How Rich Should You Be To Hire a Financial Adviser?

You may be framing the wrong question. The real answer is simpler: Consider hiring a financial adviser when the benefits outweigh and justify the costs. You may qualify if you have from about $50,000 to $1 million, and far more. The focus is on whether an adviser would save or make you money. Is it worth the expense to gain time, confidence and peace of mind?

How and what you are paying for

Advisers may seek minimum thresholds, from $50,000 to $500,000 or more, in liquid assets, such as stocks, bonds and bank accounts, that can be easily converted to cash. Charges then apply as a percentage of assets (about 0.25% to 2%), a flat fee or hourly rates. Some offer a subscription package for ongoing access to their services.

Clients often receive a range of holistic services far beyond stock picking. Advisers provide an organized process for planning goals and charting progress. These may include asset allocation, implementation and tracking gross returns minus costs, rebalancing, behavioral coaching, and asset location in taxable or tax-advantaged accounts. They help retirees decide an optimal sequence of withdrawal for spending. In short, they should add value through relationship services, not merely by outperforming the market. 

When advisers are worth their salt

Do you ever struggle to make your own financial decisions? An adviser may best serve clients with complex financial situations, those who are inexperienced at investing or others who are facing major life transitions. For example, it can be bewildering to have received an inheritance or prepare for marriage or divorce. Some people require extra help managing multiple income streams or dealing with the demands of a small business. As you approach retirement, a whole new set of concerns arise.

A host of misconceptions surround the search for an adviser. MagnifyMoney surveyed 1,500 Americans, most of whom had no paid adviser, and found abundant misunderstandings. For instance, 42% believed advisers were only appropriate for the wealthy. Moreover, 25% did not think advisers made sense until middle age. Fifty percent overestimated the expense involved. In general, most people assume advisers cost more than they do.

Many have no idea where to start looking. Turning to a friend or family member may not be ideal, as they likely have quite different needs and goals. You might do better using a free database provided by one of the financial planning associations. Consider contacting one or all of these:

• National Association of Personal Financial Advisors

• XY Planning Network

• Alliance of Comprehensive Planners

• Garrett Planning Network

You might not need a planner at all

There are other cases where a financial planner is not necessary. Imagine, for example, that most of your income is derived from Social Security or other pensions. In that situation, and if you mainly need tax assistance, you might find it adequate to rely on a Certified Public Accountant.

In another scenario, you might genuinely like organizing your investments. Perhaps you have worked in the financial industry or enjoyed managing your stock portfolio for a while. You may have developed the confidence and skills to manage your assets. Have you already been saving systematically? Do you rebalance regularly with discipline? If you are in good financial shape, you may be on track for a smooth retirement path.

Remember, there are other practical alternatives to a full-fledged adviser, such as an array of brokerage tools provided by firms such as Fidelity and Charles Schwab. Another excellent contemporary solution is robo-advisers. Those algorithms can learn all about your needs and resources, including risk tolerance, time horizons and tax status. They use that information to automate your money management. A robo-adviser might also be a real bargain. It requires negligible minimums, charges lower fees than humans and has no extra commissions.

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