Everyone needs financial advice or planning at some point in their lives. The difficult part is finding the right financial professional for your particular situation.
In this respect, choosing a financial professional is a bit like choosing a mechanic — the one that specializes in restoring vintage Rolls-Royces probably won’t be the best one to overhaul the suspension in your Toyota Camry. You need a professional that offers the particular services you require.
Ask Yourself the Important Questions
Before you begin your search, you can whittle down the overwhelming number of professionals out there by asking yourself some questions, such as:
- What services do I need?
- How much does this professional charge?
- How do they calculate their fees?
- Do they have a good reputation?
- How long do I plan on using their services?
Questions like these will keep you from having to run through every financial professional in the phonebook in alphabetical order. By narrowing the parameters of your search, you can avoid wasting time contacting financial planners who aren’t right for you.
Why Do You Need Financial Planning?
Financial advisors offer a wide range of services.
Let’s say you’re setting up a simple retirement plan. You’d start by calculating your earnings and determining how long you plan to work, what amount of money you need to live on once you retire, and roughly how long you expect to live.
Choosing a retirement savings method, however, is a bit more complex. Your choices include Roth IRAs, company 401(k)s, mutual funds, and many more. Which one is right for you? That’s a great question for your financial planner.
There are also other reasons you might need a financial planner, such as setting up life insurance or trusts to take care of your family after you’re gone. You might need help settling significant debts, or you could run into trouble with your taxes. Financial planners often specialize in a single area, such as estate planning or risk management.
Some more specific financial planning services include:
- College education funding
- Tax planning
- Budgeting assistance
Knowing what you’re looking for will help you find the advisor that aligns with your immediate needs.
The Cost of Financial Planning
Most financial professionals charge variable fees for their services. These fees are based on the amount of money they handle for their clients.
The more money (or assets) you entrust to them, the less they usually charge. The standard is 1% of AUM (assets under management) every year, but 2% isn’t unheard of if they’re handling smaller amounts.
If you designate $1 million to an advisor charging 1% of AUM, their take would come out to $10,000 annually, though a more typical payment schedule would be $2,500 every three months.
This is why it’s essential to find out how much a certain professional charges in advance. An advisor might charge nearly 2% for a $100,000 investment, but only 0.5% for a $10 million investment.
There are several different ways that advisors might structure their fees. For example, fee-based advisors will charge fees as outlined above as well as commissions for executing transactions on your account. Other advisors might charge separately for financial planning services.
What About Robo-Advisors?
For people who want to save a little money and don’t mind trusting technology with their finances, robo-advisors offer an affordable alternative. Robo-advisors conduct automated investments with little or no human interaction required.
A robo-advisor will invest in pre-set portfolios of ETFs, or low-fee exchange-traded funds. These digital advisors are completely legitimate and are subject to regulation by the SEC (Securities and Exchange Commission) as RIAs (Registered Investment Advisors) to protect consumers.
Conduct Your Search
Start with people you trust. Talk to friends, relatives, or co-workers who have had success with a financial planner and ask them if their planner might work for you. This strategy can be especially useful if you make a similar amount of income.
If you don’t know anyone who works with a financial professional, you can also ask a search engine. Terms like “retirement planner near me” can yield excellent results in a matter of seconds. Just remember to read the reviews carefully.
You can also check the AFC (Accredited Financial Counselor) website, which is an especially useful source for middle-class earners. There’s also the National Association of Personal Financial Advisors, which can identify financial professionals in your area.
It’s your money that’s on the line, after all. While it’s important to find a professional that can handle the heavy lifting, it’s unwise to step away from your finances completely. Don’t be afraid to call or meet with your advisor regularly to discuss how they’re handling your investments.