In today’s complex financial landscape, the decision to hire a financial advisor can significantly impact your long-term financial success. While some people attempt to manage their finances independently, working with a qualified financial planner often proves invaluable for building and preserving wealth.
Studies show that working with an advisor can potentially add, or exceed 3% in additional net returns over that of a DIY investor. Not because of fees or anything like that – but mainly from common behavioral mistakes we all make when emotions get involved with money.
This guide will help you understand why you need to hire a financial advisor and how to avoid common pitfalls in the selection process.
By: William Hinder, EA | February 20th, 2025
When you hire a financial advisor, you’re not just getting investment management – you’re gaining a financial partner who can help you avoid costly mistakes and optimize your entire financial life.
Hiring an advisor is one of the BIGGEST financial decisions you’ll ever make. And one wrong recommendation (from the wrong advisor!) can crush your retirement plan.
So, if you want to learn why you need to hire a financial advisor and what questions to ask, you’ll love this article.
Let’s jump into it, here’s why working with a financial advisor is a smart move:
A financial advisor serves as your personal financial workout partner, ensuring you stay on track with your financial goals. They provide the structure and accountability needed to complete important financial tasks that might otherwise fall through the cracks. This ongoing oversight helps maintain momentum toward your long-term objectives.
Financial decisions can be overwhelming, especially during market volatility or major life changes. A financial advisor helps alleviate this stress by providing clear direction and taking the guesswork out of saving and investing. They create a structured approach to managing your finances, helping you understand exactly what steps you need to take for future success.
Emotions often drive poor financial decisions, particularly during market downturns or when facing significant life changes. A financial advisor serves as an objective sounding board, helping you make sound financial decisions based on facts rather than feelings. This guidance can prevent costly emotional mistakes that could derail your financial plans.
Managing your finances properly requires significant time and attention. A financial advisor takes on the daily tasks of monitoring investments, researching opportunities, and maintaining your financial strategy. This frees up your time to focus on your career, family, and personal interests while knowing your financial future is being actively managed.
Even if you’re financially savvy, having a second set of eyes on your finances can reveal blind spots and prevent costly mistakes. Common oversights that advisors help prevent include:
When you hire a financial advisor, you gain access to holistic financial planning that considers every aspect of your financial life. Quality advisors integrate retirement planning, tax strategy, insurance analysis, estate planning, and charitable giving into a comprehensive approach. This big-picture perspective helps ensure all elements of your financial life work together efficiently rather than in isolation. Every area of your finances affects another, so it’s important not to look at any of these decisions in a vacuum.
A skilled financial advisor can help identify tax-saving opportunities you might miss on your own. They can implement strategies like tax-loss harvesting, strategic Roth conversions, and efficient charitable giving approaches. This tax-focused planning often helps offset the cost of hiring a financial advisor through tax savings alone. (Read our guide on how to lower taxes in retirement here!)
While the fees to hire a financial advisor might seem significant, the cost of not having one often proves far greater. It’s similar to choosing a cheaper priced widget at the store, only to replace it later—something you could have avoided by investing in the higher-quality option from the start. Here’s what you risk by trying to go it alone:
Without professional guidance, you might miss crucial opportunities for:
Individual investors often make costly mistakes that professional advisors help prevent:
Proper retirement planning involves numerous complex decisions. Without professional help, you might:
The process of hiring a financial advisor requires careful consideration. Here are some of the most important mistakes to avoid:
When it comes to financial advice, not all professionals are created equal. A crucial mistake is working with an advisor who isn’t a fiduciary 100% of the time. The financial industry has two primary models: Registered Investment Advisors (RIAs) who always serve as fiduciaries, and Broker-Dealers.
Fiduciaries are legally bound to act in your best interest throughout your entire relationship. They must disclose all conflicts of interest and base recommendations on thorough analysis of your complete financial situation.
In contrast, Broker-Dealers traditionally operated under a more lenient “suitability standard” and earned commissions on branded products they sold, creating potential conflicts of interest.
However, the SEC introduced Regulation Best Interest (Reg BI) in 2020 to raise the standard for brokers, requiring them to act in clients’ best interests at the time of the recommendation only.
However, this can fall short of the fiduciary standard since it only applies at the moment a recommendation is made—not throughout the relationship—and contains ambiguities about what “best interest” truly means.
