Bottom line
While not everyone needs an ongoing relationship with a certified financial planner, pretty much everyone can benefit from having a consultation — and some initial input — with a CFP. Especially since there are a variety of concerns that a financial professional can assist with.
While some may hesitate to hire a financial advisor because of fees, the value they bring can far outweigh the cost. An advisor can help optimize your investment returns, avoid costly mistakes, and ensure your retirement plan is tax-efficient--all of which can save or make you far more money than the fees you pay.
Very generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could also be higher, such as $500,000, $1 million or even more.
If you're not on track to achieving your goals, an adviser can help you put the right strategies in place. Or assist you to set more realistic goals. Financial advice can be useful at turning points in your life. Like when you're starting a family, being retrenched, planning for retirement or managing an inheritance.
On average, you can expect to pay between 0.5% and 2% of your total assets under management annually, $150 to $400 per hour, or a flat fee ranging from $1,000 to $3,000 for a comprehensive financial plan.
Costs are one of the primary drawbacks of hiring a financial advisor. It's typically to pay fees that are based on a percentage of your assets under management (AUM). Some advisors, however, may charge flat fees or hourly fees for their services.
This professional guidance can improve financial outcomes and provide confidence. At what point is it worth getting a financial advisor? When your financial situation becomes complex—like significant income growth, nearing retirement, or managing investments over $100,000—consider an advisor.
If you have less than $50,000 of liquid assets, then you may also want to consider going at it on your own, as the fees might not be worth it. With that said, financial advisors can bring a wealth of information and experience to the table that can make a huge difference in your potential return.
There's no universal milestone — whether it's age, career stage or income level — that signals when you should hire a financial advisor. However, if your financial situation has grown more complex than simply managing paychecks and expenses, it may be time to consider one.
Graduating college, getting married, expanding your family and starting a business are some major life events that might cause you to reevaluate your financial situation. A financial advisor can help you manage these life events while making sure you get or stay on track.
Bottom Line. A 1% annual fee on a multi-million-dollar investment portfolio is roughly typical of the fees charged by many financial advisors. But that's not inherently a good or bad thing, but rather should hold weight in your decision about whether to use an advisor's services.
If you are well-versed in financial knowledge and investing and are looking to just grow your wealth, you may not need a financial advisor. On the other hand, if you are not confident in investing money or understanding the financial markets, then a financial advisor could be worth it.
What Percentage of Financial Advisors are Successful? 80-90% of financial advisors fail and close their firm within the first three years of business. This means only 10-20% of financial advisors are ultimately successful.
A financial plan can help you feel secure about your retirement game plan so Future You doesn't need to stress about it. A plan will tell you how much you'll need for the retirement you want and how to budget for retirement savings, even if it's a small amount. The sooner you start, the better.
Industry standards show that financial advisor fees generally range between 0.5% and 1.5% of AUM annually. Placement of a 2% fee may appear steep compared to this average. However, this fee might encompass more comprehensive services or cater to more unique, high-maintenance portfolios.
If, however, you have some money you want to invest, maybe you run a business, or you come into an inheritance, a financial advisor is a good idea to help you navigate financial decisions. Their time might seem expensive, but consider the time you would need to spend to learn as much as they know.
Spend less than you make
This may seem obvious, and boring, but spending less than you make is by far the biggest key to financial success. If you struggle with spending, focus on this one rule until you're at a point where you have positive cash flow at the end of the month.
The short answer is no. You don't need to be wealthy to have a financial advisor. Financial advisors are not just for the rich. They can provide value to people at all income levels.
$520,000. That's how much income Americans think they would need, on average, to feel rich, according to Bankrate's Financial Freedom Survey published in July. That salary would put you comfortably among the top 2% of American earners, according to Census data.
In 2022, 35 percent of Americans worked with a financial advisor, while 57 percent said that they didn't have a financial representative. The share of Americans approaching a financial advisor decreased slightly compared to the previous year.
You're Confident Managing Your Own Investments
If you are comfortable selecting and managing your own investments, you may not need a financial advisor. Perhaps you follow the markets closely and do your own research on potential investments.
Fee-Only Advantages
Many clients like the relative ease of understanding a fee-only advisor's business model and compensation structure. While even a fee-only advisor may work with outside asset managers who charge a fee, it's still easier for clients to grasp how the planner's firm is paid.
Other signs it may be time to hire a CFP include (but are not limited to): You want to better understand the implications of your financial decisions. You just received an inheritance or a large sum of money. You want options for managing, minimizing or eliminating debt.