When to Hire a Financial Advisor?
When to Hire a Financial Advisor
Is it worth hiring a financial advisor to manage your money? In most cases, you don’t need a financial advisor. You would need a financial advisor for complex financial or life events (marriage, divorce, inheritance, etc).
Also, you may have the stereotypical idea of financial advisors trying to scam you by taking a large percentage of your investments for managing it. This stereotype does have some truth to it.
Fake Financial Advisors
Be aware of those who call themselves financial advisors. The job title “financial advisor” is very unregulated within the finance industry. Some people would use it as a fake title to lure in clients to invest in their company.
When in reality, they are a salesperson who is trying to profit and make commissions on trying to sell you something unnecessary. The salesperson tries selling you the highest product that would give them the highest amount of commission. However, not all financial advisors are a salesperson who’s trying to get you to spend extra money.
A common imitator of using the financial advisor title is insurance companies. Insurance companies may freely call themselves financial advisors to sell life insurance or variable annuities to people who more than likely won’t need it.
If you’re young, healthy, and have no medical problems, then it’s unlikely you’ll need life insurance now. Because of these fake financial advisors in the insurance industry, it gives credited financial advisors a bad name.
Certified Financial Advisors
Certified financial advisors provide financial assistance and guidance on wealth management and personal finance that are tough for their clients to manage.
They typically gather information about their clients by asking lots of questions to understand what you are trying to achieve financially. After gathering all the necessary information, the financial advisor creates a plan and offer financial advice.
Before committing to a financial advisor, you should do a background check on the person who is managing your investments. One big key is making sure the financial advisor is a certified financial planner (CFP). The CFP is a formal recognition of one’s expertise in financial planning that requires additional schooling and experience to be a CFP.
A CFP must pass four areas (Exceptions in Some Areas):
- Hold’s a bachelor’s degree from an accredited college
- Pass the CFP exam
- Relevant work experience in financial planning
- Demonstrated professional ethics (Extensive background check)
Besides checking the validity of their CFP title, look if they have a fiduciary responsibility. A fiduciary financial advisor must uphold the highest standard that best serves its clients. You may already assume financial advisors should be obligated to act in a client’s best interest from the start.
But this is not the case as some financial advisors may operate as a salesperson. They would be only doing the bare minimum to satisfy your needs and may recommend other products to boost their commissions as long as you’re satisfied with the results. There is no law uphold for non-fiduciaries to operate in this manner.
A fiduciary financial advisor have a fiduciary responsibility both ethical and legally to ensure the customer’s best interests comes first before anything else.
Commissions must be reasonable and disclosed at or before buying or selling an investment. The commission rate must be 5% or less, any more than 5% requires justification from the financial advisor. Alternatively, fiduciary financial advisors can be paid at a flat fee rate too.
Always remain skeptical if you decide to look for a financial advisor. Don’t be afraid to ask questions about the financial advisor’s background, payment for service, and other information.
They’re managing the money that you work hard earning, and you don’t want to lose it by having them scamming you. If you have an uneasy feeling after speaking with a financial advisor, then you can decline to work with them and shop around for other financial advisors.
Robo-Advisors
If you’re starting off investing, then look into robo-advisors to get started. Robo-advisors offer financial advice based on the user’s information that’s calculated using a computer algorithm.
Primarily most robo-advisors are used for portfolio management and not for real estate, retirement plans, nor cash-flow management. The benefits of getting a robo-advisor are low cost and low minimum monthly account balance.
Resources for Robo-Advisors:
After you become familiar with learning more about financial markets and investing, you should make investment decisions for yourself. Robo-advisors buy the same financial securities any individual investor can buy. A robo-advisor typically buy into low-cost index funds based on the information you provided.
You save some extra money per month once you get the hang of investing. There are not a lot of information or studies in regards to how robo-advisors do in the long-term. Robo-advisors are still a fairly new financial technology.
Closing Thoughts
You should set aside time to learn more about investing and financial literacy. Why let someone else manage your money? Unless you have complicated finances, then you can do this yourself.
For the average person, most of the financial advice you can find is free online. Taking the time to learn more about finance will help you save money from paying a financial advisor, invest more wisely, and manage spending and savings better.
There are certain situations where hiring a financial advisor my be worth the cost to save more money later in the future, but you must take the time and consideration to do so.
