5 Signs You Need a Financial Advisor
Today, investors have access to more information than ever before. Some of the biggest advances for retail investors include: the ability to buy or sell securities for a very low cost, significant diversification from mutual funds and exchange-traded funds, or ETFs, in a variety of markets and more online tools and articles than you will likely every need. It's easy to see why investors think they don't need a financial advisor.
However, the fact remains that many baby boomers are concerned with their retirement planning and not as confident in their ability to receive a steady income after they give up their paycheck. Review this quick checklist to determine if you should consider working with a financial advisor.
1. You receive a tax refund every year. Most people dread filing taxes because of the time required to collect receipts, organize expenses and pay the actual tax bill. The one phrase I often hear from those who grudgingly go through this exercise year after year is "At least I'll get money back." Although getting a refund of your hard-earned money is a good thing, it may be a reflection of poor planning.
You see, the U.S. government does not pay you any interest on the tax dollars you overpay. Whereas this money would otherwise be sitting in your bank or investment account earning a modest rate of return, the IRS gets to use your tax dollars interest-free until you receive your refund. In order to maximize the efficiency of your tax dollars, an advisor will likely be able to help you pay closer attention to what you owe and how much you should be paying.
2. You don't know how much you pay for your investments. If I had a dollar for every time I heard "I don't pay for my investments," I could probably take my family to Walt Disney World. Although it's easy to think you don't pay for your 401(k) because it's an employee benefit, at a minimum, you have to pay for the cost of the investments themselves. In most instances, you not only pay for the cost of the mutual fund, but for the administration of the plan and possibly some of the marketing expenses of the funds within the plan.
There's no such thing as a free lunch, and if you don't understand the internal investment expenses, you may end up giving up some of your returns. Investment fees come in many forms, including management fees, 12b-1 fees, front-end loads, back-end loads, administrative expenses and more. If you're concerned about your rate of return, you should begin with understanding your investment fees, because they can greatly reduce how much you make. Remember, it's not how much you make. It is how much you keep. Using a financial advisor can help, because she or he can explain all of your fund costs. Over time, this little savings could provide you enough to take your family to Walt Disney World.
3. You don't have a strategy for down markets. You probably remember the tech bubble of 2000 and the housing bubble of 2008. In both markets, many people literally lost their shirts. However, while many have learned a lot about diversification, most will make some of the same mistakes of past crashes. We have historically seen that a significant down market will occur every five to seven years. Being in seventh year of a bull-market run, a downturn is likely in sight. That being said, an advisor can help you adopt a strategy to protect your capital for retirement.
4. You are not sure if you are saving enough money. Around the age of 55, retirement becomes baby boomers' main focus. Because people realize they only have a few years before they will stop working, they begin to do some planning. The problem is most people do not know what type of planning to do. And with so many financial calculators and programs online, it is difficult to know where to start.
One of the best places to begin is by finding a certified financial planner. They help you run your own personal financial and retirement plan. This plan will focus on your current expenses, tax rates, annual returns, life expectancy and virtually everything you need to fully understand where you are, where you are going and if you are going to make it. In your financial plan, you can even test some stressful situations, including whether you need long-term care, what happens if the market loses 40 percent and how to survive financially if your health care costs double.
Although retirement calculators are free online, these calculators do not show you the strategies that have worked in the past. Nor do they explain the biggest challenges that retirees will face in the next 10, 20 and even 30 years. Finally, they can't help guide you when emotions cloud out logic. A CFP can assist with these issues and more. Better yet, they can direct you as to where to put your money and keep you on track until you reach your goal.
5. You have not set up a survivor or legacy plan. If something were to happen to you, what would happen to those who need you or rely on your income to cover some of their expenses? Or let's say your beneficiaries are taken care of, but you don't have a plan for your legacy. Most often, this is handled through ownership of your various belongings, but it can also be set up with legal documents, such as wills and trusts.
And although many advisors do not write these documents, they can give you some idea on how to get your assets to your family, friends and charities. With this type of planning, the devil is in the details and you must get it right. But instead of doing it yourself, you may need some help, even before you see the attorney. As a matter of fact, you may not even need an attorney. A good financial advisor can often steer you in the right direction.
There are many questions people have about money. Some they can research on their own. But others, it would be helpful to be able to get some assistance. That is where an advisor may be necessary for your financial future. Don't resist it. Embrace it and ensure you are always on the right track.
Kelly Campbell, certified financial planner and accredited investment fiduciary, is the founder of Campbell Wealth Management and a registered investment advisor in Alexandria, Va. Campbell is also the author of "Fire Your Broker," a controversial look at the broker industry written as an empathetic response to the trials and tribulations that many investors have faced as the stock market cratered and their advisors abandoned their responsibilities to help them weather the storm.
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