When Should You Turn to a Financial Adviser for Help?

Couple looking at computer with their financial adviser
Everyone makes financial decisions a daily basis -- dozens of ordinary small choices involving relatively small amounts of money.

But then there are the bigger situations, the ones that make you think about hiring a financial adviser: a windfall that you don't know how to handle, or reaching a milestone birthday that makes you realize it's time to get more serious about your money management.

But how do you know when it's really time to get professional advice, or whether the next move is something you can handle on your own with a little effort? We asked those in the field to weigh in.

Money 911

Some financial planners compare their practice to the field of medicine. "You likely see your doctor when you're sick, but you may also visit him or her when you're healthy to help prevent becoming sick or injured," says Suzanna de Baca, vice president of wealth strategies at Ameriprise in Minneapolis.

Of course, a visit to an emergency room is also warranted if you suffer a sudden injury. And you'd probably call your doctor if you were unable to shake those flu-like symptoms for weeks on end. Unhealthy finances are often what drive people to seek professional assistance. In cases like those, de Baca says, the benefits of getting help may be larger, or at least more obvious. "But starting early and working with an adviser when you're in good financial condition can help you keep it that way."

Scenarios in Which You May Benefit From a Second Opinion

It's natural that a financial planner would say everyone should consider hiring one. That said, here are some scenarios that drive people to seek professional help, according to Jean-Luc Bourdon, a CPA and personal financial specialist with BrightPath Wealth Planning in Santa Barbara, Calif.:
  • If you're repeatedly having trouble achieving your financial goals, a financial planner can help you create a workable plan.
  • If tax season reminds you that you meant to change your retirement contributions, you may want to hire a professional to help you overcome time constraints or to address complex decisions.
  • If you're a recent college graduate just joining the world of the full-time employed, you may want to know how to allocate your paycheck to student debt repayment, insurance, a retirement plan, tax withholding, charitable giving, and living expenses.
  • If you're getting married, your tax situation changes, as do your insurance and estate planning needs. Similar changes occur around other major life events like the arrival of a new baby, a divorce, or a death in the family.
  • If you get a big raise or an inheritance, start a business, or buy a house, your money management needs could become more complicated.
  • If your income has increased above the threshold of $250,000 for a single person or $300,000 for a married couple filing jointly, you'll see a phase-out of personal exemptions and deductions. A financial planner can identify tax management and investment strategies.
  • If you've set a goal for a particular retirement date or to achieve a certain level of investments, a financial planner can help you get there.
When Can You Skip It?

If you're more of a hands-on person and eager to learn on your own, there are many scenarios in which you can safely skip hiring a financial planner.

There are a vast array of resources and ways to automate your financial life that are available to people who prefer a do-it-yourself approach to their money.

"I can see a day when financial planning functions driven by a human become extinct as consumers flock more and more to the online scene," says Zack Shepard, an accredited investment fiduciary analyst and vice president of Matson Money, an investment adviser firm in Cincinnati. "Even IBM (IBM) is beginning to license Watson to do planning functions."

A financial planner is least needed when a question is very specific and the stakes are not life-altering, says Bourdon. Here again, the doctor analogy comes into play: "If your life isn't on the line and the symptoms are straightforward, trying over-the-counter remedies is OK. Some personal finance examples would be deciding to buy or lease a car, and creating a repayment plan for a credit card," Bourdon says.

That said, make sure that by treating one financial problem you're not masking symptoms of trouble elsewhere. And there's nothing wrong with seeking a second opinion. In fact, outside input can be valuable even when you're an expert, says de Baca: "Most financial advisers I know have a financial adviser."

How to Hire a Financial Planner

If you've decided it's time to bring in the pros, carefully research your options and get recommendations for a good planner. Financial planners work -- and get paid -- in various ways.

Some charge an hourly fee, which is best for getting ad hoc advice. For an assessment of your current situation and help setting up strategies to help you reach your goals, a fee-only planner or someone who charges a flat rate for a project or service is ideal. For help implementing those recommendations and performing ongoing money management, planners typically charge periodic fees based on how much of your money they manage. In any of these scenarios, there may be advisers who also earn commissions when you buy certain products or investments they recommend.

Always ask how an adviser gets paid. That will help you gauge whether the advice they are offering is in your best interest or if the recommendations are more designed to boosting their bottom line.

