Quiz: Who Needs A Financial Advisor?

Posted on September 26, 2014 at 12:19 PM PDT by

Investing on your own is easy, unless of course it’s incredibly hard. Some of us seem to have the “money gene” and some of us don’t.

Which is not to say you won’t need help ever. Even if you are completely comfortable with buying investments online and managing your own portfolio, the questions that come up would stump even a PhD in finance.

who needs a financial advisor

Taxes, for one. Which IRA to open, if not several kinds. What do to about cash, about debts, about insurance and so on. There’s a reason financial advisors have to pass tests on securities law and best practices: They have to know what’s what, or they might do more damage than good.

Who needs a financial advisor? Just about everybody at some point in their lives, even if it’s simply good advice from parents or a money-gene-blessed friend willing to educate you. Nobody is born knowing this stuff, that’s for sure.

Here’s how to know when to hire a financial advisor and what kind of advisor to consider:

Young and starting out

Being in your 20s can be a carefree time of life. Nobody wants to think much about the distant future at any time, it seems, and least of all when you are right out of school. Truth is, you probably don’t need much advice. Just join your workplace 401(k) and max out everything you can, and you’ll be fine. Likewise, you can probably use an online service to do your taxes cheaply and easily.

Just married

Your responsibilities in life just doubled. If you and your spouse are both working and both using a 401(k) at work, great! If just one works, take a look at spousal IRA options. A fee-only planner can help here. These advisors charge by the hour but can develop a starter plan that you manage yourself, as well as offer to help with taxes, insurance and debt management.

Mid-career with kids

When you hit your peak earning years, the money comes in and it goes out nearly as fast, particularly if you have children. Vacations, sports camps, tuition, healthcare. It can be expensive, and a surprising number of things are tax-deductible.

If your financial life is getting complicated, a CPA can help you sort out the tax benefits, while a fee-only planner is a good way to make sure you are on track. You might also have built up a pretty good nest egg in your non-work IRAs. At this point, it’s definitely time to consider managing that money as cheaply and efficiently as possible.

Nearing retirement or retired

As you begin to look ahead to your post-work life, the financial questions are likely to increase in the short-term. Insurance becomes a bigger issue than in years past, including long-term care coverage. If you have a relationship with a good planner, now is the time to deploy that person in a big way.

You might also soon be rolling over former employer plan savings into your IRA accounts. Managing that money well now and into retirement is an important issue. Here, a financial advisor might be able to add value by helping you to construct a reliable portfolio, or you can do it yourself using online tools. Either way, keep your costs low for best results.