Do Freelancers Need Financial Advisors?By Natalie Burg June 17th, 2020
Early in her career, Robin Miner-Swartz didn’t worry too much about financial planning. As Lansing State Journal staffers, she and her now-wife just assumed they were all set.
“Betsy and I were both journalists at the same company,” she says. “And that meant we both had the same 401k, we had the same pension. We had this now-antiquated idea that we would be working for the same company until we were 65 years old, and then we will be given our pension and our gold watch, and everything will be fine.”
It will surprise no one who worked in media in the early 2000s that their plans changed. Her wife now works for a non-profit, and after spending several years with a non-profit herself, Miner-Swartz launched her freelance business, Miner-Swartz Editing and Consulting, four years ago. After receiving an unexpected tax bill of $18,000 at the end of her first year, she realized she needed to get serious about putting professionals in charge of their finances.
“I nearly passed out,” she says. “What I very quickly learned was I would like to have someone help me who can explain these things, who knows what they’re talking about, and who I can be open and honest with.”
The surprise tax bill ended up being a problem for an accountant to solve, but in the building out of her financial know-how team, Miner-Swartz ended up with a trio including her accountant, lawyer, and a financial advisor that she says are indispensable.
“The best money I spend as a business owner is paying those people,” she says. Here’s why Miner-Swartz values her financial advisor so much, and what other freelancers should think through when deciding if they should have one of their own.
What is a financial advisor, really?
Financial advisors help manage your wealth. And “wealth” of course, is the word that makes many freelancers assume the service doesn’t apply to them. But you don’t have to be wealthy to have wealth, you just have some savings or assets—or a desire to accumulate some.
Financial advisors help manage your investments, like a retirement account. But they also help you create a financial plan to help you achieve your goals and consult on things like insurance and tax strategies.
As a former financial manager and a now-freelancer, Helen Chen-Tournay launched the Mama Bear Finance blog to share her financial knowledge. She says it’s important for freelancers to understand that there are two different types of financial advisor: fiduciary and non-fiduciary.
“Fiduciary financial advisors are required by law to act in the clients’ best interest,” she says. “On the other hand, a typical financial advisor may have other agendas such as promoting products that give him or her the most commission.”
Do I need a financial advisor as a freelancer?
It depends. Doesn’t it always? Here’s how to determine what’s right for you.
Probably not, if you’ve got nothing to manage
Financial advisors do cost money. Miner-Swartz pays hers about $650 a year. And they primarily help you figure out what to do with your savings and other assets. If you have no savings, no assets, and no money to pay for a financial advisor, well, you may not be ready yet.
“In this case, it’s best to DIY a financial plan by leveraging free resources online,” Chen-Tournay says. “Of course, this may take longer or it may not be as effective, but without a safety net or a healthy cash flow, it doesn’t make sense to add more expenses to an already tightened pocket. Plus, the cost of hiring a financial advisor can be hefty and may not guarantee success.”
Probably, if you’ve got savings
If you do have some money to manage, investing it with the help of a financial advisor could result in exponential returns over letting it sit in a savings account. Plus, they help you determine how much should you be putting into savings and investments now to meet your financial goals, like actually retiring someday.
For employees with an employer-sponsored retirement account, following the instructions and transferring money from your check is pretty straightforward. But as Miner-Swartz found once becoming a freelancer, no one is matching funds or putting any thought into your retirement but you. And that’s a little scary. Her advisor helped make the transition smooth.
“She has taken my previous funds and enrolled them into something new for me, and now we’re making choices about how to invest that, and she’s saying, ‘Here are the tax implications for what you can personally put into it now with your own money. Here’s the maximum you can invest for the year and the tax advantages for doing that.”
Probably, if you experience a windfall
Freelance writer and author from Chicago Jennifer Billock suddenly had money on her hands after selling her house following a divorce. She contacted a financial advisor her dad recommended and was delighted with the experience.
“I wanted to make sure I was being wise with the money,” she says. “My FA has been able to explain things to me in plain language and help personalize a plan for my needs so I can feel financially secure.”
Billocks’ plan included putting the majority of the money into a high-yield savings account. And now she put money stocks, an IRA, and life insurance every month with his guidance.
Miner-Swartz had a windfall of her own in late 2019: she won $29,400 on Jeopardy. Who else helped her figure out what to do with it but her financial advisor? “She was able to help us see beyond the, ‘Look we just got a pile of money, yay!’ and say, ‘Here’s what we need to do with it.'”
Probably, if insecurity is the thing holding you back
If you’re a freelancer who has some money that could be managed better, there could be one thing holding you back: [author glances into mirror] your money’s a mess, and it’s a little embarrassing to think about someone else seeing it.
But by the nature of our work, freelancing income does vary month-to-month. The up-and-down can feel like a mess you’d like to hide away, but it’s actually a good reason to get a little professional help. A good financial advisor can help you make a plan that helps bring order to that mess—no matter now meager the size your personal financial mess seems to be.
“When we first went to her I felt like we’re not rich enough for this,” says Miner-Swartz of her financial advisor. “But I look at it the same way I look at a conversation I have with an attorney or a hairdresser or a doctor—it’s in confidence. She knows the realities of what our financial situation is and she meets us where we are.”
How can freelancers find good financial advisors?
Financial advisors come in many flavors. Some specialize in high-net-worth earners only. Some earn money from selling certain financial products, rather than giving the best financial advice. That’s where Chen-Tournay’s advice to find a fiduciary advisor comes in. A fiduciary, fee-only advisor gets all of their money from you, so they are working for you—and they’re legally obligated to act in your best interest.
You can find credentialed, fee-only advisors through organizations like National Association of Personal Financial Advisors or the Garrett Planning Network. Of course, since trust will be at the heart of your future relationship with a financial advisor, a referral from a trusted friend or family member can be a great way to find the best fit for you. That’s how Miner-Swartz found hers.
“If I had needed to open up a phone book and find somebody, I don’t know where I would have started,” she says. “But when one of our best friends said, ‘Oh my god, we use her and we love her, and you would totally love her,’ I could trust that.”
Natalie Burg is a freelance writer and editor covering technology, business, finance, development, healthcare, and wellness. She lives in Ann Arbor. Her money’s a bit of a mess.
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Photo Credit: sorbetto