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5 times in life to hire a financial adviser

Dawn Papandrea

March 12, 2015

Financial decisions can be difficult, emotional and confusing. Most of all, making the wrong ones could have a long-term impact on your lifestyle.

That's why it could be in your best interest to seek professional advice regarding money matters. In fact, in some cases, paying a financial adviser could yield a significant return on your investment.

“If someone has the time, knowledge and temperament to manage their own finances, they probably should,” says Brian Mackey, CEO of 4Thought Financial Group. “But most people are missing at least one of those ingredients.”

When choosing an adviser, one part of your research should include finding out how the financial adviser is compensated. A fee-based model in which you are charged an annual or monthly fee based on your asset size (around 1 percent is standard), essentially means the adviser and client are on the same side of the table, says Martin Buchanan, private wealth adviser and owner of Buchanan Capital Management LLC. In other words, the adviser is only going to make more money if he grows your assets. On the other hand, commission-based advisers earn money based on the products they sell you, which could create a conflict of interest.

That's not to say you should avoid commission-based advisers at all costs. For instance, if you're opening a 529 plan, you may want to work with an individual who advises on just that product. The bottom line? For big-picture financial goals, you want someone who will be working on your behalf, not trying to meet a sales quota.

That being said, here are five times when hiring an adviser could strengthen your financial foundation:

1. When retirement is on the horizon

If economic history of the past decade has taught us anything, it's that retirement savings are not infallible. That's why, as you approach your non-working years, it's important to really examine your financial position, says Buchanan

“Employees work diligently for decades, stashing their hard-earned wages into their companies' 401(k) plans. Then, once they retire, they experience a massive change in their financial situation and that warrants the help of a professional,” he says.

“Retirement is no time for retirees to become do-it-yourselfers.”
–Martin Buchanan, Buchanan Capital Management

Leaving a financial phase of accumulation and entering into a phase of distribution, Buchanan says, means that retirees must withdraw funds from their retirement accounts to live on. “A financial adviser can help navigate how to do that,” says Buchanan, since some complications can arise. For starters, retirees should have a good sense of how many after-tax dollars they need to live on annually, which investments will need to be sold and which investments to draw income from.

“Retirement is no time for retirees to become do-it-yourselfers. They might significantly damage their portfolio's value, resulting in a number of different unfortunate scenarios,” says Buchanan. To solve this problem, he recommends that future retirees begin interviewing financial advisers as they near retirement.

2. When rough times hit

Hiring a financial adviser when you are facing a cash crisis — such as being inundated with debt or going through a messy divorce — may be a hard pill to swallow, but it could be exactly the medicine you need, says Rebecca Pavese, CPA, financial planner and portfolio manager with Palisades Hudson Financial Group's Atlanta office. “Financial advisers not only offer technical advice, but also provide a nonbiased view of your situation,” she says.

One sign that you may need help could simply be coming up short on all your financial goals year after year, and not knowing where you are going wrong or how to change the result, says Pavese.

In addition, if you are burdened by mounds of debt and trying to get out from under it, a financial adviser will be able to help you set up a plan to reach your objectives. “Sometimes this will only require simple adjustments to your financial affairs, but in extreme situations it might involve working with debt collectors or even filing for bankruptcy,” she says.

Another dollar disaster for which you might want to consult a professional — if you just lost a lot of money in the market, says Pavese. “You should consult a financial adviser before turning all your paper losses into real losses. An adviser will be able to provide sound investment advice, free from an understandably emotional reaction when the loss is personal,” she says.

3. If family health issues arise

Not much could send your finances into a downward spiral faster than a major family health or long-term care situation. Whether it's a family member with disabilities or a serious illness, or if you have to consider a nursing home for aging parents, those situations will have tremendous financial implications for all involved, says Steven J. Samuel, independent financial adviser and founder of Samuel Financial LLC.

“When we advise younger people, the typical question they have is not knowing how to allocate their money.”
–Steven J. Samuel, Samuel Financial

“These situations may have potential legal issues and tax implications,” he says, but even more so, there could be a lot of uncertainty and emotions involved. “When such an enormous cost could go on for an indeterminate amount of time,” he says, “you need to find the right adviser or right combination of advisers.” Seek out those with the right education, experience and qualifications for the unique situation you're facing.

4. While you're still young

We've already established that you should seek an adviser as you prepare for retirement, but that doesn't necessarily mean it should be the first time you get outside help. “Time passes so quickly,” says Samuel. “When we advise younger people, the typical question they have is not knowing how to allocate their money.” Specifically, figuring out how to weigh your immediate concerns (saving for a house, paying off debt) with your long-term goals (retirement, college savings for children) can be a challenge. “Those are the decisions that ultimately have the biggest impact on a financial future,” adds Samuel.

In other words, not having a game plan in your 20s and 30s could potentially work against you in your 50s and 60s. Or, with the right guidance and sound decisions, it could work in your favor.

5. If you hit a jackpot

For anyone who comes into a large sum of money, whether it be from an inheritance, a lawsuit or by winning the lottery (hey, it could happen, right?), the last thing you want to do is end up broke, says Mackey. “People need to have a plan and a professional working with them can ensure that they are not ripped off or exposed to significant tax issues,” he adds.

No matter what life stage or transition you're facing, a professional financial adviser can offer an unbiased dose of reality. “Professional athletes, including Peyton Manning, all have personal coaches,” says Mackey. “It goes to show that everybody can use coaching.”