How have financial advisors helped you?
When it’s time to talk about money, financial advisors always come to mind. They’re the people we often turn to- yes, including us personally, when it’s time to make hard, unbiased decisions. These could impact our future for better or worse so, of course, we want to employ the services of those who have years of experience when it comes to finances.
It would be neat to think that you can tackle the available information on your own, right? But that’s not always the case. If you have a job and household to worry about, you might not have time to sift through the literature and come to the best conclusions. If your area of expertise is miles away from financial planning but you find yourself in need of help, perhaps hiring a financial advisor is the first step in the right direction.
What Is a Financial Advisor?
So let’s get into the nitty-gritty. First, what exactly is a financial planner? Well, they are the people we turn to when we need help around money. You might think that they’re mainly employed by big firms, corporations or even banks, but the average Joe is just as likely to scurry through their doors.
Financial advisors don’t require a license to work, which might sound off-putting and dishonest, as it offers people the ability to set up shop anywhere, any time. But some might have industry credentials. For example, there’s the Certified Financial Planner (CFP), which is issued by a private trade association and it involves passing a series of exams. The CFP also works on extending a planner’s education, making sure their knowledge is kept up to date. That’s why it’s reassuring to approach one that can boast about such an achievement.
Another financial advisor could have different industry credentials and could work as a chartered financial analyst (CFA) or chartered financial consultant (ChFC), so keep an eye out for those too.
How Can They Help You?
The goal of a financial advisor is to make sure your money matters are in order. That could span over a variety of topics. Most of them will meet you face-to-face for a discussion about your current situation. Others could be found via their websites and could even offer calls or online meetings instead.
They can offer comprehensive plans for virtually any part of your life. If you want to plan for retirement but don’t quite know, they can help. If you’re considering a college education for either yourself or your child, they can put together a list of things that will help with payment, student loans or the subsequent debt. These are just two examples, but there are other financial issues they could coach you through.
Planners can also tackle investment issues for you, all the way from giving you basic tools to investing on your behalf. That being said, watch out. Not all planners are synonymous with Registered Investment Advisors. These are professionals who advise and invest for you in exchange for a percentage of your assets’ worth. There may just be financial advisors out there that stray away from these types of issues, so make sure you pick someone that is right for you from the get-go.
Finally, if you find that you don’t have the time (and let’s be honest, sometimes even patience) to shop around for the best policies, you could pay a financial advisor to tackle insurances or mortgages for you too.
Is It Time to Hire a Financial Advisor?
There is no doubt that there may be enough information out there to help you make the best decisions. Websites, print media, even online forums are ripe with all the data you need. So it’s understandable that people hold back. After all, hiring a financial advisor will simply add more costs to your current expenses. Before coming to a decision, think about three factors and ask yourself some questions.
- Am I an expert when it comes to financial instruments?
- Do I have the time to shop around regularly?
- Do I have time to evaluate, monitor and make periodic changes?
- Do I take pleasure in learning about wealth management?
- Do I have time to do research?
- Do I understand what it takes to document my wealth with an unbiased opinion?
- Do I have enough knowledge about investments?
- Can I keep up with shifting trends?
If you’re struggling with financial planning and decision making but don’t have the proper tools or any time at all to do what you’ve set out to do, then it might be a good time to research financial advisors in your area.
Keep in mind that the general public often considers stuff like budgeting to be an easy thing to tackle and that might be why they avoid getting help. But as a lot of Americans have found, coming up with a realistic and comprehensive plan isn’t always easy on their own.
Changes in legislation, tax laws, mutual fund options are just some of the things plenty of households face daily with little to no idea what they need to do in order to keep up.
Life Events They Can Help With
But that’s speaking in rather broad terms. Here are more specific examples of when people ask financial advisors for help.
Retirement: Making sure you have everything you need for when you exit the workforce. They help you with savings and navigating taxes. IRA and Roth IRA, anyone?
Family: How to manage and invest assets and money that you’ve inherited? Parents need financial help but you don’t have time, nor resources. Kids want to enroll in college, need help with tuition.
Relationships: Figuring out how to manage finances as a couple or finding out how to move forward after a divorce (same applies for the recently widowed).
Investing: You dislike investment planning but see it as a necessity. You want a second opinion when it comes to your portfolio. You’re looking for ways to diversify your portfolio.
Expenses: If you’re overwhelmed by monthly payments and need help prioritizing. Figuring out how to tackle debt faster. Creating a monthly budget.
There are, of course, several other areas where you might need help but it’s up to you and your individual lifestyle to figure out where you could improve your finances. If you’re under time or emotional restraint, it’s alright to hand the books over to somebody else. Even if it only comes down to buying insurance, planners could look at your specific circumstances to curate a list of the best available options.
