How to Know When You Need a Financial Advisor

Financial Planning

Have you ever joined an HMO and been given a book explaining how to diagnose and treat minor ailments that you really don’t need to see a doctor about? My HMO once gave me a book that was literally called Take Care of Yourself.

Sure, the insurance company is looking out for its bottom line, but I suspect most people aren’t offended by this minor bit of nannying, because who wants to put on a hospital gown unnecessarily?

The same goes for money doctors, better known as financial planners. There are plenty of good reasons to see a planner, but you should also know when to stay home and avoid disclosing your assets.

The right reasons to see an advisor:

You’re starting your first real job or changing jobs.

A person just out of med school, say, is rounding a sharp financial corner, from large negative income (student loans) to positive income. An advisor can help you figure out how to stitch up that wound in your pocketbook and send you on your way.

“You may not, for example, have a whole lot of money saved,” says Stuart Ritter, certified financial planner (CFP) and vice president of T. Rowe Price Investment Services, “but if you have a high income and your spouse has a high income, and you’ve bought a house and there’s a child on the way, the fact that you don’t have a lot of money yet doesn’t mean you don’t need help.”

Dave O’Brien, a CFP in Richmond, Virginia, agrees. “To me, that’s somebody who should go see a fee-only planner who’s either going to charge them a flat annual fee or an hourly fee.” Fee-only planners who work on an annual retainer can be found at; for the hourly option, read on.

You need a babysitter.

Hey, remember yesterday when the stock market dropped 6 percent? Some people can shrug that sort of thing off. Most of us can’t, and we try to reposition our portfolios in response to something that happened recently. In the long run, that’s a good way to lose money.

Ideally, your financial advisor is the person who will calmly remind you that you have a long-term investing plan and one scary week shouldn’t change it. “In effect, I’m becoming a psychologist and trying to get people to pick the allocation and stick to it, and give them the reasons why,” says Allan Roth, a certified financial planner who writes the Irrational Investor blog.

You’re in a same-sex relationship.

“For gay and lesbian couples, period, you need a financial planner,” says Dave O’Brien, CFP. “You should have a financial planner who is familiar with the legal components of protecting your assets and protecting your wishes for your partner.”

You need to clean up your messes.

Raise your hand if you’ve changed jobs a bunch of times in your life. Me too. Have you cleaned up after yourself? “You’ve probably got 401(k)s at prior employers,” says O’Brien. “You’ve got like four IRA accounts. You’ve got all these statements coming in, and you can no longer deal with it or manage it, so you need somebody to help consolidate that for you.”

Your life is changing, for better or for worse.

Marriage, divorce, a death in the family, the birth of a child, or a child going to college: these are the traditional reasons people turn to an advisor, and they’re often good reasons. If you have a specific situation that needs untangling, it’s fine to call on an advisor for a specific need—you and your advisor don’t have to commit to a long-term relationship. The Garrett Planning Network is a national network of advisors who charge by the hour and specialize in this kind of service.

The wrong reasons to see an advisor:

Everyone’s doing it.

Not everybody needs an advisor. “If you’re saving 15 percent of your salary, if you’re using a Roth, if you’re using a target-date fund, you’ve got most of it covered right there,” says Ritter. “This stuff doesn’t have to be complicated, and they shouldn’t overcomplicate it and assume that they need to hire someone just to do the basics.”

You want to beat the market.

Sorry. Not going to happen. Your planner does not have market-beating secret sauce in his cupboard, and your returns will be further reduced by the amount of money you pay the planner. “Using the advisor to beat the market?” says Roth. “You and I know that’s baloney.”

You got a free steak.

Anyone can use the term “financial advisor.” Some of them seem to work for free (that is, you never write the advisor a check) or, better yet, offer free seminars with excellent food. These folks make their money on commission by selling you expensive and complicated financial products. Like most salespeople, they’re usually very nice, and they’re good at turning your money into their money.

As Dave O’Brien puts it, “If you go to a fee-only planner, they’re not selling you anything except knowledge.”

Matthew Amster-Burton is a personal finance columnist at Find him on Twitter @Mint_Mamster.



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