When Should You Hire a Financial Advisor?

financial advisor consulting with young male and female couple

A financial advisor is a professional who, for a fee, can provide advice on money matters, including investing, wealth management, retirement and education planning, insurance and more.

Not everyone needs a financial advisor, but it may be good to have one in your corner when making major financial decisions. Depending on your current situation and short- and long-term financial goals, here's how to know when it's a good time to hire a financial advisor to help you.

What Does a Financial Advisor Do?

The term "financial advisor" is a broad term that encompasses a number of professionals, including investment managers, financial planners, estate planners and more.

A financial advisor is a professional who can help you develop and implement a financial plan for your life, which may be specific to a certain financial goal or be more comprehensive. In addition to providing you with guidance, some financial advisors may take over the complete management of your investment portfolio.

When you first meet with a financial advisor, they should ask questions to get an idea of what your current financial situation looks like and what your goals are. They'll then create a plan to help you achieve those goals. You'll want to provide details about your assets and liabilities, savings balances and goals, debt balances, insurance policies and more.

If you choose a financial planner, the plan will be more comprehensive, providing you with action steps that reach every part of your finances. Other advisors may stick to one or more areas, such as retirement planning, estate planning, tax planning or debt management.

How Much Does It Cost to Hire a Financial Advisor?

Fees are a major downside of hiring a financial advisor, and depending on where you are in your financial journey, it may not make sense yet to incur that cost.

There are a few different ways financial advisors make money:

  • Fee-only: With this arrangement, you pay a flat fee for a financial plan, such as an hourly fee when you meet with your advisor or an annual fee for their services. The median hourly rate for an advisor is roughly $250, but if you want to pay an annual retainer, the median charge is $4,000. If you just want a one-time financial plan, the median flat fee is $2,500.
  • Commission-based: These advisors don't charge you directly for consultations, but they will make commissions based on products they sell you, such as insurance or annuities, and they may also charge a commission for each trade they make if they're managing your investments. Very few advisors make money only from commissions.
  • Fee-based: Fee-based advisors make money from a mix of fees charged to their clients and commissions from products and trades. For example, they may charge a percentage of the assets under management—1% annually is typical, though that figure may decrease with larger portfolios—and also earn commissions from trades and other products they sell.

Depending on your needs, it's important to be selective about which type of fee structure you want to deal with when hiring an advisor.

When Should You Consider Hiring a Financial Advisor?

Not everyone needs a financial advisor, but there are some situations in life where it might make sense to rely on one for either specific or general guidance:

  • You're saving for retirement but don't know how much to set aside every month.
  • You've been recently married and need help learning how to manage your finances as a couple.
  • You're recently divorced or widowed and need help figuring out how to manage your financial situation as a single person again.
  • You've recently had a child and want to learn about education savings, life insurance or general money management as a new parent.
  • You've recently received a windfall, such as an inheritance or lottery winnings, and aren't sure how to make the most of it.
  • You're nearing retirement age and want to make sure that you're on the right track.
  • You're thinking about creating an estate plan or a trust to make sure your loved ones are taken care of after you die.
  • Your parents are getting older and need help managing their financial affairs.
  • You're not confident enough to invest on your own and want a professional to take the reins.
  • You've taken it upon yourself to manage your finances, but you want an expert opinion on your progress and advice on how you can improve.

If you're thinking about hiring a financial advisor, it's important to vet multiple professionals and ask questions to help you find an advisor you can trust. Also, note that some financial advisors may require you to have a certain amount of assets before you can work with them, which can immediately rule some out.

Alternatives to Financial Advisors

If you've determined that a financial advisor isn't the best option for your situation, there are other options available, depending on what you need:

  • Robo-advisor: Robo-advisors are financial technology companies that can manage your investments using algorithms instead of human planners. Most robo-advisors charge an annual fee based on your assets under management, but it's much less expensive than human advisors at 0.25% to 0.50%, depending on the advisor and your balance. To get started with a robo-advisor, you'll answer a series of questions, which the robo-advisor will use to create an algorithm to manage your investment portfolio. Robo-advisors can help you make investments, but do not create overall financial plans that include life insurance, college savings plans, trusts and more.
  • Estate attorney: If you're just looking to set up an estate plan, consider working with an estate attorney, who will charge a one-time fee to create your plan, set up a trust and perform other services. Costs can vary depending on what you want to do.
  • Credit counselor: Financial advisors can provide guidance on debt, but they're generally more geared toward wealth management and related services. If you're struggling with debt payments, consider consulting with a credit counselor, who can provide you with advice and help you create a plan for free or for a nominal fee.
  • Tax advisor: If you're just looking for help with your tax situation, it may make sense to hire a CPA instead of a financial advisor. Average fees can vary widely depending on how complex your tax situation is.
  • Do it yourself: If you enjoy the process of learning about financial planning and want to manage your money on your own, there's nothing stopping you from doing so. If you're new to investing or creating a financial plan, be sure to do your research before diving in.

There's no one-size-fits-all approach to managing your money, but as you consider the best approach for you, it's important to take the time to research your options and make an educated decision based on what will work best for your situation and goals.

Knowing the details of your overall financial picture, including how much you have to invest, your account balances and credit report information, can help you make an educated decision. To start, consider getting your free credit report and score from Experian.