When to Seek Professional Help

While many investors can succeed on their own, certain situations call for professional guidance. Knowing when to seek help—and who to trust—is valuable knowledge. [DEFINITION] Financial Advisor: A professional who provides financial guidance, including investment management, retirement planning, tax strategy, and estate planning. Types include fee-only, fee-based, and commission-based advisors. ### When DIY Works You may not need an advisor if: - Your finances are relatively simple - You enjoy learning about investing - You're disciplined and unemotional - You have time to manage investments - Your needs are straightforward [KEY] For most people with simple needs, a diversified index fund portfolio requires minimal ongoing management and no advisor. ### When to Consider an Advisor **Life complexity increases:** - Major life transitions (marriage, divorce, inheritance, retirement) - Complex tax situations (business ownership, stock options) - Estate planning needs - Multiple financial goals competing for resources **Emotional challenges:** - You panic-sell during downturns - You can't stop checking your portfolio - Money causes significant stress or conflict - You're paralyzed by investment decisions [EXAMPLE] You inherit $500,000 unexpectedly. You've never managed this much money, there are tax implications, and family dynamics are complicated. A fee-only financial planner can help you navigate this one-time situation. ### Types of Financial Professionals **Fee-only fiduciary advisors:** - Paid directly by you (hourly, flat fee, or % of assets) - No commissions from products - Legally required to act in your best interest - Typically 0.5-1% of assets annually **Fee-based advisors:** - Mix of fees and commissions - May have conflicts of interest - Read disclosures carefully **Commission-based advisors:** - Paid by selling products - Significant conflict of interest - Often called "brokers" or "registered representatives" [TIP] Look for "fee-only fiduciary" advisors. They're legally required to act in your best interest, not their own. Use NAPFA.org or GarrettPlanningNetwork.com to find them. ### Questions to Ask Before hiring an advisor: 1. Are you a fiduciary at all times? 2. How are you compensated? 3. What are your qualifications (CFP, CFA)? 4. What's your investment philosophy? 5. What's your typical client profile? 6. Can I see a sample financial plan? [WARNING] "Free" financial advice is never free. If an advisor isn't charging you directly, they're being paid by someone else—usually through commissions on products they sell you. Their incentives may not align with yours. ### Alternatives to Full Advice **Robo-advisors (Betterment, Wealthfront):** - Low-cost automated investing (0.25% annually) - Good for straightforward situations - Limited personalization **One-time financial planning:** - Pay for a single comprehensive plan - Implement yourself - $1,000-$3,000 typically **Hourly advice:** - Pay only for specific questions - $150-$400 per hour - No ongoing relationship required ### The Cost-Benefit Analysis [EXERCISE] An advisor charges 1% annually on your $500,000 portfolio ($5,000/year). Over 20 years at 7% growth, how much does this cost you? |ANSWER| The drag is significant. $500,000 at 7% for 20 years = ~$1.93M. At 6% (after 1% fee) = ~$1.60M. Difference: ~$330,000 in lost growth. An advisor must add value exceeding this cost—through tax optimization, behavioral coaching, or planning that saves more than the fees cost. ### Red Flags to Avoid Warning signs of bad advisors: - Guarantees of returns - Pressure to make immediate decisions - Reluctance to explain fees - Recommending complex products you don't understand - Not asking about your goals before recommending products [SCENARIO] You're 28, earn $70,000, have $30,000 invested in a simple index fund portfolio, and are saving consistently. Someone offers "free" financial planning. Should you accept? Probably not. Your situation is simple enough to manage yourself. "Free" planning likely means they'll try to sell you products you don't need (whole life insurance, annuities, actively managed funds with high fees). At your age and asset level, a target-date fund and consistent contributions is probably optimal. Revisit advisor need when your situation becomes more complex.