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Should I Hire a Financial Adviser for My 401(k)?

February 22nd, 2024 | 3 min. read

By Lara Mazek, CFP®

couple advisor 401k

Millions of Americans, perhaps including you, have 401(k) retirement plans through their employers. However, choosing from numerous fund options and deciding how much to invest in each leaves many people confused about managing their investments effectively.

In fact, a survey from ValuePenguin found nearly two-thirds of Americans admit they don’t fully understand how a 401(k) works.

So, if you’re wrestling with questions about managing your 401(k) plan, you’re not alone. Nor do you have to do it all alone. You can hire a financial adviser to help manage your 401(k). If setting up and managing your 401(k) feels overwhelming, here’s what to consider about enlisting professional help to keep you on track.

This article covers:

  • How does a 401(k) work?
  • Do you need a financial adviser for your 401(k)?
  • Financial adviser costs for your 401(k): is it worth it?

How does a 401(k) work?

A 401(k) plan is a tax-advantaged retirement savings account offered by many employers, allowing employees to allocate a portion of their salary directly into their 401(k) before taxes are applied. This means the contributions you make, along with any investment gains, grow tax-free until you withdraw them in retirement.

Now sure how much you need to save? Check out this article on calculating your retirement savings needs.

One of the standout features of many 401(k) plans is the employer match program. Essentially, employers may match your contributions up to a certain percentage of your salary – often between 4% to 5%. This match is akin to receiving free money, boosting your investment returns significantly from the outset.

The principal benefit of investing in a 401(k) is the tax-deferred growth of your savings. Your money has the potential to compound over decades without being diminished by taxes, which can lead to substantial growth over time.

However, the challenge lies in selecting the right investments within your 401(k) to ensure this growth. The myriad of available investment options can be overwhelming, especially for those not deeply versed in financial matters.

Do you need a financial adviser for your 401(k) plan?

If you’re comfortable setting up contributions, choosing investments from the available options, and maybe even utilizing the free advice your plan administrator or employer offers, you might feel confident managing your account on your own.

Yet, not everyone finds the decision-making process around investments to be straightforward or comfortable.

While other people want to take advantage of the experience and know-how of a professional to work toward maximizing their retirement savings and avoid mistakes.

For those who prefer a guiding hand, particularly in making informed investment choices within a 401(k), a financial adviser can prove valuable. A financial adviser can demystify your 401(k) plan and choose investments that align with your goals and feelings toward risk.

Here are a few ways a financial adviser can assist with your 401(k) plan:

  • Education and guidance: A financial adviser can help you understand how your plan works, explain your investment options, clarify any questions and ensure you’re making the most of this retirement-saving tool.
  • Selecting investments: It’s not just about picking investments; it’s about choosing the right ones for your financial situation, goals, risk tolerance and time horizon. An adviser tailors these choices to you, adjusting as necessary when your life circumstances or market conditions change.
  • Staying on track: A financial adviser can help you remain focused on your long-term objectives through the market ups and downs. They can also guide you through the process of a 401(k) rollover if you change jobs, ensuring your retirement savings continue to work for you without interruption. Learn more about the potential benefits of a rollover here.

Financial adviser costs for your 401(k): is it worth it?

Hiring a financial adviser for your 401(k) introduces an additional cost, but it’s important to balance this against the comprehensive value they can offer beyond the existing fees of your 401(k) plan.

Your 401(k) already incurs management fees for investment options and services, which can be substantial and affect your investment’s growth. Financial advisers usually charge a fee ranging from 0.5% to 1.5% of managed assets annually.

Although this represents an extra expense, the extensive services and personalized advice they provide could help optimize your portfolio’s performance, potentially offsetting their fees over the long term.

For instance, our ACM 401(k) Builder service includes full-service financial planning, where your adviser will provide advice and guidance for every aspect of your financial journey – from buying a house to paying your child’s college tuition.

For many, the peace of mind and confidence gained from having a financial adviser oversee their 401(k) plan can be well worth it. Whether it’s navigating complex investment options, adjusting strategies over time, or simply having a knowledgeable partner to consult with, the benefits of working with a financial advisor can be significant.

Bottom line

While some may find managing their 401(k) a manageable task, others will benefit from the expertise and personalized guidance a financial adviser provides. If making investment decisions feels overwhelming or if you’re seeking a comprehensive approach to your retirement planning, consulting with a financial adviser could be a smart move to ensure you’re fully leveraging your 401(k) plan.

At Advance Capital Management, we recognize that fully understanding your 401(k) can be challenging. That’s why we’ve launched ACM 401(k) Builder, a service that allows a qualified financial adviser to manage your 401(k) for you, with the goal of securing your path to retirement.

We encourage you to schedule a free 401(k) review and consultation right now to discover how ACM 401(k) Builder could work for you.

Lara Mazek, CFP®

Lara provides comprehensive wealth management strategies to help people optimize their financial lives. Working closely with clients, she incorporates all elements of their lives into personalized financial plans, including investment portfolio advice, tax strategies, college savings and more. She is a CERTIFIED FINANCIAL PLANNER™ professional.