Ask Jill: When To Hire A Financial Advisor

Last Updated May 28, 2010 1:44 PM EDT

I don't care how smart you are about money--everyone could use advice from time to time from a professional. But when exactly is the right time to engage a financial advisor? How do you know that you need a pro and more importantly, how should you choose one?

Here's a question from Kim that incorporates a lot of the information that I need to help her out not only with her financial life, but also to understand whether or not she is ready to hire an advisor:

I recently went onto your website and I am very impressed with the user-friendly information. I would like to ask some questions regarding my current financial situation and hopefully get some sound advice. I am 46 and single - this is my financial situation:
  • Fluid Savings: $2,400 with no interest rate
  • Retirement: $25,000 in my retirement ($6,600 in a 403b earning 5.60% & $18,500 in a Fidelity Retirement acct earning 4.2%) I am no longer with that employer and am looking to roll it over to an IRA or Roth
  • Credit Card Debt: $5,000 (on one credit card) with an interest rate of 10.99%
  • Don't own a home and my rent is low -- current living expenses are $1700/mo
I am currently unemployed and receiving UI benefits. I would like to keep my savings account fluid in case I need to supplement my UI with it.

1. Do you have any ideas of how I could chip away at my credit card debt faster? I hate it and feel like it will take me forever to pay it off. I wish I could take some of my 403b and pay it off, but I can see you cringing at that idea!

2. Should I get a financial adviser at this point? How do I pay him/her?

3. What is an example of a "discount brokerage firm?"

So let's do the planning part first:

Paying down the credit card debt: Kim, you're right--I don't want you to tap the retirement accounts! The best way to chip away at the debt is to review your spending and try to identify any discretionary money that you can redirect towards debt pay down. I know it's probably hard right now while you are unemployed, but my guess is that as soon as you land a job, you will crank on that five grand!

In terms of those accounts, you should combine them into an IRA Rollover account at a discount brokerage firm (see below!) and only convert the to a Roth if you have paid down your debt and have the tax money needed for the conversion.

Should I get an advisor? I think that you are doing a good job right now managing. I usually tell people to delay hiring an advisor until: you're out from under your consumer debt; have funded your emergency reserve fund (3-6 months of living expenses); and are maxing out your retirement account. At that point, you're more likely to get the most out of an advisor. When you are ready, here are the questions to ask a financial advisor.

What Is A Discount Brokerage firm? A discount brokerage firm executes buy and sell orders for stocks, bonds, mutual funds and other securities, at a reduced price or commission compared to a full-service brokerage firm (like Merrill Lynch, Morgan Stanley and JP Morgan). The difference is that a discount brokerage firm traditionally has meant a do-it-yourself approach, with no investment advice. However, that is changing as many discount firms like Charles Schwab, TD Ameritrade or Fidelity are offering discount advice to clients as well.

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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.