What factors determine when it’s time to hire a financial advisor? Sometimes simply not knowing how to hire a financial advisor causes women to delay actually hiring one, even when it may be the best thing to do. Other times women fear they may not have enough money to hire a financial advisor, or that they may want to invest on their own, which can certainly make sense, especially sense many retirement plans offer services to assist offer financial education.
Here are three important things to consider before making a decision whether to hire an advisor…
1. How much money do you have that you want someone else to manage?
This is not in reference to your overall net worth (including real estate, home, etc.) but rather how much money is actually going to be put in the hands of an advisor. Financial advisors have a minimum amount they require clients to have for management. The minimums of top advisors can range from $1,000,000 to $5 million dollars or more, but fortunately, that much money is not required to start working with all financial advisors.
Lower minimums sometimes start at $100,000, with a common starting point being $250,000. It’s not just greed driving this minimum. Since advisors are going to diversify your portfolio, it’s important to have a large enough pool for these investments to be allocated in various funds and asset types, and those investments have minimums.
With the rise of online presence from financial services, however, the minimum amount advisors and planners will accept is decreasing. This is because online services offer a degree of leverage, since advisors can reach and serve a broader audience in less time. This has allowed some advisors work with a minimum amount of $50,000 to $100,000 and still run a profitable business. (Let’s be fair; there’s no reason that they shouldn’t!)
However, those financial professionals who are willing to work with this lower minimum are often financial planners as opposed to financial advisors. Financial planners often focus less on investing, but more on creating a broader plan for how money should be used and/or invested.
Also, while in a completely different category from full service advisors, minimums for using many of the increasingly popular Robo Advisor platforms have dropped to as low as $500, allowing those not yet ready or able to work with a full service financial advisor the ability to use these online tools to DIY invest and diversify.
A decision on whether to hire a financial advisor vs a planner should be made with regards to what your specific needs are. Decide if you want a broad plan for managing your money and finances, or do you want someone to invest your money for you? Then you can focus on whether you have enough money for one or the other.
Finally, you do not want to be in a place where you have enough money, but the only advisor available is the one who accepts your minimum; you want to have a selection of financial advisors to choose the best fit for you!
2. Are you your own worst enemy?
We’ve all been there; that horrifying time when you sell at the bottom and buy at the top; almost all investors have made this mistake, even the best ones. Don’t beat yourself up; this is a very common mistake! But is this a habit rather than a one off lesson that has taught you not to buy high and sell low again and again? If you make this mistake every time you invest your money, you ARE your own worst enemy, and it’s time to turn over your money to someone who is going to stop the habit. This habit is indicative of fear and/or greed, so it is probably in your best interest to hire someone to save you from yourself.
3. Are there other valuable things in your life that are demanding a large portion of your time and attention?
If you’re working full-time, have kids, caring for aging parents, running your own business or have other responsibilities that are taking away from your financial well-being, it may be time to hire a financial advisor. The reality is that there aren’t many things that are more important than being able to support yourself. Don’t allow wasting time on lower value activities such as shopping, running errands, or mindless online or TV time be an excuse. (My philosophy is that errands and shopping can usually be delegated, freeing time to oversee your wealth, a higher level activity, but that’s a different article.) Do allow high value activities such as family, health, income, spirituality and life enjoyment be reasons to outsource investing. If there are too many high value things going on, and too many responsibilities on your plate to invest your money, an advisor may make sense for you.
Handing over your money to someone else is a huge decision that shouldn’t be taken lightly. These three questions to ask before making that step are a guide. The opportunity to take care of your financial well-being should be seen as a real privilege as opposed to an intimidating challenge, so one last time, keep these in mind when deciding to hire a financial advisor:
How much money do you have that you want someone else to manage?
Are you your own worst enemy when it comes to investing?
Are there other valuable things in your life that are demanding a large portion of your time and attention?
Nope, I don’t manage wealth for others outside of my family, I’m just a bit of a nerd with a huge passion for investing that’s on a mission to destroy the financial education gap between men and women. I provide unbiased and real information based on what I learned from over 30 years of personally investing both alone and with financial advisors. Not sure where you need to focus next to begin investing or growing your current investment accounts? Grab my Wealth Accumulation Brainstorming Templete that helps you clarify the very next step for you!