Hiring a Financial Adviser Is Absolutely Essential

I concluded my column last week on the difficulties the middle class faces with the declaration that “you can’t afford not to” budget, invest and perhaps even hire a financial adviser. I’ve done some more thinking on that idea in the past few days and I’ve come to a conclusion.

I was absolutely right. Every one of us could use a financial adviser.

Unfortunately, and understandably, due to the financial crisis many Americans have become leery of the financial sector in general. That’s too bad. Because the truth of the matter is that with better financial guidance, fewer Americans may have gone into too much debt to purchase homes they couldn’t afford. That opinion puts me in good company. Nobel Prize-winning economist Robert Schiller agrees with me.



A critical service

“People make better decisions with financial advisers,” Mr. Schiller told participants at a 2013 conference hosted by the National Association of personal financial advisers and Forbes. Schiller went on to say that it’s even more critical for low- and moderate-income people to get advice because they typically have less financial education and are therefore at more risk. He likened the need for financial advice to the need for health care and even proposed that professional financial advice be subsidized by the government for those who can’t pay for it.

But high-income people, with all their financial sophistication, can make mistakes, too.

An expert in the hot seat

A few years ago, New York Times columnist Paul Sullivan wrote a column called “Financial Advice Gleaned From a Day in the Hot Seat.” In it, the financially shrewd (and wealthy, thanks to a successful career in journalism, authoring books and speaking engagements) Sullivan recounted an afternoon he spent with eight members of the Tiger 21 investment club. Tiger 21 is composed of 300 members who collectively have $30 billion in investable assets — all of it self-made, none of it inherited, by the way. In that session, Sullivan and his wife were grilled on their money decisions and habits: They didn’t have enough insurance, they spent too much and they would be well advised to sell their vacation home.

“What I experienced was rough,” writes Sullivan, “but it was also thought-provoking. The value to me — and to anyone given a similar opportunity — was that the members challenged everything about my assumptions on saving and spending.”

Another objective mind

Sullivan was uncomfortably reminded of something he already knew: It’s impossible for anybody to be an expert on all matters financial. Are you an insurance expert? A tax expert? An education expert? An estate-planning expert? A stock-market expert? A bond expert? A retirement expert? And even if you are super-sharp, have amassed considerable wealth and are the seasoned veteran of many an economic cycle, that same savviness, success and self-assurance can also be a liability. “Pride comes before the fall” because pride lulls us, makes us lazy and deludes us. And if it’s not pride, then it’s emotion. We succumb to euphoria — or, the other end of the pendulum, panic — and we buy and sell according to irrational impulses rather than the dictates of a well-crafted plan.

It’s difficult to be an expert at every financial discipline, just as it is to always remain level-headed when it comes to your own money. And even if you are, you can always, always use another knowledgeable and objective mind.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth advisers LLC.