What does a financial advisor do? Sound financial advice is beneficial to everyone, especially those going through major life changes that can impact their financial situation. Here are 13 reasons to hire a financial advisor.
13 Ways a Financial Advisor Can Help in Making Life and Financial Decisions
1. Give an Objective Assessment
One of the first benefits of having a financial advisor is their ability to give an objective assessment of one’s financial situation.
A certain level of hype always surrounds new investment opportunities. Because of this, investors are likely to rush in headfirst, ignoring any market bubbles and high charges.
Market Bubble Definition: Otherwise known as an “economic bubble” or “asset bubble,” a market bubble is the trade of a certain asset wherein the price far exceeds its actual value.
During uncertain times, a lot of investors make rushed decisions. They tend to give in to panic and fear, which can cloud their decision-making.
Financial advisors don’t act on the news of the day and are resistant to these hypes and trends.
Instead, they understand how numerous products function in varying markets. They identify possible downsides and the potential benefits of any investment and make decisions based on them.
It can be hard to deal with one’s own finances, as emotions tend to get in the way of sound decision-making. Financial advisors look beyond emotions and make decisions based on logic and an objective perspective.
2. Help in Planning Saving and Spending
Securing one’s long-term future involves building assets.
One of the more ignored practices when it comes to saving is building an emergency fund. A lot of ill-advised people forget the importance of saving for rainy days and tend to suffer the consequences afterward.
Financial advisors can help someone plan their expenditures so they can start saving. They can help identify areas where a person overspends and determine ways on how to cut down on those expenditures.
From there, financial advisors can help in building wealth as quickly and as efficiently as possible.
Regardless of one’s current financial situation, a financial advisor can analyze a client’s current standing and determine the best steps to take.
3. Aid in Meeting Investment Goals
At some point, pretty much everyone’s assets and income begin to increase. More than consolidating these assets, it’s important to understand how to grow them.
Enhancing one’s financial position is more than just about retiring early. It can mean being able to afford a better lifestyle, owning a better house, or even paying for private school.
Regardless of one’s goal, a financial advisor helps assess what is and is not possible. They can also help create a realistic plan to achieve it.
4. Help Find the Right Combination of Assets
Often, investments with a potential for high returns mean taking on more volatility and complexities, while more conservative investments tend to yield lower returns. It depends on the investors themselves to determine which type of investor they are.
A financial advisor can make detailed assessments of which investments are suitable to an investor depending on which types of investments they’re comfortable to make. They then formulate their recommendations based on these assessments.
They can help investors diversify their portfolios, not just across different asset classes, but also across accounts, product providers, and individual funds. This way, one does not make the rookie mistake of putting all of their eggs in one basket.
5. Provide Guidance in Dealing with Taxes
Once risk and investment assessments are complete, the next step is to look at tax. When it comes to taxes, even a basic overview of one’s current position can be of great help.
This can mean something as simple as the use of an Individual Savings Account (ISA), a pension plan that allows one to benefit from incentives that the government provides. It can also mean choosing assets focused on growth to maximize the allowances on capital gains versus paying income taxes.
More complicated arrangements may involve the movement of assets to a spouse or to one’s children. This allows someone to make the most of their personal allowances instead.
Regardless of how complicated a situation may be, a financial advisor can point someone in the right direction, especially when it comes to dealing with taxes.
6. Help Prepare for Unexpected Events
A lot of people make the mistake of thinking they’re ready for emergencies. Unfortunately, personal hardships such as unexpected medical bills or a sudden job loss can result in financial hardships as well.
Instead of panicking and shifting one’s assets in a way that might be detrimental to the investor’s future, a financial advisor can help evaluate the situation and react in a more strategic and effective way.
With a myriad of life insurance products on the market, a financial advisor can further help protect one from the unexpected by giving advice on which products are most suited for one’s situation.
7. Assist in Buying and Selling of Homes
Often, buying or selling one’s home is one of the biggest financial moves an individual makes. Major financial transactions such as these often involve crucial decisions on how to best deploy those financial resources.
