advisor?

Yes, it can benefit you to have a financial advisor. Investors with financial advisors are likely to commit fewer errors and make better decisions than those who do not. Moreover, financial advisors offer various payment models like fee-based, hourly payments, commission-based, etc., allowing you to choose a payment method you like and one that can be accommodated in your budget. This makes it possible for everyone to hire an advisor and gain from their professional acumen.

To summarize

While there are several other reasons to use a financial advisor, the ones mentioned above broadly sum up the value that a professional can bring to your financial planning regime. Overall, using a financial advisor can provide a number of benefits that can help you achieve your financial goals. However, it is essential to choose a qualified financial advisor with your best interests in mind. Therefore, make sure to check the certifications and qualifications of the professional before hiring anyone. You can also refer to customer reviews or take recommendations from colleagues and peers.

Once you have shortlisted candidates, go ahead and hire the best financial advisor in your area. Use the free advisor match service to match with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.