Investment costs significantly impact long-term returns, yet many investors fail to investigate these expenses. When an advisor recommends investments, ask about expense ratios – the percentage you pay annually to own the investment. Quality advisors prioritize low-cost investments. Be especially wary of mutual funds charging over 0.70%, as these costs compound over time!
For example, let’s say your fiduciary advisor recommends that you put $100,000 in an S&P 500 fund.
Here are two S&P 500 mutual funds and their expense ratios:
That’s a difference of $1,640 per year!
A fiduciary advisor is legally required to recommend the lower-cost option when two investments are identical (like the example above). This is why asking about all the fees you might incur is so important.
Quality advisors begin with comprehensive planning rather than jumping straight to investment recommendations. If an advisor starts pushing specific investments before understanding your complete financial situation, goals, and risk tolerance, consider it a red flag. The right advisor creates a thorough financial plan first, only then recommends investments that align with that plan.
Many investors mistakenly choose large, well-known financial firms based on name recognition alone. These firms often charge higher fees without delivering better results, and many don’t operate as full-time fiduciaries. Independent advisory firms frequently provide more personalized service and objective advice, as they’re not pressured to sell proprietary products.
Be skeptical of advisors who claim they can consistently “beat the market.” Such promises are usually unrealistic, as even professional fund managers rarely outperform market indexes over the long term. Focus instead on advisors who emphasize controlling what’s controllable: fees, asset allocation, tax efficiency, and risk management.
Different advisors offer varying levels of service and expertise. Some focus solely on investment management, while others provide comprehensive financial planning. Understanding exactly what services you’ll receive for your fee helps ensure you hire a financial advisor who meets your specific needs. Pursuit Street Advisors takes a comprehensive financial planning approach with a focus on tax-smart investments and advice. An advisor’s services should be easy to articulate. You might move on to the next candidate if the response is vague or confusing.
It’s crucial to understand what a financial advisor does and the scope of advice they can provide. This knowledge helps align your expectations and influences the questions you might ask during your search.
When interviewing and hiring a potential advisor, here are some final things to consider to make sure that advisor is the right fit for you and your family:
Check the advisor’s professional credentials. You can also research their regulatory history through FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure website. This will show you if the advisor has had any client complaints or regulatory action taken against them.
Ensure the advisor’s service model matches your needs. Some focus primarily on investment management, while others provide comprehensive financial planning. Choose an advisor whose approach aligns with your requirements.
You should feel comfortable discussing personal financial matters with your advisor. Their communication style should match your preferences, and they should be able to explain complex concepts clearly.
Hiring a financial advisor goes beyond managing stocks and bonds—it impacts your entire financial life. While I may have some bias, the long-term benefits of working with a skilled advisor can be truly invaluable.
A knowledgeable advisor helps clients understand financial concepts and make well-informed decisions, enhancing overall financial literacy beyond just investment returns.
Ongoing monitoring and reporting ensure you stay on track toward your financial goals, with objective assessments and necessary adjustments.
Significant life changes often require financial modifications, and an advisor who understands your full financial picture can guide you through major transitions like marriage, divorce, or career shifts.
Additionally, knowing a professional is overseeing your financial well-being provides peace of mind, making the emotional benefits just as valuable as the technical expertise involved in financial planning.
Working with the right advisor for your unique situation can be the difference between a carefree retirement and a stressful one.
Don’t be afraid to ask tough questions when meeting with an advisor. Like any other professional, they are there to serve the needs of their clients. A good advisor will welcome any and all questions you ask.
While the process requires careful consideration, finding the right advisor can provide tremendous value through professional guidance, stress reduction, and prevention of costly mistakes. By understanding these key considerations and avoiding common pitfalls, you can select an advisor who will serve your best interests and help you achieve your financial goals.
Remember that the cost of not having an advisor – through missed opportunities, poor decisions, and expensive mistakes – often exceeds the fees you’ll pay for professional guidance. Take time to conduct thorough research and ask detailed questions before making your selection, as this relationship can significantly impact your long-term financial success.
That’s why Pursuit Street Advisors offers a Free Retirement Analysis, allowing potential clients to make an informed choice about partnering with us. This analysis helps you understand the value we offer in relation to our fee, and you’ll receive a personalized retirement plan—at no cost—before spending a single dollar!
Click here to learn more about our FREE Retirement Analysis!
