Why Your Financial Advisor Shouldn’t be Managing Your Investments

Many people consider hiring a financial advisor to manage their investments. But is a financial advisor really the best person to handle your investments day-to-day?

While a financial advisor or Certified Financial Planner^® should be overseeing your investments, this shouldn’t be their main focus. They should be looking at the big picture and quarterbacking all areas of your financial life and not getting into the nitty-gritty of managing your portfolio.

Your investments should be handled by a specific investment committee at your financial advisors firm or they should be hiring out the management to a third party who focuses exclusively on managing portfolios. Monitoring and managing investments is a full-time job.

Before we talk more about this, let’s go over what financial advisors do and how they can help you get on top of your finances.

What Do Financial Advisors Do?

Financial advisors and planners help you organize your finances and investments so you can see how you’re doing. They will guide you through the process of defining your financial goals and laying out a plan of action for the future.

When you first hire a financial advisor, they will ask you detailed questions about your money and your investments. They will talk with you about what you want to accomplish and your goals for the future.

Once they have a good idea of what you want to do, they will help you create a plan with specific steps you need to take to achieve these goals. This financial blueprint will help you identify specific investments or products to help you along the way.

For example, if your goal is to retire in 10 years, a financial advisor can help you figure out if you have saved sufficiently for retirement and identify problem areas. They will talk to you about your estate plans, life insurance, long-term care insurance, and so on.

In addition, they can help you identify your plans after retirement and figure out if your portfolio will support your goals. For example, if you want to travel, a financial advisor can help you check if this expense will fit based on your projected retirement income.

Don’t Let Your Financial Advisor Manage Your Investments

While your financial advisor can manage your investments, this is not the best idea since they typically aren’t the expert. Financial advisors are generalists when it comes to investments; what you want is a specialist.

Think about it like this: your family doctor may be able to diagnose you with cancer, but you don’t what them treating you. You want to go to an oncologist who will be up on all the latest research and recommend treatments for your particular form and stage of cancer.

While your family doctor can oversee your care and keep tabs on your health, they shouldn’t be the one doing the treatment plan. You want to talk to a specialist who will know everything about your specific illness and can answer your questions and concerns.

Just like your family physician, your financial advisor can oversee your investments and make sure they fit with your overall financial goals. However, you want to go to an investment expert for the day-to-day management and ensure your portfolio performs well.

How a Financial Advisor Can Help You

This begs the question: How can a financial advisor help you? A good financial advisor will give you advice on what you need to do differently with your money, how much you need to save, and what types of retirement accounts make sense for your situation.

An advisor looks at the overall financial picture and takes into account your debt, income, investments, plans for the future, and long-term goals when making a financial plan.

Here are some other areas where you should consult with a financial advisor:

Manage debt

If you have debt such as a mortgage, student loans, business loans, and so on, a financial advisor can help. They can advise you on the best way to structure your debt payoff and when you should refinance.

In many cases, it can be difficult to prioritize debt and balance it with saving for retirement and other financial goals. While you can get yourself out of debt, having a financial advisor in your corner can speed up the process.

They can answer questions such as: Should you pay off your mortgage early? How much should you save for retirement? Should you open a 529 or a Coverdell ESA to save for your kids’ college? Can you afford to buy a vacation home?

Looking at the bigger picture, a financial advisor can help you formulate a holistic plan for your money beyond just paying the bills. When you have a financial blueprint, you can put your income toward reaching your long-term goals.

An outside perspective can help you decide where to focus your resources to reach your financial goals.

Which leads me to...

Reach financial goals

One of the best ways a financial advisor can assist you is by helping you identify your goals and the steps to get there. Many people have a vague idea of what they want from their future but most don’t know exactly how to achieve it.

A financial advisor can bring your goals into focus and help you align them with your values. For example, maybe you want to pay for your kids’ education but don’t know where to start. There are many options such as 529 accounts, Coverdell ESAs, UGTMA’s, and so on.

You may have questions such as: How much should you save for each child? How aggressive should you invest? How does saving for college affect your child’s eligibility for financial aid? Is it too late to start saving for college?