Regardless of how you choose to pay your financial adviser, de Baca offers the following tips to find the right one:
  • Find someone who expresses an interest in your future. Your financial adviser should ask questions about your hopes, dreams, and concerns. Steer clear of someone who offers a cookie-cutter approach to financial planning. Your adviser should not be someone who only talks at you, but someone who listens to you.
  • Your adviser should know the marketplace. A good adviser should offer a tailored plan based on your goals -- whether it's building cash reserves, protecting your income against death or disability, or creating a balanced portfolio.
  • Financial advisers shouldn't be know-it-alls. A smart adviser knows when it's time to gather input from other experts, such as tax and legal professionals.
  • Select an adviser with a solid reputation. Ask for references and for specific examples of how they helped clients like you reach their goals or weather difficult financial times.
In the end, spending money to for professional advice should result in a more solid financial future.

Michele Lerner is a Motley Fool contributing writer who has no position in any stocks mentioned. The Motley Fool owns shares of IBM.

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Even expert investors will sometimes look for advice, which is where advisers come in. Yes there are a lot of shady ones out there, but you should be able to find a reliable one if you do your research. You can learn more about them at http://www.mutualfundstore.com/investment-advisors. There is a lot of confusing terminology when it comes to investing, and it's hard to slog through on your own.

April 24 2014 at 1:35 AM Report abuse rate up rate down Reply

My finacial adviser used to call me twice a week until I invested all my cash reserves ..then I didn't hear from him until I called him a month later. My mistake I should have known better . But then again he's suppose to be looking out for me, right?The best financial advice I ever got was when I heard Nuriel Rubini saying after the Bear Sterns meltdown that the bubble had burst. So I got my 401K out of Mutuals and into cash...I lost very little, and my Adviser had told me to not to sell. The other investments I made with him I lost alot.
A tip on a horse is more trustworthy then advice on a stock...Why you ask...because the more people that bet the horse the payout goes down..So the tipster really has nothing to gain.

February 06 2014 at 8:17 PM Report abuse -1 rate up rate down Reply

Since I have found that I make more $$ than most of the "financial advisers" I have been introduced to....my answer about turning to them would be NEVER!

February 06 2014 at 6:37 PM Report abuse +5 rate up rate down Reply

Really nobody can tell you what to do, but here are somethings from experience that I guarantee are duds: Lotto and scratch-off tickets, gold and precious metals, casinos, liquor, horse and dog racing, Super Bowl gambling, poker games, impractical vehicles, paying rent, satelite tv, the Home Shopping Network, and "free with participation".

February 06 2014 at 5:35 PM Report abuse +2 rate up rate down Reply

Unfortunately, unless you walk into the financial company's office with at least $500,000 - $1,000,000 to invest, you aren't going to rate a "good" financial advisor. The really sharp money managers prefer to work with wealthy clients, for obvious reasons.

If you are Joe or Jane Average, who is hoping to get advice on how to solve the usual problems of too much debt, not enough saved for retirement, etc. --- you will find yourself assigned to the newest and least experienced "advisor".

A better choice (unless you are lucky enough to acquire a big financial windfall) is to self-educate yourself about finance and investing.

February 06 2014 at 1:11 PM Report abuse +6 rate up rate down Reply

Evan's Financial Advisor is his case worker at the County Social Service office, aka Welfare.

February 06 2014 at 12:26 PM Report abuse -2 rate up rate down Reply
1 reply to unitedpaintings's comment

We poor redstaterednecks can't afford a Financial Adviser. One time I tried to pay a Financial Adviser in food stamps.

Advisor ? It looks like you could use some help in spelling ?

February 06 2014 at 4:03 PM Report abuse +2 rate up rate down Reply

I have always thought - if a financial advisor is so smart, then why isn't he or she already retired and living in Bimini with a small cigar in mouth! Thanks anyway - I will continue to advise myself on the proper wealth building strategies.

February 06 2014 at 8:57 AM Report abuse +6 rate up rate down Reply

I'll give you the answer here for free. Money and wisdom are directly proportional.
If you are careful and wise with your finances, you wont have any money problems. If you are sloppy and foolish with your money, soon, it wont be your money.
And the best source for wisdom ? God.
He had it all written down for you thousands of years ago recorded in the Holy Bible, about $11.99 in most book stores - best investment you could ever make.

February 06 2014 at 7:05 AM Report abuse -2 rate up rate down Reply