What to Look for in a Financial Advisor
Not all financial advisors are created equal.
Some are just sellers looking to resell customers in order to get a higher commission. Ideally, you should go to a paid consultant who must adhere to a “fiduciary standard”: in other words, these consultants should act in the best interests of the client, giving them financial advice.
Some of these proxies may be specialized – for example, a registered investment advisor will advise on your investments, not necessarily on all aspects of your financial life. On the other hand, Certified Financial Planners (CFPs certified by the Board of Certified Financial Planners Standards) can probably help you develop a comprehensive financial strategy that includes everything from saving and investing to insurance, taxes, retirement benefits and estate planning. … They should communicate any potential conflicts to clients before and during referrals, and communicate how they are compensated.
Broker-dealers and “paid” consultants are the ones you need to look out for. These professionals adhere to the “suitability” standard, which means that they may try to sell you an investment product that may well meet your needs but require additional fees when compared to similar products. It may not be the best product for you, but it suits them and earns them a commission. These products can lead to lower returns, and higher commissions can eat up your money over the years. The White House Council of Economic Advisers found that these advisers cost retirement investors $ 17 billion a year .
Then there are the robot advisors that manage your portfolio with algorithms and charge less commission than a human advisor.
The Obama administration has attempted to introduce a fiduciary rule that would require all planners to act in the best interest of their clients when advising them on retirement accounts. The Trump administration has postponed its implementation, and it was reported that Republicans in Congress would kill him .
How to Hire a Financial Planner
You can visit the Financial Planner Association and the National Association of Personal Financial Advisors to find planners. “There is no ‘typical rate’ for paid consultants,” says Jacqueline O’Reilly, marketing and communications manager for NAPFA. “They all have different fees and this will depend on your needs and which consultant you choose.” They can charge a percentage of the assets under management (usually depending on how wealthier investors are billed), an hourly rate, a flat rate, or a combination of the three.
It is important to note that many financial advisors are only interested in serving high net worth clients or clients with assets of at least $ 250,000. This is why robo-advisors have been thinking so much in recent years – they are cheaper, and some, like Betterment , do not require a minimum account.
You can also check out Garrett’s scheduling network , which was designed with 99% in mind. There you will find paid consultants who will advise you without regard to your bills and charge you an hourly rate.
When hiring a counselor Commission on Securities and Exchange Commission recommends asking the following questions:
- What experience do you have, especially with people in my circumstances?
- What are your licenses? Are you registered with the SEC, State or Financial Industry Regulatory Authority (FINRA)?
- What products and services do you offer?
- Can you recommend me only a limited number of products or services? If so, why?
- How do you get paid for your services? What is your usual hourly rate, flat fee, or commission?
- Have you ever disciplined any government regulator for unethical or inappropriate behavior, or sued a client who was dissatisfied with the work you did?
According to NAPF, these are the fees to keep in mind :
- 12b (1) Fee: An annual marketing or distribution fee associated with mutual funds.
- Change Fee : The amount deducted from the balance of your annuity policy or insurance contract if the policy is cashed or transferred early.
- Back-end commission : the amount deducted from the balance of your investment if the investment is sold ahead of schedule. Often associated with the sale of units of mutual funds.
- Completion Fee : A commission charged by the investment manager to a client for providing a package of services such as investment advice, investment research, or brokerage.
- Performance Compensation: Compensation is based on the achievement of certain performance metrics. For example, if an investment yields 10 percent, the planner or planning firm might earn 0.5 percent, but if the investment yields 20 percent, the planner or planning firm might earn 3 percent.
Ultimately, if you decide to hire a financial advisor, you should ask ahead of time what their fees are and how they are paid. And if they are not proxies, keep in mind that they may not be selling you the products that are best for you.