Not sure what kind of financial advice you need at this stage of life? A CFP weighs in on the financial advice you need now.
Do I need a financial advisor?
Given what I do for a living, I get this question a lot. I may be biased, but I think almost everyone would benefit from some kind of advice for their money. Not that many years ago, if you wanted financial advice, your choices were limited. It was nearly impossible for people early in their careers or those without a lot of resources to find an advisor to work with them.
Not anymore.
There are so many different ways to get affordable financial advice now. Understanding what’s available will help you pinpoint that works best for you so you can get started on finding your financial freedom.
How do you find an advisor?
A good starting point for finding a trustworthy financial advisor is by asking for referrals from people you trust.
You can also search for a financial advisor through free databases from the Certified Financial Planner Board of Standards or the Financial Planning Association. Members of these associations have completed rigorous trainings and have the necessary credentials to give financial planning advice.
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No matter how you find a financial advisor, make sure to do a background check. You can look up disciplinary actions or complaints against individual advisors on FINRA’s BrokerCheck. The Security and Exchange Commission’s Form ADV Part II, meanwhile, is a form that advisors must fill out every year. It details their investment style and can tell you if they have ever filed for bankruptcy, which could be a potential red flag.
You might find it helpful to work with an advisor who specializes in clients dealing with similar challenges as you. For instance, if you’re focused on aggressively paying off your student loans, an advisor who caters to pre-retirees may not be the best fit.
Understand how you’ll pay for advice
Advisor fees can be complicated, so advisors should be forthcoming about how much they charge. I would consider it a red flag if an advisor tries to dance around the question of fees. The two main payment models are fee-only and commissions. Fee-only advisors get compensated for their services directly by their clients. Commission-based advisors, meanwhile, get paid when they sell products, like annuities or life insurance or when they make trades in your investment account. Fee-only advisors charge in a number of ways. The most common is a percentage of assets under management (AUM). Some advisors charge hourly, through a retainer, or by subscription.
Fees can tell you something about what kind of legal standard an advisor is operating under. Fee-only advisors are usually fiduciaries. They are legally required to put your interest ahead of their own and disclose any conflicts of interest. A fiduciary model is almost always going to the better option to get you unbiased advice.
More and more advisors are adopting the fee-only model and moving toward a fiduciary model.
What kind of financial advice do you need?
As I said before, there are so many different ways to get advice. It depends on how much advice you need and how much you want to pay for it.
Do-it-yourself
Just like there are people who prefer to do their own home repairs, there are people who have the time and inclination to learn how to do their own financial planning. You can find plenty of resources online to help you. Companies like Morningstar can give you mountains of investment research with analyst reports and fund analysis. Other resources include Fidelity and Charles Schwab, where you can get low or commission-free trades without a minimum.
If you do go the DIY route, make sure you stay on top of new developments. Take taxes. Tax laws change every year, and you want to ensure that you are still making the right moves so your tax bill doesn’t suddenly go up. To make the job of managing your money easier, automate as much as you can. Use financial calculators to figure out how much you should save and invest and then automate rebalancing to get you back to your original allocations when your investments shift. Lean on set-it-and-forget-it features to move money into investing and saving vehicles and to pay down debt.
Comprehensive advice
On the other end of the spectrum are people who desire a lot of hand-holding. They may realize they don’t have the expertise or the time to do the job well, and they’re happy to hire someone to do it for them. They rely on a financial advisor to keep tabs on all their financial decisions and nudge them to get things done. Most financial advisors who do comprehensive financial planning charge a fee based on the percentage of assets you have with them. Advisors may charge a smaller percentage for larger portfolios.
Hybrid
Many people fall somewhere in the middle between needing a lot of advice and needing none. They would do well with a hybrid model.
With a hybrid arrangement, you can check in with an advisor, but you don’t rely on them to drive the relationship. You’ll have to do some of the heavy-lifting yourself. For example, you might have a yearly video call with your advisor to set your goals for the coming year. Whatever recommendations the advisor makes, you’ll probably have to execute on them on your own. If your advisor suggests you increase your allocation to stocks, it will be up to you to go into your account and make that change. Additionally, in a hybrid relationship, you will probably rely more on online tools to help you track your progress.
Advisors who charge by the hour, on retainer or through a subscription model would be a good fit for hybrid advice because you choose the level of advice you want to get. You can also turn to digital advisors like Betterment or Wealthfront for a fraction of the price of traditional advisors. These so-called robo-advisors primarily use digital tools to help you manage your money, such as dashboards to set your goals and retirement income withdrawal strategies. They also give you access to human advisors for an additional fee.
When should you get financial advice?
You might think that when you’re young and just starting out you don’t need much financial advice. That’s actually when you need it the most. If you look at all the financial decisions you make in your life, the peak of decision-making years hit early on. Student loans, buying a first house, setting up a 401(k), weddings, babies, daycare … the list goes on and on. Getting these right — or at least avoiding really bad decisions — can have enormous consequences for your future financial health.
Unfortunately, that tends to be the time in most people’s lives that they’re not paying much attention to their finances because they’re preoccupied with those big life moments. So, do your future self a favor and consult with a financial advisor, even if it’s just one time.
Bottom line
At the end of the day, financial advice is about finding your freedom, getting you to the point where you don’t have to make compromises about how to spend your time and resources. There are so many ways to get advice these days — no matter how much money you have or how much you can afford to pay for it — that there’s something for just about everyone.
READ MORE:
- What The Different Types of Financial Advisors Do, And How To Choose
- What You Need To Know About Changing Your Estate Plan
- 5 Shrewd Secrets from Women Who’ve Fixed Credit, Paid Debt, and Made Fortunes
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