Need another reason? It’s sometimes especially difficult to make decisions for the future. If you’re in your mid-thirties, for example, but want to handle your retirement funds early, do you have what it takes to not miss any details? Financial advisors have enough knowledge to know what goes into a successful route and you may gain more help than you could imagine.
How to Prepare
As with any meeting, you need to prepare a list of questions. Beyond the scope of financial issues, you may have or want to avoid, of course.
First and foremost you should find out if you two are the right fit. Make sure your financial advisor has experience working with people like you, no matter which group you’re a part of, whichever your niche. This goes for widows, divorcees, couples (same-sex or otherwise), retirees, seniors, the list goes on.
Make sure you’re both clear on payment if it’s either an hourly rate or a commission. Ask if, when it comes to investments, financial advisors will make money from the investments you pick. Ask them to disclose affiliations when applicable.
Narrow it down to the services you’re looking for. You don’t want to waste time in areas that you’re not interested in pursuing. If you’re interested in talking about retirement, they shouldn’t insist on bringing up college fees. Find out the whole scope of their capabilities.
Will this be a one-time meeting or a full-time advisory relationship? If you’re interested in the former you should still see if they’d be available for follow-ups anyway. If during the financial meeting itself you discover issues that need more time to resolve, you’ll be thankful to have asked this beforehand. Also, ask them how often you can contact them or if there are any limitations in this regard.
Finally, figure out how the meetings will take place. Time and location should be brought up now.
Luckily, you have several options.
The one-time option could be enough for your needs and as a general rule, they will require an hourly fee. This is particularly great for people who want to go over their plans broadly, as meetings can last up to a few hours in order to ensure that most facets of your financial status are seen.
You can either discuss future plans or a roadblock you’ve encountered recently. Financial advisors can put together a comprehensive plan and can spot inconsistencies in your current one. These discussions lend a great deal of help to clients, as they can better asses their situations so that decisions will come more easily in the future.
Or, say your company has offered you a ‘buy-out’ option which would lead to early retirement. Planners can also tell you if this would be a good option for you and if it fits well with your current situation.
Whatever the case, you should also keep in mind that it’s not uncommon to schedule later meetings as well. Whether this will lead to constant help or periodic check-ups is up to you, just know that the offer will probably be on the table.
Ongoing investment management, particularly, needs a constant, hands-on approach. Estate and tax planning are prevalent areas for which Americans feel inclined to hire financial advisors, but they’re not the only ones. It all boils down to what you’re willing to pay in some cases, as these services can become rather costly. Then again, you’ll be gaining a lot of time in return, since you won’t have to tackle any of these issues yourself.
Typically, financial advisors charge a percentage of the investment assets under management for this type of service. But there are also those who might ask for a flat rate instead. Your advisor and you will meet quarterly, twice per year, or more if necessary.
As always, you have to be aware of shady businesspeople. There are some bad apples out there. The damage you could risk can range from bad planning to even churning.
Bad plans are often ripe with inconsistencies and don’t take into account changes in the economy. Churning means your financial advisor will make you buy or sell more than you probably should, generating a higher commission for himself or herself in the process. This is an illegal practice! You can avoid it by following your gut, keeping an eye on your portfolio or getting a second opinion.
A bad financial advisor will also push you towards investments that don’t fit your needs and are too risky for your wallet. You should also be wary of those who you can’t get ahold of. Avoiding calls, emails or missing meetings means you better get yourself out of that situation, and quickly!
You can avoid these problems if you hire a fiduciary, which means your financial advisor will be legally obliged to act in your best interest. This is how you can expect the best services: you won’t be pressured into doing things you don’t think are right for you, buying into expensive deals and you’ll gain full transparency when it comes to conflicts of interest. This is particularly important when it comes to commissions your planner gets from companies that sell their products through them.
Should You Do It?
A difficult question, at the end of the day. You have time and costs to worry about and for some, hiring a stranger to look at their books might sound especially outlandish. In the end, we think you should weigh the pros and cons.
- Offers long-term help and plans
- Makes recommendations based on your needs after researching the market
- Offers unbiased opinions
- Can get costly
- Concerns regarding commissions they make on what they sell you
- Risk of churning
If you’ve decided you could give this a go, we advise you to try one meeting first. It should be enough to give you a good idea of what you’re getting yourself into.
Plus, a lot of people consider their financial situations to be way worse than it actually is. You may only need one meeting to sort it out.
On the other side of the spectrum, there are those who don’t worry enough- when they should! In these cases, financial advisors will shed light on issues that need immediate attention, like spiraling into debt.
Finally, if you’re worried about pricing, you should try to see it as an investment.
So, what do you say? Have you made up your mind? Have you employed a financial advisor before? Share your stories down below: why should or shouldn’t people approach them?