Financial Advisors

To be honest, not everyone has the time to become a financial expert. It is becoming more and more important to be able to manage your own finances and the finances of your household.

Don’t fret, though. If you prefer a straightforward plan that doesn’t require constant vigilance for changes in the law, the economy, or financial products, you might want to hire a financial advisor.

Understanding Financial Advisors

Financial advisors help their clients by giving them advice on how to manage their money and make financial decisions.

Depending on their area of expertise, financial advisors can help you with creating an entire retirement savings plan, including a timeline, or simply answering a question about whole life insurance.

  • Meet with you to assess your current financial situation and future goals
  • Develop a comprehensive plan that addresses your major areas of financial concern: retirement, college planning, insurance, avoiding estate tax, etc.
  • Provide advice as unexpected financial issues arise in your life
  • Set up investment accounts and invest funds for you
  • Locate appropriate financial vehicles for you, such as insurance policies or mortgages

There are many different financial advisor designations and industry credentials, such as the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Consultant (ChFC).

One of the best-known designations is the CFP. The Certified Financial Planner Board of Standards issues this designation in the United States.

CFP Board certification requires passing an exam and completing continuing education.

Life Events that can Prompt Financial Advice

People often seek out financial advice when they have a particular event in their life. These events typically involve either a sudden windfall or a significant loss, or else a major life event. You may be more likely to seek financial advice if you find yourself in one of these scenarios:

  • I’m nearing retirement, and I want to ensure that I’m on the right track.
  • I just inherited some money from a parent, and I want to get some advice on how to invest the money.
  • I was recently married, and we need help managing our finances as a couple.
  • I was recently divorced or lost a spouse, and I need help moving forward financially as a single person.
  • My parents are getting older, and they/we need help managing their overall finances.
  • I just had a child and I want to make sure they are provided for
  • I hate investing and financial planning, and I want professional help to ensure that I don’t mess up my future.
  • I enjoy financial planning and investing, but I want a second opinion to see if I could do it better.

Everyone will need to create a financial plan that includes factors such as retirement, repaying your mortgage, college tuition for your children (if you have them), estate planning, and when you will be able to retire.

There are also many benefits to working with a financial advisor including gaining access to their experience and knowledge.

Choosing a Financial Advisor

You’re not necessarily locked in with a financial advisor when you start working with them, and you don’t necessarily need to seek their help regularly. It might begin as a one-time consultation.

Getting One-Time Financial Advice

Some financial planners work with savers on a one-time basis, to either develop a financial plan or help with a specific issue or question. These sessions are typically charged either by the hour or for a flat fee.

If your company has offered you a buyout package to take an early retirement, you may want to consider hiring a financial advisor to help you understand your options.

A financial planner can help you to understand any financial incentives that your company is offering, such as enhanced pension benefits, and to see the long-term costs or benefits of such a decision.

You could ask a financial planner to do a comprehensive financial plan or review your current situation. If you met with a financial planner, you would not only understand your finances better, but you would also have a plan of action or clear directions to follow.

Remember that it is not unheard of for a one-time gig to turn into an ongoing advisory partnership or more frequent financial check-ups.

Benefits of Hiring a Financial Advisor

If you are feeling confused, emotional, or simply uninformed about various wealth management topics, it may be helpful to consult with a financial advisor.

Most people can’t imagine their retirement or plan for it because they can’t see far enough into the future. Professional advice can be helpful in this case.

An advisor who is qualified will ask you a lot of questions to get a better understanding of what you want in life, even if some of the questions are uncomfortable.

After your financial advisor has all the information they need, they can help you make a plan and give you advice on investments, retirement planning, estate planning, taxes, and your kids’ college education.

The advisor’s extensive knowledge can make difficult decisions much easier.

Some financial planners not only help you create a budget and manage your money, but they also help you to purchase insurance products and invest in financial products such as mutual funds or certificates of deposit.

One benefit of having a financial advisor is that they can trade securities on your behalf. An additional service that some financial advisors offer is working with a trust- and estate-planning lawyer or an accountant on your behalf.

1. The Dunning-Kruger Effect

People tend to overestimate their own competency. This often leads people to feel overconfident and underestimate how much they actually know. It’s often been said that a little knowledge can be a dangerous thing.

People often think they know more about investing than they actually do after learning a little bit about it. This can cause them to act like they are an expert, like Warren Buffett.

They’re not. They’re the people in the DALBAR study. Everyone assumed they could handle their own investment accounts. And look at their results. This isn’t Lake Wobegon! Everybody isn’t above average!

2. Loss Aversion

Investors are more sensitive to possible losses than they are to potential gains. A loss of 10% is more painful than a gain of 10% is pleasurable. Even after small losses, fear can take over and distort the decision-making process.

Emotions are strong and can control the intellect. Investors not taking enough risk is caused by this. People who have a lot of cash and no exposure to stocks is something we see often.

