When should you work with a financial advisor? (And when should you not!)

WRITTEN BY: Gideon Drucker, CFP® AIF® ECA

In a separate blog I explained that “net worth” and “money to invest” are the absolute wrong metrics to use when it comes to figuring out if you’re “ready” for a financial advisor….In fact, it’s wholly irrelevant.

Here’s a quick synopsis of that article:

There is a misguided notion “out there” that unless you already have three million dollars to invest, you can’t possibly have questions & need professional guidance about:

Your cash flow and budgeting
Your student loans and broader strategy to pay off debt
Your kids’ education planning & goals
Your benefits, stock options, and retirement accounts at work
Your protection & insurance planning
Pre-Tax vs. Roth vs. After-Tax prioritization
Estate Planning
Managing your financial behavior
Analyzing your housing costs and real estate expectations
Long term Scenario Planning

Are we really saying that a family in their late 30’s earning $600k, with 2 kids, 27 goals, and 12 financial/estate/tax questions should wait UNTIL they have two million dollars before they’re able to benefit from, and pay for, professional financial advice??? That is both insane and counterproductive…we believe this is the group that MOST needs real financial advice!

Household income, for those in their 30s-40’s, should determine if you are at a point to warrant bringing on a Certified Financial Planner™.

I hesitate to give an exact number here because a "high" income is totally dependent on factors like location and cost of living.

For example, $150,000 in Florida is different than making $150,000 in San Francisco/NY, but generally speaking, we're speaking about individuals making $150k+ and dual income households earning more than $250k+.

A high household income tells us a number of things about the opportunities for change, both tactically and behaviorally, that a financial planner can help you to solve & prepare for.

Financial planning is about balancing your current wants with your future needs. In other words, how do we maximize your current lifestyle, experiences, and quality of life without letting it negatively impact your ability to attain financial independence in the future?

This is why a high income is the dividing line: a high enough income allows you to think beyond the day-to-day concerns of your financial household; you can pick your head up and start thinking about the competing uses of your money and your shifting concerns between the present and the future.

Financial Planning Advice becomes important when you have the means and the motivation to think beyond just “getting by” week to week and can move onto thinking about, and planning for, the undetermined future. When you’ve reached this point, new questions, concerns, opportunities, and strategies start to present themselves. This is where a CFP® comes in.

To that end, here’s a (partial) list of questions & concepts that a CFP® will advise on once your income allows for it:

What should your savings rate be? In other words, what percentage of your household income needs to be saved in order for you to hit your targeted financial goals?
Are your financial goals achievable based on your current income, time horizon, and existing assets? What needs to change to make them feasible?
More specifically, when is the best time to target these goals? Should you be buying a vacation home in 5 years or would that deplete your cash/investment reserves to an unhealthy degree? Does it make more sense to buy a less expensive home or to defer buying that home an extra few years?
When looking at your saving potential: how do we prioritize those savings to help you become more tax-efficient in your overall asset allocation? Are you using the right mix of Pre-Tax Retirement Accounts, Backdoor Roth IRA’s, After-Tax 401k, Taxable investment contributions, Health Savings Account/Flexible Savings Account, Supplemental Retirement Plans (SERP), cash accumulation, 529 Education vehicles etc.
Is it the right time in your life to convert existing Pre-Tax Accounts into Roth Accounts? Will doing so bump you into a higher tax bracket or keep you at the same level? What are your personal expectations & philosophy for income trajectory & tax rates over time?
If you have children, what are the best saving vehicles for your specific goals? (529 Account, Custodian Accounts, Taxable accounts, trusts etc.) How much should you be saving for your children versus towards retirement?
Are you maximizing the retirement/health options through work? Does your firm have an After-Tax 401k, an HSA, a deferred comp plan, or pension benefits? Do you understand how they impact your plan?
Are you making the most strategic decisions with your stock options? How should you think about your Restricted Stock Units in the context of your broader income? What is an appropriate amount of concentration to have in company equity given your age, income, and investing time horizon?
If you are in a new marriage/relationship, how do you start merging your finances with your partner? Is it necessary/important to set up joint investment accounts or can accounts remain separate while goals are combined?
Have you done a sufficient job of protecting your current income and your future income potential via various insurance coverages (Disability, Life, Long Term Care?) Most High-income earners are vastly underinsured…especially if they are only relying on their employer sponsored plans.
Do you have a proper estate plan set up if you were to pass away prematurely? Do you have a will & health care proxy set up? Do you have chosen guardians, trustees, and fiduciaries set up to handle your assets?
Are your existing retirement accounts and investments allocated in a way that makes the MOST sense for you from risk, tax-efficiency, cost, and performance standpoint? Why do you own what you own inside of your retirement accounts?
Do you have a purposeful program for paying off debt (student loans, mortgage, personal loans) that takes into accounts interest rates, liquidity, and your personal comfort level? Why do we talk about “good” debts vs. “bad” debts?
You want to be able to help your parents as they get older….are there vehicles & ways to title your accounts that allows you to take care of your spouse and kids AND your own parents?
You have 401k’s from 7 different companies and you’re not sure where they are or how they’re set up. Could you use help in corralling them and making sure there is a clear and purposeful approach towards these retirement dollars?
The market’s volatility is causing you anxiety…but you’re not sure how it affects you given your current investment allocation. How would a complete analysis of your existing accounts, and a better understanding of historical trends, prepare you to whether the next market correction?

None of these questions & areas of focus are less important to answer or are any less relevant to your family if you have $200k, $500k “to invest” or $5mm.

Having answers to these types of questions are actually substantially more valuable if you're younger and have a lower net worth because the value that you receive will have more time to compound (just like the money itself) for your future...You get more time to let all the changes work in your favor!

If these questions resonate let’s take that next step and speak over a 15 minute right fit call.

-Gideon & The Drucker Wealth Team