How Much Money Should You Have Before Hiring A Financial Advisor?

Drazen Zigic/Getty Images: Illustration by Issiah Davis/Bankrate

The world of investing and retirement planning is complex, and a couple simple mistakes can cost you a small fortune over time. It’s no wonder many people consider hiring a financial advisor to help them navigate the process.

Financial advisors offer guidance, develop plans and manage your investments for a fee. But your willingness to pay the associated costs doesn’t guarantee an advisor will accept your business.

Some traditional financial advisors require minimum investments — ranging from $20,000 to $500,000 or even more — to work with clients. Why? Because their fees need to cover their time and expertise, and managing smaller portfolios may not be cost-effective for them.

That doesn’t mean you’re out of luck if you have less. Here’s what you need to know about financial advisor fees and other options for getting professional help managing your finances.

Need an advisor?

If you’re looking for expert guidance when it comes to managing your investments or planning for retirement, Bankrate’s AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals.

How much do financial advisors cost?

There are a couple ways financial advisors charge clients for their services, including:

• Percentage of assets under management (AUM): This fee is based on how much money an advisor manages for you, and it typically ranges from 0.25 percent to 1 percent annually.
• Flat fees: A set annual fee, regardless of your portfolio size. This can be helpful for smaller amounts.
• Hourly rates: Typically used for specific tasks like tax advice or creating a financial plan. Hourly fees can range from roughly $150 to $300 or more.

How much money should you have before hiring a financial advisor?

You don’t need a lot of money to set up a one-time meeting with a financial advisor. Many advisors offer an initial discovery session for less than $300.

While having some investable assets or a few thousand dollars in the bank might be ideal, focusing solely on the dollar amount misses the bigger picture. A better question to ask yourself is: Do you need help managing your money in a way that justifies the cost?

Financial advisors often provide the most value if you have a complex financial situation, lack comfort or familiarity with managing your investments or you’re going through an important change in your life.

Scenarios where a financial advisor can be an invaluable guide include:

• Handling a windfall such as an inheritance.
• Juggling multiple income streams or organizing your finances if you own a small business.
• Preparing for the second half of life if you’re nearing retirement.
• Getting married or going through a divorce.
• Managing complex financial needs and a sizable portfolio.

Consulting with a financial advisor can help avoid common financial pitfalls so you can navigate transitions with confidence.

In short, if your finances are relatively simple or you don’t have much money, you might not immediately need an advisor. Focus instead on educating yourself, utilizing reputable online resources, and building good financial habits like budgeting and saving consistently.

Likewise, if you enjoy researching and managing your money, it’s probably more cost-effective to take a DIY approach. As your money grows and your financial situation becomes more intricate, consider consulting with an advisor.

How do you pick a financial advisor?

Once you decide to hire an advisor, you’ll want to find a trustworthy professional who meets your needs and fits your budget.

Here are some things to keep in mind when searching for a financial advisor.

• Seek recommendations: Ask friends, family or colleagues for referrals.
• Check online directories: Online databases from organizations like the CFP Board can help you find financial advisors in your area and narrow down your options.
• Interview potential advisors: Ask about their experience, qualifications, fee structure and investment philosophy. Ensure they align with your needs and comfort level.
• Check up on credentials: Out of the gate you want to make sure any financial advisor you hire is a fiduciary, (Here’s what that means and why it’s important.) You can also check their record by searching the FINRA database.

Remember, you’re interviewing an advisor just as much as they’re evaluating you. Don’t be afraid to ask questions so you can feel confident choosing someone you trust.

Here are five ways to know if you’re getting trustworthy money advice.

And when it comes to cost, make sure to compare fees and understand the value you’re receiving for the price. Don’t hesitate to negotiate fees if you feel comfortable doing so, or ask if they offer any payment plan options.

Alternatives to financial advisors

If you’re just starting out or aren’t ready or able to commit to hiring a traditional financial advisor, there are other, low-cost alternatives out there that might suit your needs.

• Robo-advisors: These automated investment platforms use algorithms to manage your portfolio based on your goals and risk tolerance. Fees at the best robo-advisors start at 0.25 percent of your investments, and many offer no account minimums to get started. Some services even provide access to financial pros for free or a small extra fee.
• Financial planning tools and educational resources: Several online brokers offer free tools that help you create a financial plan, track your net worth or simply learn more about investing. It’s not the same as personalized guidance, but it can be a good starting point. And some of the best online brokers, like Fidelity and Charles Schwab, don’t require a minimum amount to get started.
• Money coaches and financial counselors: If you mostly need help with budgeting, saving money or paying down debt, working with a financial coach or counselor might be a cheaper alternative.
• Nonprofit credit counseling: This low-cost service is provided by organizations focused on helping people reduce their debt and improve their credit. You can find a directory of credit counseling agencies in your area at the National Foundation for Credit Counseling.
• Fee-only financial planners: These advisors charge a flat fee or hourly rate, eliminating potential conflicts of interest from earning commissions on specific products. Look for a certified financial planner for extra qualifications.

Bottom line

Ultimately, there’s no magic number dictating when to hire a financial advisor. If you lack financial knowledge, have a complex financial situation or want expert guidance, an advisor can be invaluable, regardless of your net worth. However, if you’re comfortable managing your money and have simpler goals, consider DIY options and educational resources first. Remember, a financial advisor is a tool, not a shortcut to wealth. The most important investment is your own understanding and involvement in securing your financial future.

— Bankrate’s Dayana Yochim contributed to an update.