It’s nice to have someone with the expertise to guide you in finding answers to all the questions you may have about finances and how to achieve your goals. A financial advisor can help you in creating a plan to pay off your debt and save for the future.

Health and long-term care planning

Many people don’t like to think about long-term care planning or declining health in retirement. However, if you don’t make adequate plans, you will be caught unaware and worse, may end up burdening your family with the expense.

According to the Fidelity Retiree Health Care Cost Estimator, an average retired couple age 65 in 2019 can expect to spend approximately $285,000 to cover health care expenses in retirement.

How much you need will depend on your health, when and where you retire, your longevity, and so on. The accounts you use for your care such as a Healthcare Savings Account (HSA), a 401(k), an IRA, etc. will also affect taxes.

This is where a financial advisor can ensure you have appropriate savings to cover you in the future. They can advise you on long-term care insurance and other arrangements to help you secure your finances in your golden years.

Planning your estate

Planning for end-of-life doesn’t have to be depressing or a negative process. You’ve worked hard for your money and assets, so you get to decide what to do with them and how to distribute them when you die.

There is much more to estate planning than just drawing up a will. Other things to consider in your estate plan include instructions for your care if you become disabled before you die, naming a guardian for minor children, life insurance for your family at your death, disability insurance, an arrangement for your digital assets, and so on.

A financial advisor can help you create a plan for carrying out your wishes once you pass away. They can be a great resource for what documents you should have in place to ensure you cover all facets of your estate plan.

If you run your own business, you may have specific questions about exit planning and passing the business along. Your advisor can help you create a succession plan or figure out how to sell your business when you are ready to retire.

Inheritance questions

While receiving an inheritance or a windfall can be a financial blessing, it can also be stressful. You may wonder about the tax implications, how to allocate the funds, and the best way to manage the money.

Talking with a financial advisor can help you formulate a plan for the money. They can advise you on how to factor this into your financial goals and strategies, and what else you need to consider from a financial perspective.

An advisor will also direct you to the appropriate professionals to contact for more information and arm you with the questions you need to ask.

Retirement planning

Planning for your retirement is one of the areas where a financial advisor can really help. Many people are unprepared for the financial implications of shifting streams of income from a salary to investments.

An analysis by the Government Accountability Office (GAO) found that the median retirement savings for Americans between the ages of 55 and 64 was $107,000. The report found that this would translate to a $310 monthly payment if invested in an inflation-adjusted annuity.

Having enough savings can mean the difference between enjoying your retirement and just scraping by. A financial advisor will review your financial goals and come up with a plan for how much you should be stashing away for your golden years.

They can advise you on the best accounts to use for your savings, how much to set aside each month, and how to fit your retirement savings with your overall financial goals.

As you approach retirement age, you will need to consider several big issues, including when to stop working, when to take Social Security, how to pay for health care costs, and how to fund your expenses in retirement.

These are all important decisions that could make a difference in when you can retire and the type of lifestyle you can enjoy. If you decide to retire before age 65 when you are eligible for Medicare, you will also need to consider how to pay for health coverage.

Talk to a financial advisor about a long-term plan to not only build wealth but also protect your assets. They can help you project your financial needs and figure out how to stretch your savings to cover your expenses.

Tax planning

Dealing with tax issues is never fun but neither is paying more than your fair share. As you grow your wealth and get close to retirement, you will face more questions about how to preserve your money and minimize taxes.

Consult with a financial advisor on how taxes will impact your finances today and in the future. They can provide you with options that can lower your tax burden and advise you on the best way to shelter your income and assets.

If you are confused about saving for big milestones such as retirement, college costs for your kids, and even a house, a financial advisor can help. They can advise you on charitable donations, making the most of available tax breaks, and minimizing your tax burden.

The Bottom Line

The goal of a qualified financial advisor should be to manage your overall finances and ensure you stay on track so you can reach your financial goals. While you can certainly have them manage your investments, that job is better handled by someone specifically committed to this role.

A seasoned professional can help you weather major financial storms and be a sounding board when you have to make tough financial decisions. They can remain neutral and be the voice of reason that helps you stay the course so you can reach your goals.

This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.