The Dollar Value of Working with a Financial Advisor

6 min read

The Dollar Value of Working with a Financial Advisor

Money is complicated, and the more you have, the harder it is to manage. It can be overwhelming to try and balance your various goals, invest wisely as the market changes, and deal with complex things like equity compensation and taxes.

When that overwhelm happens, there are experts who can help, acting as guides on your financial journey: Fee-Only Financial Advisors. By working with one, you can make sure the strategies you're using, and the goals you’re pursuing, are best suited to your circumstances over time.

After all, it’s comforting to know that you’re headed in the right direction. A recent NorthWestern Mutual study even found that 66% of people who work with a financial advisor feel very financially secure, compared to just 31% of those who don’t have an advisor. And working with one can also save you money.

Here are four key ways you can benefit from working with an advisor:

Tailored investing strategies

When most people think of a financial advisor, they think of investing. And that’s definitely a part of the job. Depending on the type of advisor, they may give you advice about how to invest your money, or they may make trades on your behalf (acting as a broker).

With a fee-only fiduciary advisor, like those at Farther, they help you create a diverse portfolio and tailor your investing strategy to your needs — in addition to updating your financial plan and offering ongoing advice as your life changes. That approach can earn you a significant amount of money, especially over the long-term.

A 2019 Vanguard study, for example, found that working with an advisor could increase returns by 3%. With a $100,000 initial investment over a 30 year period, that’s a difference of about half a million dollars. And only 30% of Americans who don’t have an advisor say they have financial plans built to endure market ups and downs, compared to 73% of those who do have an advisor.

But investing is just a piece of the puzzle when it comes to building wealth and reaching your financial goals.

Personalized advice around major life events

Financial advisors are a great resource for establishing your future plans, but they’re also useful when it comes to big life changes, like buying a house. And because that’s often the single biggest financial decision a person will make in their lifetime, it pays to have an expert on your side.

Let’s say you were pre-approved for a mortgage. A financial advisor can help you figure out your best mortgage options, like:

  • Choosing between a 15- versus 30-year loan
  • Figuring out how much your down payment should be
  • Advice around taking advantage of first-time home buyer programs
  • Understanding what impact buying a house would have on your taxes

On the other hand, not having that expertise to guide you can lead to mistakes.

For instance, you may not know about the potential advantages of mortgage points, which can help lower your long-term costs. Or they may be able to help you increase your credit score in preparation for your mortgage application, so that you’d be able to score a lower rate.

That’s especially important when you’re looking at such a large purchase.

With a $2 million house and 20% down, a quarter of a percentage point can represent a nearly $75,000 difference in interest payments over a 30-year term. That kind of money could come in handy if you need to pay for an unexpected repair on that house or if you decide to have kids.

Tax planning help

The more complex your finances, the more important it is to have a plan for addressing taxes. That’s because you likely have a variety of accounts and products that will all have an impact on how much you pay.

If you have equity compensation, for example, it’s hard to know how selling will impact your tax situation because there are so many kinds of equity and they each have their own associated tax rules. A financial advisor can guide you through your compensation package options and help you understand what selling will do for your broader finances. They can also help you figure out how to manage your equity as you change jobs and grow your wealth.

As with many money mistakes, it can be difficult to see equity compensation mistakes until it’s too late. And you don’t want to end up with a surprise tax bill at the end of the year. For example, if your equity sale was subject to the capital gains tax, that could amount to a hefty bill, depending on when you sell.

Say you work in San Francisco and earn $220,000 a year. If you started with $50,000 in equity, and that grew to $100,000 by the time you sold, less than a year after starting, you’d owe $17,500 in capital gains taxes just to Uncle Sam before state taxes come into play. That drops to $7,500 if you were simply to wait until you’d had that equity for more than a year. A financial advisor can make sure you avoid tax missteps like that.

Holistic financial planning

Between investing, big life events and taxes, there are already a lot of moving parts to managing your finances. A financial advisor brings all of it together to create a holistic plan that works for you. This kind of financial planning can mean different things to different people, but in general, an advisor would help you with:

  • Estate planning, so you know your loved ones will be taken care of no matter what happens
  • Retirement planning, so you can have everything you need, and want, when you stop working
  • Financial goal planning, so you can accomplish everything you want to do
  • Navigating life changes, so you can make sure you’re always working toward the future you want, even if that idea changes over time 

This kind of holistic approach ensures that all of your decisions are working together to meet your goals. And that’s important for both your finances and your wellbeing. In fact, 92% of American adults agree that having their finances in order makes them both happier and more confident.

So if you don’t have a lot of time to devote to managing your finances, and you want the support and confidence that comes from working with an expert, a financial advisor can help.

Schedule a call with a Farther advisor to start creating your personalized financial plan.

Anthony Carlton, CFP®

Anthony is a Certified Financial Planner and VP Advisor on the Farther team. Drawing from more than eight combined years in wealth management, fintech, and as an entrepreneur—he helps growing professionals invest and design a plan that matches their goals.

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