Do You Need a Financial Advisor?

The answer is likely to be yes if you have ever pondered this question, and you may need an advisor even if you have never considered using one.  If you are currently working with a financial advisor the question should be “Is my financial advisor right for me?”  The problem in both cases is that the term “financial advisor” is nebulous.  It is often used by a variety of individuals offering a variety of services and products of which some or all may not be appropriate for you. 

Let’s say you are not feeling well and decide you should see a doctor.  You are likely to choose your doctor based on the symptoms you are experiencing.  For example, if you are suffering with back pain you might see an orthopedic specialist; with foot pain you are likely to visit a podiatrist, etc.  Suppose your symptoms are not obvious, but you just don’t feel well and have no energy.  You probably would schedule an appointment with your primary care physician for an exam which would likely lead to some tests, and depending upon the results your doctor may refer you to a specialist.

You need to know two things to determine if you should be working with a financial advisor or if your advisor is right for you.  First, you need to identify your financial concerns (symptoms) and second, know what type of advisor can help you (specialist).  You need to know about the services the advisor offers as well as his or her areas of expertise.  If your financial concerns are focused on your investments you will need an advisor with expertise in investments, probably a registered investment advisor.  Conversely, if your concerns have to do with debt management you will need an advisor who can give you recommendations for better managing your debt.  The advisor selection process is made more difficult due to the terminology and the abundance of credentials conferred to individuals in the financial services industry.

The term financial advisor often includes stockbrokers, insurance agents, certified financial planners, CPAs, chartered financial consultants, chartered financial analysts, registered investment advisers and others that you probably never heard of.  It is important to work with an advisor who has the expertise and provides the services that can help you with your specific financial concerns.  An advisor who specializes in providing personal financial planning services (PFP) will in most cases be able to help with your financial concerns.  Your financial concerns are likely to fall into one or more of the following activities of PFP services:  cash flow planning, risk management and insurance planning, retirement planning, investment planning, estate, gift and wealth transfer planning, charitable planning, education planning and tax planning.

CPAs have been the trusted advisor to the public for many years.  Over the past three decades a growing number of CPAs have expanded into providing PFP services to individuals and families.  CPAs often work with other professionals who specialize or have years of experience in various areas under the PFP umbrella because it is difficult to be an expert in all of these areas.  Many CPAs offering PFP services have additional accreditations such as the Personal Financial Specialist (PFS) conferred by the American Institute of CPAs, or they may be registered investment advisers with the Securities and Exchange Commission, and some are also certified financial planners.  CPAs are licensed by state boards of accountancy and all AICPA members are subject to a rigorous Code of Professional Conduct which the majority of state boards have adopted within their accountancy laws.  CPAs are also required to complete rigid continuing education requirements (80 hours every two years in Pennsylvania). 

Here are some questions that may help you decide if you should be working with a financial planner:

• Have you had any life events in the past year (marriage, divorce, births, deaths, inheritance, retirement, job change, etc.)?
• Have you been told about the tax benefits of the stretch IRA?
• Will your children know what to do when they inherit a retirement account?
• Do you have any retirement accounts with former employers?  Did someone go over all of the rollover options with you?
• When was the last time you updated your beneficiary forms, and do they name contingent beneficiaries?
• Are you saving enough for retirement?

Questions to ask yourself if you are already working with a financial advisor:

• What recommendations has my advisor made to reduce my federal income tax?
• What plans do I have to create tax-free income in retirement?
• Does my advisor meet with me at least annually and stay in touch with me by phone more often?  Does my advisor educate me?
• Does my advisor return my calls promptly?
• Would a second opinion be helpful?

For more information about CPA financial planners see “Why a CPA Financial Planner”,
February 14, 2013, on my blog.