FINANCIAL ADVISORS
Should one hire a financial advisor to guide one’s personal financial decisions? Of course, there is no one-size-fits-all answer. It depends on one’s personal situation, one’s knowledge of personal financial matters, time available to manage one’s financial affairs, degree of comfort making decisions alone, and other factors. Below I have set out a few thoughts, firstly on personal financial advisors, and then on other advisors with a narrower focus.
Personal Financial Advisors
If you need someone to help you with all the areas I address on this website, then you should go to a personal financial advisor. In this regard, I will make two points:
Investment advisors
As I discuss under SAVINGS AND INVESTMENTS, paying for someone to pick stocks and bonds, or even mutual funds, is not something I do personally, because of the inherent difficulty of making the right “picks,” as well as the cost. The fees one pays to the advisor can really eat into the returns. This is simply a personal opinion and others can disagree. My philosophy is to stick to low cost, broad-based index funds, for my IRA, 401k and brokerage account, and to select the funds myself. If one needs help following this approach, a brokerage firm can provide information on suitable index funds to consider. There are also many good articles you can read on investing via index funds. You may send me an email if you would like me to point you in that direction.
It is a different story if you have a lot of money that has to be invested, and don’t have the knowledge, or time, to devote to doing it yourself. Then hiring an investment advisor who can perhaps look at private equity opportunities and alternatives investments, rather than putting everything into stocks and bonds, could be money well spent.
Brokerage firms
Though a brokerage firm itself is not strictly an “advisor” (they employ investment advisors), if you want to invest in stocks and bonds, or open an IRA, you need an account at a brokerage firm. You can easily open one online if you are comfortable doing so; if not, you can walk into a local office of one of the well-known online retail brokerage firms. Once you have an account open you can do just about everything online if you wish, by linking your bank account to your brokerage account; or if you prefer you can transact by going into the brokerage firm’s office. These services are not expensive. Many of us do not need a high-end brokerage solution as offered by the big-name banks, though some will benefit from the services these institutions offer.
Tax advisors
Tax preparation software available on the internet is not difficult to use if your affairs are relatively simple, you have a basic knowledge of individual taxes and are comfortable with computers. In this case one could prepare one’s own returns and a tax advisor may not be needed. As a CPA I keep up to date on relevant tax developments and prepare my own returns. I recognize, however, that many people prefer having a tax advisor to advise them on tax strategy and prepare their returns - to make sure they are prepared correctly, and advantage is taken of all available deductions and credits. There is nothing wrong in that. This does not have to be expensive if one’s affairs are not complex. The cost of tax services can vary greatly, from “walk-in” chains to high end tax lawyers and CPA firms, depending on one’s needs.
Estate planning advisors
Everyone should have an estate plan. I have included a separate section on this. It is not something most of us can do ourselves, we need a lawyer in our state of residence who specializes in estate planning to guide us and prepare the necessary legal documents. This is not, however, an annual expense. There is the initial cost of preparing an estate plan, and the cost to “refresh” the plan whenever one’s personal circumstances change materially (such as marriage, birth of a child, large inheritance, etc.) or there are important changes to the law.
One-off financial advice
While many people would prefer to minimize the need for financial advisors, as well as the related fees, we sometimes have important “one-off” financial decisions to make, in addition to estate planning, where it is worth consulting an advisor. These could include:
These are important, far-reaching financial decisions and, if one is not sure of what to do, getting good advice is probably worth the investment.
Personal Financial Advisors
If you need someone to help you with all the areas I address on this website, then you should go to a personal financial advisor. In this regard, I will make two points:
- Select a financial advisor who is fully accredited and licensed and ask up-front about the fee structure. The two credentials with which I am familiar are CFP (Certified Financial Planner) and PFS (Personal Financial Specialist.) The latter is a CPA who has a specialist certification in personal financial planning. It is a good idea, if possible, to go to an advisor recommended by someone you trust who has worked with that advisor.
- Be involved yourself in all decisions. This means learning the fundamentals, some of which you can perhaps do from this website, so you can understand what the advisor is recommending. Ask questions and actively participate in the decision-making.
Investment advisors
As I discuss under SAVINGS AND INVESTMENTS, paying for someone to pick stocks and bonds, or even mutual funds, is not something I do personally, because of the inherent difficulty of making the right “picks,” as well as the cost. The fees one pays to the advisor can really eat into the returns. This is simply a personal opinion and others can disagree. My philosophy is to stick to low cost, broad-based index funds, for my IRA, 401k and brokerage account, and to select the funds myself. If one needs help following this approach, a brokerage firm can provide information on suitable index funds to consider. There are also many good articles you can read on investing via index funds. You may send me an email if you would like me to point you in that direction.
It is a different story if you have a lot of money that has to be invested, and don’t have the knowledge, or time, to devote to doing it yourself. Then hiring an investment advisor who can perhaps look at private equity opportunities and alternatives investments, rather than putting everything into stocks and bonds, could be money well spent.
Brokerage firms
Though a brokerage firm itself is not strictly an “advisor” (they employ investment advisors), if you want to invest in stocks and bonds, or open an IRA, you need an account at a brokerage firm. You can easily open one online if you are comfortable doing so; if not, you can walk into a local office of one of the well-known online retail brokerage firms. Once you have an account open you can do just about everything online if you wish, by linking your bank account to your brokerage account; or if you prefer you can transact by going into the brokerage firm’s office. These services are not expensive. Many of us do not need a high-end brokerage solution as offered by the big-name banks, though some will benefit from the services these institutions offer.
Tax advisors
Tax preparation software available on the internet is not difficult to use if your affairs are relatively simple, you have a basic knowledge of individual taxes and are comfortable with computers. In this case one could prepare one’s own returns and a tax advisor may not be needed. As a CPA I keep up to date on relevant tax developments and prepare my own returns. I recognize, however, that many people prefer having a tax advisor to advise them on tax strategy and prepare their returns - to make sure they are prepared correctly, and advantage is taken of all available deductions and credits. There is nothing wrong in that. This does not have to be expensive if one’s affairs are not complex. The cost of tax services can vary greatly, from “walk-in” chains to high end tax lawyers and CPA firms, depending on one’s needs.
Estate planning advisors
Everyone should have an estate plan. I have included a separate section on this. It is not something most of us can do ourselves, we need a lawyer in our state of residence who specializes in estate planning to guide us and prepare the necessary legal documents. This is not, however, an annual expense. There is the initial cost of preparing an estate plan, and the cost to “refresh” the plan whenever one’s personal circumstances change materially (such as marriage, birth of a child, large inheritance, etc.) or there are important changes to the law.
One-off financial advice
While many people would prefer to minimize the need for financial advisors, as well as the related fees, we sometimes have important “one-off” financial decisions to make, in addition to estate planning, where it is worth consulting an advisor. These could include:
- How much life insurance should I buy and what type?
- Should I opt for a high deductible health insurance plan and open an HSA?
- When should I start drawing from my IRA or 401k account?
- When should I start drawing social security? What about my spouse?
- Should I take a lump-sum payout from a pension plan or 401k and roll it over to an IRA?
- For married people, should I take a lower monthly pension (if offered) and have it paid until both my spouse and I are deceased?
These are important, far-reaching financial decisions and, if one is not sure of what to do, getting good advice is probably worth the investment.
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