Is it Worth the Money to Hire a Financial Advisor?
Determining if you should hire a financial advisor or go it alone means assessing the complexity of your financial situation as well as your motivation and discipline to reach your goals. See why that matters.
By Kris Maksimovich, AIF®, CRPC®, CRC®:
In our experience, everyone’s financial situation and needs are different, and we believe strongly that there is no such thing as a one-size-fits-all financial planning solution. Likewise, financial advisors come in all varieties and sizes.
Some advisory firms are large, with offices dotting the map; others may have several offices or just one. The financial planning help you seek may be found in a firm that focuses its expertise on any combination of high net-worth individuals, families, executives, and business owners, or even more specialized niches such as women investors, LGBTQIA+, NextGen, ESG investors, veterans, and specific industries and professionals like oil and gas, technology, pilots, and healthcare providers. There are even advisors that offer financial specialties like retirement plan management, offering you even more flexibility. With a wide variety of financial advisors, there is one that can potentially meet your specific needs. So, how do you find one that is worth their fee?
What are the questions I should ask a financial advisor?
To determine if it’s worth the money to hire a financial advisor, consider their level of expertise, credentials, business style, and attitude. Consider their qualifications, any niche markets they specialize in, and how they answer your questions. Also important, determine if you can establish a relationship with both the advisor and his team who will be servicing your account. If they don’t make you feel comfortable, it may be necessary to keep looking.
Beyond asking the important questions at your first meeting about their qualifications, services offered, investment philosophy, fees, and whether they are independent of financial product sponsors, this list of questions may paint another picture:
- What do you like about your job?
- What do you dislike about your job?
- How do you get paid?
- How and when will we communicate about my investment portfolio?
- How do you measure and evaluate my portfolio’s performance?
- When and why did your last two clients leave?
What will a financial planner do for me?
In 2015, Michael Kitces endeavored to quantify the value a financial advisor can bring to the table, versus DIY planning in the Kitces Report, Vol. 3. The report analyzes the potential quantifiable benefits you may gain that go far beyond any fees charged when you work with a financial advisor. Simplified, financial advisors help you consider numerous ways to put your money to work toward meeting your financial goals.
A qualified advisor can deliver financial advice, create an actionable plan, and provide investment and wealth management, coaching, risk management, and behavioral modification. They can help you with delegation, and even enhance your feeling of well-being. A professional advisor will understand diversification, which assets will most impact your taxes, when to rebalance your investment portfolio, and can provide you with the benefit of their services, years of experience, and continued training.
When should a financial advisor be used?
There are a variety of reasons to seek the professional advice of a financial advisor:
- If you do not hold the motivation and discipline to perform the tasks involved with following a financial plan, you might be best served by hiring an advisor.
- When your situation grows more complicated such as growing a nest egg with the ability to save 20 percent of your annual income, or if you want to make a drastic change to your saving or investing strategy.
- If you gain a windfall such as an inheritance, gambling win, or lottery win. An advisor can help you weigh the strings that may be attached along with the potential tax implications.
What is the normal fee for a financial advisor?
When asking about fees up front, few advisors and financial publishing outlets can provide you with a real number without understanding your financial situation. Many factors come into play that are dependent upon your individual circumstances.
Some advisors charge a planning fee or flat fee. Some charge an ongoing fee in exchange for ongoing services. Others may charge a commission, a blended fee, or a percentage of the money you invest. Yet others may discount your financial plan fee if they also manage your investments. You will get a better idea of the fees once you meet with and select an advisor to work with, but they should be able to give you a ballpark at your first meeting.
How do advisors get paid?
Generally, advisors make money through asset management fees, fees for creating a financial plan, and commissions.
Asset management fees – These fees tend to be charged as a percentage of your total assets that are being managed. Often, these fees are based on a sliding scale where the more of your assets that are managed by an advisor, the lower the fee. Fees commonly range from 1-2 percent or higher for accounts with less than $1M. The fees charged may depend upon your advisor’s qualifications, experience, or specialty and should be worth more to you.
Financial planning fees – These fees are incurred when an advisor builds a plan for you. A financial plan takes into consideration your financial goals, tolerance for risk, and investment time horizon. Sometimes these fees are included as part of asset management fees.
Commissions – A commission may be paid to certain advisors who sell commission-based products as part of their comprehensive offering. While commissions have received a bad rap over the years and the industry has been moving away from the practice, commission products continue to hold a place because they may offer flexibility in product offerings that might better suit a client. Many fee-based independent advisors offer products based on their suitability for the client’s goals, and some of these products, such as insurance and some mutual funds and annuities, pay a commission.
How do I choose a financial advisor?
The advisor you choose should have a process in place to ensure they can help you discover, meet, and protect your financial goals and dreams. They should also have a process in place that helps build mutual trust. How you feel in your first contact and meeting with the firm is a pretty good indicator of the type of relationship you can expect.
- Some may want to see all your personal documents in your initial meeting so they can determine if they can help you and what your fee will be.
- Others may be interested in building a long-term relationship and will meet with you first to see what your goals are and determine if there is a good fit for both of you before you dig out the financials.
It’s important to remember that the last thing anyone wants is to work with someone they don’t like or trust. If you aren’t getting warm fuzzies about the way the staff and advisor treat you or how responsive they are to your calls and questions, you should probably keep searching.
Who is the best financial advisor company?
There are many lists on the internet that you can search for. Some contain names of advisors selected based on specific criteria, others may contain names of advisors who pay to be listed. Others, still, may be based upon the size of their assets under management (AUM). Some lists are even based on popularity and voting for peers. The truth is, what really matters is finding a long-term relationship with a qualified and experienced advisor that is based on mutual trust and respect.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Read more about selecting a financial advisor to work with.
Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at firstname.lastname@example.org.
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