When Do You Need a Wealth Advisor?

All investors—from self-directed to fully advised—can benefit from having a written financial plan that addresses key tax planning and wealth management needs. You can create a financial plan on your own, engage a financial planner, or work with a wealth manager to build your plan. However you prefer to tackle the planning process, the most important steps are to simply get started and to put your financial plan in writing.

The essential components of a comprehensive financial plan include:

1. A list of your specific financial goals, such as saving for retirement, buying a new house, or funding a child's education.
2. A balance sheet statement showing your net worth—what you own minus what you owe.
3. A cash flow statement reflecting your monthly and annual income and expenses.
4. A monthly and annual budget or spending plan.
5. A debt management plan.
6. A retirement savings plan, including a list of taxable, tax-deferred, and tax-free accounts—and what type of investments you hold in each account.
7. Your available emergency funds.
8. Your insurance policies, such as homeowners' insurance (if you own a home) and life insurance (if you have a spouse or children who depend on your income).
9. Your will and other estate planning documents, including beneficiary designations, living trusts, and powers of attorney for financial accounts.

Tax brackets determine how different ranges of income are taxed. By strategically increasing or decreasing taxable income to fall within a desired tax bracket, you can potentially minimize taxes today or avoid higher taxes in the future. This approach, known as tax bracket management, can help enhance your portfolio's long-term after-tax return potential. For example, in lower-bracket years, you might employ strategies that allow you to realize more income to fully utilize your bracket, such as tax-gain harvesting and Roth conversions. In higher-bracket years, by comparison, you could consider tax-reduction strategies, such as maximizing tax-deferred contributions, tax-loss harvesting, and charitable giving.

As you climb the income and wealth ladder, your portfolio may become more concentrated over time as certain assets appreciate. If the securities are held in a taxable account, you'll typically need to do some tax planning before diversifying the assets to avoid unexpected taxes. Common sources of highly appreciated taxable assets may include:

• Individual stock holdings in a taxable brokerage account that represent more than 10% of your portfolio.
• Employer restricted stock awards that represent more than 20% of your portfolio.
• Direct real estate holdings that may generate current rental income, as well as future tax considerations due to depreciation recapture.
• Selling a primary home to downsize or relocate for work or retirement.

As your financial life becomes more complex, consider working with a team of specialists who can help you make tax-related investment decisions that can potentially improve your after-tax returns over your lifetime. Asking questions and getting a second opinion about the tax-efficiency of the holdings among your various accounts—including taxable, tax-deferred, and tax-free accounts—can be a good place to start. Here's a look at common specialists you might need along your financial journey.

Your tax advisor can help prepare your annual tax returns, represent you to the IRS, and give you personalized tax advice based on your tax bracket, your goals, and current tax laws. Generally, it's best to work with a Certified Public Accountant (CPA), an Enrolled Agent (EA) with the IRS, or an attorney.

Financial professionals might have any number of titles, including advisors, consultants, and planners. For comprehensive training in financial planning, the Certified Financial Planner^® (CFP^®) designation, issued by the independent CFP Board, is roughly equivalent to earning a master's degree in advanced planning topics. Seasoned advisors of all stripes can help you create a written financial plan or give you a second opinion about the likelihood of meeting your goals based on your current plan. They can also provide general guidance about account selection and asset location.

A wealth advisor can help you create a written financial plan, as well as manage investments on your behalf, including helping you set a target asset allocations strategy, rebalancing your accounts over time, and managing future retirement income distributions in a tax-efficient manner. Many wealth advisors are also CFPs or, alternately, Chartered Financial Analysts (CFAs), another type of advanced training in financial planning. A wealth advisor is a fiduciary who must act in your best interests and follow all applicable guidelines and best practices set by the Securities and Exchange Commission.

The more wealth you build, the more complex your financial situation is likely to become. As you assess your needs, you should be honest about how much time and effort you're able and willing to spend on managing taxes and investments, especially as your life and family obligations change.

If you have the time, expertise, and interest to manage your investment on your own, it can be a great way to stay engaged with your financial plan over a lifetime. You might even find satisfaction in the journey, especially if you enjoy doing research, studying the markets, reviewing your holdings, and fine-tuning your portfolio over time to optimize your growth potential and tax savings.

Maybe you're highly skilled in some aspects of managing your financial plan—such as selecting stocks, ETFs, or mutual funds that match your goals—but could use occasional guidance on other parts of your plans such as college, retirement, or estate planning. Your financial professional can be a helpful sounding board before making important decisions. You can also consider hiring a CFP for occasional planning needs and questions. Consider meeting with your financial professional or CFP at least once a year for an annual check-in to help keep your plans on track.

You can be well versed in financial markets and still decide that you'd rather spend your time in ways other than managing your portfolio. If you prefer a fully advised approach to managing your investments, look for a wealth advisor who can integrate investment, retirement, and tax and estate planning, while also helping you address risk management and insurance needs, access banking and credit solutions, and provide education planning and family support. When researching a wealth advisor, look for one who is a fiduciary and check the advisor's background via the Financial Industry Regulatory Authority's (FINRA) free online tool.

A surprising number of financial decisions we make involve managing our income tax brackets, meeting our goals for reducing taxes, and seeking to optimize our tax savings over a lifetime. Reducing taxes can help grow your net worth—and increase your financial choices over time. Most of us seek greater financial freedom and the peace of mind that comes with having a more tax-efficient and resilient financial life.