For most people, buying a house involves getting a mortgage. The mortgage market, unfortunately, has always been complicated and continues to grow more complicated as the rules and regulations of mortgages become more complex and the lenders’ requirements become more stringent.
Financial advisors can help save a client thousands by learning about their client’s financial positions. They can help someone understand the following:
- How much debt they can take on
- The amount they can afford for the down payment without sacrificing other financial goals
They also help in seeking out the best rates. Financial advisors can help one determine the ideal levels of borrowing, make the most of their deposits, and even seek out lenders who might not be available to the normal borrower.
When it comes to selling, an advisor is a good source of ideas about how to use the equity one has built up in the home to achieve their other goals.
8. Help Plan for Retirement
Often, when it comes to retirement, the government can only provide for the absolute basics. Planning for one’s golden years is more complicated than it seems, especially if the individual plans to live a more-than-basic lifestyle.
A financial advisor’s role is to help sift through the different rules and product options for retirees. They can guide someone in constructing a portfolio that maximizes their long-term prospects.
They can help their clients choose the retirement plan that best suits their needs. While most individuals contribute to their employer’s 401(k) retirement plan, it doesn’t hurt to look at other retirement savings accounts such as a:
The benefits of a Roth IRA and a Traditional IRA may differ, but they both have their respective advantages. Contributing to different accounts that have varying tax treatments can help one prepare for those unexpected events and other potential financial problems.
People who plan to retire earlier will definitely benefit from seeking the advice of a financial advisor. The decisions one makes in retirement are often more complex than the ones made years before it.
Knowing how to outlive one’s money, how to claim Social Security benefits, and how to fund unanticipated medical costs are some problems that a financial advisor can help address. They can look beyond an individual’s immediate needs to help them build a strong financial future.
9. Keep Investment on Track
Investing is more than just about funding a certain investment account. To truly make the most of it, someone should monitor the investments, especially during times of significant market developments.
A financial advisor can keep a watchful eye on those investments. They assess the performance of those investments against their peers and make sure that one’s asset allocation is not easily affected by market fluctuations.
As time passes, they can also help rebalance their client’s portfolio to suit their needs based on age and situation.
10. Help Out a Client Who’s Starting a Family
According to the Department of Agriculture, the average cost of raising a child today comes to a total of $233,610 (until the child turns 17). This doesn’t include the cost of putting a kid through college, nor does it factor in inflation.
A financial advisor can provide guidance in the financial aspects involved in raising a child. They can help come up with a financial plan that will allow someone to provide for a growing family while preparing for a comfortable retirement at the same time.
11. Help During Times of Divorce or Remarriage
Getting divorced or remarried involves not only a lot of emotional ups and downs but also some crucial financial considerations.
Financial advisors can provide guidance on how to continue supporting a lifestyle after a divorce. Additionally, they can also assist in how assets can be divided.
In cases of remarriage, financial advisors can also help in how the pair can best combine their assets.
Financial advising for a remarriage also involves answering questions about estate planning and even dealing with modifications to one’s life insurance, Social Security benefits, etc.
12. Help When One Receives an Inheritance
There are cases wherein an individual suddenly receives money from an inheritance. Without proper guidance, this inheritance can easily disappear into nothing.
A financial advisor can put that money to work towards helping achieve one’s personal and financial goals. They can allocate that money and give one advice on how to spend it.
13. Act as Quasi-Therapists
Dealing with one’s finances has always been a complex matter. A lot of factors should be taken into consideration prior to any decision made regarding one’s finances.
Additionally, markets are always volatile and the media has a tendency to exaggerate risks and rewards.
A financial advisor acts as a therapist of sorts when it comes to one’s finances. Given that they’re experts in this field, they are resistant to these hypes and trends.
Financial advisors give one peace of mind as they can be trusted to deal with one’s finances and make the most of them based on one’s individual goals.
Financial advisors can provide guidance on how best to address any financial situation that arises from a change in circumstance or a major life decision. They’re experts in the field and will see things from an objective manner, and provide solutions that can benefit the client no matter the situation.
Do you have other questions about financial advisors? Ask us in the comments section below!