It’s difficult to apply generic advice to your personal finances when you have read all the books and watched all the Youtube videos, but we understand that.
Maybe you’re feeling a bit uncertain financially, or maybe things appear to be going really well. Regardless, you may be asking yourself whether a financial advisor is necessary.
In this article, we’ll do a deep dive into what it takes to work with an advisor, and when you might need one.
What is a financial advisor?
An advisor is a professional who acts as a resource for advice and guidance to clients on how to handle their money. They require specialized training and licenses to provide advice.
An advisor is typically responsible for several aspects of your finances, including helping you achieve your financial goals.
Their expertise in investing and retirement funds enables them to advise clients and devise a plan that suits their needs, whether it is for college savings, estate planning, or business finances.
Moreover, they serve as educators, ensuring you have the knowledge necessary to make informed decisions with regard to taxes, insurance, and investments.
Types of financial advisors
The two main types of financial advisors are robo-advisors and human advisors.
- It is essentially a digital financial advisor with extensive algorithms that can match your personal profile to the guidance offered. Additionally, it can automatically make investments for clients, which is great when your portfolio is simple. However, there is usually no human supervision in the process.
A robo-advisor is best for passive investors, usually only requiring a small opening balance, making it accessible to everyone.
Human financial advisors (in-person or online): For a more hands-on approach, this is the best option. Your financial advisor will become your go-to financial resource. However, the higher fees come with the hands-on approach.
You can directly ask them questions and you can build a long-term relationship with them. You will definitely want to find someone you can trust.
What type of financial advisory services do they offer?
A financial advisor serves many purposes. Their primary goal is to help you to plan for your future.
They offer advice on where to start saving and how much to save. They advise on what kind of accounts to open and what investments to make based on your goals. They also give advice on investing, buying a house, and planning your estate.
How much does a financial advisor cost?
Financial advisors charge a range of fees. You can usually choose from three different payment structures:
- A flat fee
- A percentage-based fee
- Hourly fee
In-person financial advisors fees
Depending on what payment option you choose, you’ll be able to find financial advisors who charge either a minimal flat fee or an annual fee.
It will give you a tailored financial plan tailored to your and your family’s needs. You will also receive hands-on help of implementing the plan. Having a plan is one thing, but putting it into action may be another.
In comparison, an in-person advisor may charge you a percentage-based fee based on how much you have invested (in other words, your assets under management).
This fee is typically about 1%. Note that a lot of advisors will use this fee structure if your minimum investment is over $250,000 and the percentage you pay may drop the higher your investment.
In-person advisors may also charge you an hourly fee ranging from $200 to $400 per hour. This gives you immediate access to a personalized financial plan with specific steps to take.
But you will not receive follow-up or support. You will be left on your own to put the plan into action. This works best when you don’t mind handling your own finances and are diligent enough to follow through.
Online financial advisors fees
Online financial planning services charge a lower fee for helping you with your financial planning. Fees are based on your assets under management, which is a percentage fee structure, and range from 0.30 to 0.89%.
There is typically no requirement for large amounts of money to open such an account.
There are several online financial advisors, including Betterment and Wealthfront, that provide access to financial plans and ongoing investment guidance.
When you need a financial advisor
In a perfect world your advisor is always needed. However, hiring an advisor can be costly in a real-world environment.
However, in some situations a financial advisor would be beneficial. These situations include:
When you can’t figure out your personal finances on your own
For some people, managing money is more than a chore. It’s an absolute nightmare.
We all have things we are better at than others. For some people cooking, doing dishes, or creating art is their job. For others managing money is their calling. If you don’t belong in this category, you’re one of many, and hiring a financial advisor might make sense.
When you’re just starting out on your personal finance journey
If you’re new to working intentionally on your finances, it can get overwhelming. You have to learn about the stock market, bonds, budgeting, retirement planning, saving – the list is endless. A financial advisor can help un-muddy the waters for you.
It is probably a good idea to seek financial advice as a newbie, but keep in mind that it could cost you hundreds of dollars and more. Being so easy to get information today, it is highly advisable to do your own research before taking the step on hiring help.
When you have complex financial considerations
Sometimes your financial situation is not straightforward. Sometimes life happens and you require outside counsel to help you navigate complex family matters, multiple accounts, or managing multiple sources of income.
When you don’t need a financial advisor
There are also certain instances where you may not necessarily need a financial advisor. For instance:
You’ve automated your finances
If you’ve automated your finances and are hitting your savings and investment goals, then you’re probably in good shape. Many people in this group have set up an automatic investment plan that rebalances itself without the need to make any adjustments.
You’re looking for tax help
Tax help should not be confused with financial advisory help. While they both deal with your money, the professionals who can help are completely different.
Certified Public Accountants (CPAs) are the best ones to handle all your tax needs. A CPA that is also passionate about financial planning will be able to support your larger financial picture while focusing on your taxes.
What to look for in a financial advisor
If you are ready to seek out a financial planner, here are some key questions and considerations to keep in mind.
What is their fee type?
It is crucial to conduct a significant amount of research to know exactly how the fees will work for your financial situation before committing to a specific advisor.
The key is to remember that the simpler your investment needs are, the less you’ll have to pay for an advisor. If you’re just starting out and need basic investment management, $1,000 seems too much. However, if you have more complex needs, perhaps $1,000 is reasonable.
Do they have the right certifications and credentials?
Credentials matter. When you sign on a new advisor, you’re trusting that person to help you build a secure financial future.
If you are searching for a financial planner, you’ll want someone who has the Certified Financial Planner (CFP) title. This will mean that the individual has successfully fulfilled CFP Board requirements for education, training, experience, and ethics.
Do you work well with them?
Having a relationship built on trust really matters when dealing with any advisor in life. When it comes to your personal finances, this is even more important since it could impact your entire future.
As you search for a financial advisor, have as many live conversations with them as possible, do your research and ensure you trust and can depend on the person fully. Look for reviews and if you can, ask for referrals. The more aligned you are in mission, values, and strategy with your advisor, the more rewarding working with them will be.
Where to find a financial advisor nLook for a financial advisor you can trust and rely on fully by having as many live conversations with them as possible, looking for reviews on the web and asking for referrals. The more aligned you are in mission, values and strategy with them, the more rewarding working with them will be.ear you
Via personal referral
The power of a referral is unmatched. A referral gives you the assurance that someone you trust has found value from working with the advisor they are referring. In addition, it proves that the advisor is reliable and has proven success.
Then, don’t stop there. A referral is only one part of the puzzle. Make sure the advisor treats everyone equally. Do your due-diligence and check online for complaints filed to FINRA (the financial regulatory body).
From online reviews
The internet has opened up ways for us to ensure checks and balances are in place before signing up for services. The biggest way the internet helps is through reviews. As you look at profiles of financial advisors, look at their personal reviews as well as the reviews of the organizations they are affiliated with.
If you see any concerning comments but you’re still interested in working with the person, be sure to discuss it with them during your interview. You will never want to blindly sign up with an advisor.
At your local bank or financial institution
You can work with a trusted financial advisor from your local bank or financial institution if you prefer a bank or financial institution you’re familiar with and comfortable with.
Besides, working with an advisor from your local bank ensures you are paying comparable market rates to independent advisors. Another benefit is that some advisors provide more than investment advice and can also assist with life insurance and business planning as well.
Hiring an advisor may be a good idea if you’re feeling overwhelmed. If you’re just starting out in your financial journey or have more complex needs, working with an advisor may help ease your mind.
If you gain more knowledge and experience, you will be able to take greater control over your finances.