When Should I Use a Financial Advisor?

A listener asks:
Would really love a podcast segment on at what point a person should be seriously considering shifting to a CFP versus managing their financial life on their own. I keep hearing/reading “when you no longer feel comfortable/your financial decisions have more at stake” but that really doesn’t mean a whole lot. Some concrete examples would be helpful because I bet most people don’t trust their own gut to be able to make that decision.

I realize this post might be construed as self-serving, given my day job, but I’ll do my best to answer the question as honestly as possible.

There are three types of investors:

  • Those who need help and get it
  • Those who need help but convince themselves they don’t
  • Those who can handle everything on their own

I’ll be addressing the first group. The question is, at what point in someone’s life does it make sense to seek help?

Before I get into it, I want to debunk something that is probably common in a lot of people’s minds. An advisor cannot beat the market any more than you can. If you find an advisor who happens to deliver alpha, meaning higher returns once adjusting for risk, then consider yourself lucky. But if that’s your expectation going into a new relationship, then sooner or later you’re going to be disappointed.

So if you can’t beat the market and neither can an advisor, then why even bother? Because an advisor can tell you the most important thing. Am I going to be okay? Can I live the type of life I want to live? that’s it. That’s the job.

If you’re not sure you’re ready to have this question answered, below is an incomplete list of ways to know when the time is right.

When You Made A Big Mistake (shameless plug)

You know you need to take your hand off the steering wheel when you can no longer be trusted to get to your destination. Going to cash in the first quarter of 2020, for example, is a good sign that you can’t be counted on to fend off the temptations of timing the market.

Past behavior is the best indicator of future behavior. We can learn from mistakes, but you pretty much are who you are. If you panicked last time and convinced yourself you’re going to be fine next time, you’re probably not being honest with yourself.

When You Have a Life event

You have a baby. You change a job. You inherit money. Of these three, inheriting money has the biggest impact for two reasons. One, it could be much more money than you’re used to and are intimidated at the idea of investing that much. Two, and maybe more importantly, if there is an emotional tie to the money, and there usually is, then you can become unnecessarily risk averse. Working with someone can put a layer in-between you and the memory of your loved one. 

When you’re worried about your spouse

If you handle the finances in your household and are worried that your spouse would be unprepared to deal them in your absence, it’s probably a good idea to find an advisor. Even if you’re not ready to relinquish control, it makes sense to find somebody that your spouse can turn to in the event of your death. Sorry, I know this  one is a bit grim.

When You’re tired of it

If you trade stocks long enough, you’ll realize at some point that despite the time, energy, and anxiety of it all, you would have done just as well if not better in an index fund. And if you’re sick and tired of checking prices during the day, of reading headlines at night, and of wondering what the election might mean for your portfolio, then you’re probably ready to hand over the keys.

When you don’t have the time for it

If you work long hours and come home to a family that needs your time and attention, the last thing you want to be doing is stressing out about which U.S. large cap fund to buy. Or when is the best time to rebalance.

When your life is being pulled in a million different directions, then it might make sense to reach out to a financial advisor.

When the stakes have gotten real

If you’re a young person with a $5,000 portfolio, a  mistake like panicking in a bear market is something that you can recover from. If you’re older with more money and less time to replenish those lost dollars, it’s harder to come back from that. I don’t know where the line is for everyone, but for most people it’s somewhere.

When you feel paralyzed 

If you’ve been meaning to sell your underperforming stocks but just can’t pull the trigger, or you’ve been waiting for the right time to put the cash to work, you could probably stand to consult with somebody. If nothing else, taking the emotions out of the equation will force you to finally take action.

When you want to get specific about your goals. 

If you want to buy a second home in ten years and retire in 20, an advisor can tell you whether or not this is possible. Of course nobody has a crystal ball, but an advisor’s job is to let you know if it’s possible, or break it to you that you’re not even close.


An advisor can’t force you to save, but they can show the cost failing to do so

An advisor can’t beat the market, but they can get you the market

An advisor can’t sell at the top and buy at the bottom, but they can make sure you don’t try it on your own

An advisor can’t generate 20% a year, but they can set realistic expectations

An advisor can allow you to dream, and they can make sure you come to grips with reality

An advisor can come up with ways to help you save money, and when the time comes, encourage you to spend it

Above everything else, an advisor can answer the only question that really matters: Am I going to be okay?

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