How a Financial Adviser Can Help You Sleep at Night

(Image credit: Getty Images)

By Neale Godfrey, Financial Literacy Expert

published 30 October 2024

There are lots of diversions swirling around right now that may have shifted your eye off the ball — an election, Middle East unrest, interest rates and, frankly, life. It’s time to focus on your financial self.

When it comes to designing your financial life, you need to look forward. Of course you are smart enough to do this on your own. You are also smart enough to Google how to do your own dry cleaning. But why would you when there are professionals out there to help you? I’m being facetious, but when it comes to your financial future, I think it’s important to have professionals to help and guide you.

No matter your age, choosing the right financial adviser is a critical life decision that too often is either ignored completely or considered decades later than it should be.

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Trust me, I know. Speaking as a member of the generation that preferred to walk on their frayed bell-bottoms with flowers in our hair, we lived by the maxim “Never trust anyone over 30.” Many Baby Boomers haven’t gotten the memo, fax, text message or telegram regarding long-term financial planning. The Grass Roots song lyrics “shah-la, la-la-la-la, live for today” also translated into neither considering our future nor saving for it. In fact, a recent Bankrate.com Retirement Savings Survey bears this out: 57% of all workers think that they are lagging behind where they should be on their retirement savings, and 66% of Baby Boomers think they are behind as well.

Now what?

Memorialize your goals

You can’t decide how to get where you want to go before you decide where you want to go. You need to decide what you want in life. Ask yourself probing questions about your life and what you want it to look like.

Where do you want to live?
Do you want to own a house or rent?
Do you want to travel?
Cars? Kids? School?
What do you want retirement to look like?

You need to write down your short-, medium- and long-term goals and put a price tag next to each one. Guess. This list will be refined throughout your life as circumstances change. Obviously, your list as a 30-year-old will be vastly different if you are a 60-year-old.

My message here is that you don’t have to do this alone. But I want you to know yourself and what will make you happy before you pick the team to help you get there.

Your cold-sweat test

You also need to think about the level of risk you are willing to take for your investments. That means that you should decide what makes you comfortable. You have to gauge how much of the thrill of the big wins will balance out against the possible tragedy of the big losses. I refer to this as the “cold-sweat test.” I don’t want to wake up in the middle of the night in a cold sweat, worrying about my investment decisions.

Also, if you are an older adult, the time/value of money is not on your side. That means that you don’t have a lot of time to make up for any losses that you may incur when you take big investment risks. Decide this for yourself, and when you select a financial adviser, they should coach you through the decisions and set up a portfolio that matches your risk tolerance and will help you sleep at night.

What will a financial adviser do?

It’s now time to consider professional help. Financial advisers should:

Work with you to set up a workable budget to meet your life goals
Help you to understand investing based on your risk tolerance
Work with your accountant on tax planning
Talk with you about the financial legacy you want to leave to your loved ones
Assist you with setting up your charitable giving

Your financial adviser should never pressure you to make a decision that you’re not comfortable with. You want them to have your back. You want them to be consultative and offer advice, but you need to understand that the reality is that some of them sell investments.

The best things in life are (not) free

That was the running joke in The Beatles song “Money (That’s What I Want),” but it’s also a fact of life. Financial advisers advertise their services via several fee structures. Some are fee-based, where the client pays a monthly retainer. Others work off commissions, though some use language that suggests their services are “free.”

For most clients, monthly fees are the preferred payment structure. Commission-based structures incentivize greater risks taken by the adviser with your money. Any financial adviser should be transparent with their fee structure.

Cost examples of financial advisers:

Low cost. Robo-advisers are digital solutions where you find a fintech company that offers investing options. You will answer some generic questions about yourself, such as age, risk tolerance, goals and so on, and then the computer algorithm will produce a portfolio of investments for you. You can invest as soon as you set up an account that is tied to a financial institution. The fees may start as low as .25% of your balance. This may be a great way for the young investor to start out. But remember, you are flying alone.
Medium cost. Online financial planning services may have a minimum investing requirement of $25,000 or more to start out with, though some have no minimum. They offer more than robo-solutions, so the fees are a little higher. But you won’t be going to lunch with anyone.
Higher cost. Traditional financial advisers fall into this category. They will meet you in person (though they’ll meet you virtually, too). They usually charge 1% of your assets per year and will indicate the minimum asset size they specialize in.

I recommend that if you are older and need advice, find a financial adviser. It’s your money, and it’s your life. (For information on how to go about locating an adviser, check out the article How to Find a Financial Adviser.)

And remember the words of Warren Buffett: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Neale Godfrey is a New York Times No. 1 bestselling author of 27 books that empower families (and their kids and grandkids) to take charge of their financial lives. Godfrey started her journey with The Chase Manhattan Bank, joining as one of the first female executives, and later became president of The First Women's Bank and founder of The First Children's Bank. Neale pioneered the topic of "kids and money," which took off after her 13 appearances on The Oprah Winfrey Show.