It reminds me of an old story about the cautious farmer: It was mid summer, well after planting season, and his friend asked him how his wheat crop was going.

“I didn’t plant any,” said the farmer. “I was afraid of drought.”

“Well,” said his friend, “How about your corn crop?”

“I didn’t plant any corn either,” said the farmer. “I was afraid of a corn blight. I just played it safe.”

Obviously, that plan is a long-term loser.

3. The Endowment Effect

People tend to overvalue the things they own. Investors find it hard to sell the securities they own, even if the financials are deteriorating quickly. People can get sentimental about a stock.

A lot of people found it hard to sell their Pan Am stock. Many older folks have great memories associated with Pan Am, an airline that no longer exists. Their stock certificates are only worth something to collectors.

A financial advisor can help remind the client: Your ownership of the security is not known to the security. The stock doesn’t care if you sell it and buy a better one.

4. Anchoring

People tend to hold on to what they paid for something, even if the market value has changed. This is a common occurrence where people take a loss, but don’t want to sell the item until they’ve made their money back.

Folks, sometimes that doesn’t happen for decades. Although it has risen from its lows in 2009, the Nikkei is still below where it was in 1991.

I’m not a fan of market-timing. But there is a time to move. A good investment advisor can help a client find some tax-loss harvesting ideas, while moving the position to a better investment.

If you need help explaining to clients what market volatility is and making sure they stick to the plan even in tough times, watch the
Webinar Replay, Managing Client Expectations in Volatile Markets.
5. Recency Bias

People tend to think that recent events are more important than they really are, and they don’t realize how much long-term trends matter. Those who are of a certain age remember “Black Monday: October 19, 1987.

On a single day, the stock market lost a fourth of its value. Many people were alarmed by that and sold their stocks soon after. When looking back at it now, Black Monday is barely noticeable in the grand scheme of things.

The decision-making process is often influenced by the availability heuristic, which is when people base their decisions on information that is readily available to them. This can lead to people losing perspective after experiencing a loss, as they tend to focus on the negative emotions they are feeling in the moment. In comparison to the long-term trend of the stock market, any single day’s volatility looks insignificant.

We often look back at events that caused us to panic and wonder why we panicked. Keep your eyes on the prize.

6. Status Quo Bias

Objects at rest tend to remain at rest. People are naturally resistant to change. Although they would stand to gain a lot, they find it difficult to pay even small costs.

7. Failure to Re-Balance

People are hesitant to take action to change a portfolio that is already working, even if it is not balanced. This is due to the sunk cost fallacy and status quo bias. It’s too much fun to let winners run. Selling winners in order to buy losers is psychologically difficult.

Failing to quickly rebalance leaves the client vulnerable to a market decrease.

The solution is to remind the client gently that the goal of investing is to buy low and sell high, while minimizing risk. Rebalancing periodically takes care of all three imperatives.

8. Obsessing Over Taxes

Which is better? Earn a nickel tax-free? Or earn 10 cents but give 3 cents to the government. The answer is a no brainer! Take the dime!

But this is very difficult for some people to understand. The real objective should be earning good after-tax returns, and generating the best after-tax return possible rather than becoming too focused on the tax picture.

In other words, if someone owns only tax-exempt municipal bonds, they can only see the return on their investment over a very long period of time. Sure, there’s no income tax.

The client is at risk of missing out on potential returns and being negatively affected by inflation and interest rates if they do not have some exposure to the stock market and real estate. He’s choosing to make less money rather than more.

9. They Watch too Much TV

Many people spend too much time researching investment opportunities through watching investing programs on TV and reading the financial news. They should stop. The financial media is always talking about the latest news, which can create a biased view of what has happened recently.

It targets your emotions in order to get you to go along with the crowd instead of opposing it.

10. They Confuse Historical Returns with Future Expectations

Even though stock A has shown a 15% return each year for the past ten years, this doesn’t guarantee it will continue to do so in the future. The more stocks go up, the more cautious we should be.

11. They Abandon the Plan

People give up on their plans too easily after encountering a small obstacle. They get caught up in recency bias, and lose sight of what’s important.

If you’re driving from New York to Los Angeles and you get stuck in a traffic jam, are you going to sell your car and get a bike?


You will be patient and remain committed to your plan. Since you are aware that traffic jams are a typical occurrence while driving, and they do not last for an extended period, you likely remain calm while stuck in one. You are about to embark on a journey that will take you closer to your destination.


What questions should you ask a potential financial advisor? -How much experience do you have? -What are your qualifications? -How would you approach my financial situation? -What is your investment philosophy? -How would you be compensated? -What are the potential conflicts of interest? -What are your credentials? -What is your experience in this field? -How would you deal with my financial situation?

While some people may not be keen on spending a lot of money on financial planning, it can be seen as an investment.

You can buy a quality financial plan that will last you for 20 years with only minimal financial checkups from a planner every once in a while.

About the Author Brian Richards

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