Personal finance is very intimidating for many people. We live in a world where many people can’t even balance their budget. Bigger questions loom. These include: How do people know they’re saving enough for retirement? How big should an emergency fund account be? Where should people invest their money for the best returns in the long run?
In a world with so many options, individuals often turn to experts to help devise a strategy that fits their financial strategy and financial needs. There are many types of financial advisors, from full-service firms for the ultra-wealthy (sometimes called family offices), to affordably priced ones for the middle class. Just because you don’t have a lot of wealth to start with doesn’t mean that you shouldn’t have access to a financial advisor.
Benefits of a Financial Advisor
There are numerous advantages to choosing a financial advisor. Although you save money by working by yourself, here are some benefits you’ll be missing out on:
- One of the biggest advantages one gets is an expert doing an independent review of their finances. A person’s friends and family can only help so much in this regard. In this review, the subject will spill his or her guts about all their finances (including any secret credit card they have). The financial advisor will be able to give constructive feedback. Depending on the professional’s experience, he’ll likely have had similar clients in the past.
- Getting advice from a professional is often easier, especially with something as sensitive as money. If someone criticized her sister for spending too much on shopping, there's a good chance it'll be taken personally and it'll fall on deaf ears. If those words came from a financial advisor, the words will fall lighter and more likely to be put into use.
- The periodic review can be very helpful. Most people hate dealing with their finances and will let it fade away as time goes on. People will better be able to stay on track with their long term financial goals if they set up a quarterly review of their finances with their advisor.
- Lastly, many people want to try some advanced strategies but are too intimidated to do it on their own. Whether it’s tax-loss harvesting or investing in hedge funds, this is where an expert can come in handy.
How Much Do They Charge?
The most common fee structure is a fixed amount of roughly 1% of assets annually. Most of the “big name” brokerages charge this. This is when the account size is roughly $1 million. Additional fees will be charged sometimes as sales brokerage fees for financial products such as mutual funds.
Increasingly popular is a “per hour fee” of some financial advisors. They offer their expertise as a per hour expense, just like a regular professional service. Some supporters of this method claim that this allows these professionals to offer less biased advice. Additionally, it can save the account holders a great deal of money in the long run.
How to Choose a Financial Advisor
First, do an initial review of how much in assets you will be contributing to your account. Most financial advice firms require a minimum balance. So literally how much money you can bring will determine your selection.
Second, ascertain how comfortable you are with doing some of the work on your own. If you are quite comfortable in doing financial actions on your own, consider a “for fee” planner, as it’ll save a great deal of money in the long run.
Start interviewing and narrowing your selection. You want to find an advisor with clients in a similar demographic as you. Most financial advisors are excellent salesmen (otherwise they wouldn’t be in the business!). Do your best to ascertain which one you’d work with best in the long run.
Additionally, don’t hesitate to obtain testimonials of current clients and check them. Since you are entrusting someone with your life’s savings, you can never be too careful.
