The right financial advisor can prepare your finances for what is to come and help assure that when you eventually retire or should you have a major medical or life-changing event, you have the resources to survive it. Too many people wait until they are just a few years from retirement to seriously look at how they are going to fund that retirement and discover that Social Security and Medicare don’t work like they thought they did. They find out the hard way the reason retired people generally prefer pensions to 401Ks.
Everyone at any working age should at least speak to a financial advisor and begin to build a plan for their future to both assure their retirement, and that they and their loved ones can navigate any future tragedy that has severe financial impacts.
Understanding Your Needs
The first step to finding an expert is identifying your needs. Part of this is about recognizing your financial strengths and weaknesses and beginning to address some of those weaknesses. For instance, it really helps to understand basic accounting because, without that skill, understanding reports and advice will be far more difficult and the likelihood you’ll make a bad decision far more certain.
You need to be able to create and stick to a budget. If you can’t, you’ll waste your money on a financial advisor who will likely try to put you on a budget. You’ll need to understand your tolerance for risk. For instance, early in your career you can typically tolerate a lot of risk up until you have a family to support. As you age and are looking at retirement, your tolerance for risk will drop off a cliff.
You need to have a clear set of strategic goals, including what you will be doing when you retire. If your goal is to sit in the backyard, enjoy reading and live a simple life, your needs will be far less than if you want to travel the world or develop an expensive hobby. Same with shorter term goals, like buying a house or expensive vehicles. You’ll have to consider which is more important: an expensive car or a retirement that you can fully fund.
Do you need to fund education for your kids? Will you need to support your parents? What about pet care if something happens to you? These are all examples of what you need to sort out as part of the process of getting the right financial advisor.
Finally, you’ll need a budget. Figure out how much you’d be willing to pay a financial advisor as that will help you determine what advisor you’ll interview or which service you’ll end up using.
Types of Financial Advisors
The two basic types are those connected to a property or service and are “free,” so to speak, but are basically employees of that service or property. Their goal is largely to sell you something. They aren’t as motivated to assure your long-term financial health but can be useful in terms of understanding the vehicle they are recommending. This class is often more accurately called an investment advisor.
The other type is one that you pay. In this case, you need to look for their state registration and a valid certification (Certified Financial Planner or CFP). Both have fiduciary duties, but the planner you pay is more likely to focus on your needs.
In either case, you want to do a background check to make sure they don’t have a criminal complaint or some other problem that will impact whether they deserve your trust. Recognize there are scammers out there. If the planner is promising a return that seems too good to be true, it likely is. The time you take to assure the advisor you have is not only focused on your needs but has a history of behaving ethically is well spent. And clearly, any financial advisor who appears in financial distress themselves should be avoided.
One growing variant is the class of robo-advisors that are using the increasing capabilities of AI to provide custom financial advice on the cheap. With AI, it really depends on the quality of the training set and whether your demographic was part of that set. This type of service is likely initially best for those that are well informed as to their choices and the nature of the investment vehicles being recommended because this class is undergoing a significant advancement now, and that can lead to errors and mistakes that will be eliminated as these services mature.
In choosing an advisor or service, make sure they will also work with you in the way you want to engage. If you are good with remote, that will open several additional choices than if you are more comfortable meeting in person, and the cost will generally be lower.
Stay Engaged
Where people often get in trouble is that they figure this is all sorted, and they don’t revisit their investments until it is way too late to change their strategy or mitigate a growing problem they should have noticed. This is your retirement and your family’s long-term security you are dealing with, and it deserves a very high level of consideration to assure the outcome that you planned. As your needs change as you age, you’ll need to modify your investment plan. Staying informed will help you make those future decisions as they become relevant.
Wrapping Up:
Investment planning is critical to assuring your financial future, a valid professional investment advisor can provide you with insight and direction to make your anticipated financial future happen. The earlier you start down a path of putting your financial house in order, the more likely you are to make the right interim financial decisions and intelligent tradeoffs between the things you want to have now and the things you’ll need to have later in life.
On that last, one of the biggest benefits of a financial advisor, if you let them advise you, is pointing out the strategic considerations you should have when making a large purchase. You may still do it, but at least you’ll do so with your eyes open and are less likely to regret that decision later.
Good luck out there, and remember, any investment that looks too good to be true likely is.
