Financial advisors shouldn’t be thought of as a luxury that only the rich can afford. Advisors are a great resource for many people and can often provide a lot of insight. They take away the stress of worrying about money, simplify the investment process, let you know about more obscure or unknown investment opportunities, and can help keep track of how your investments are doing. Here’s how to tell if you need an advisor.
According to CNN Money, “The answer depends largely on how comfortable you are going it alone — and how good a job you think you could do overseeing your finances without help from a pro.” First, take a look at how familiar you are with investing. If you’re not familiar with the concept of asset allocation or picking funds, it may be time to seek help somewhere else. CNN Money also states that those who received professional help had a return of almost three percentage points higher than those who invested on their own.
Investopedia recommends reviewing this checklist to help determine if you need an advisor.
- Do you have a fair knowledge of investments?
- Do you enjoy reading about investments and doing research?
- Do you have expertise in investments? Do you have the time to monitor, evaluate them, and make periodic changes to your portfolio?
How do you find a right fit? Start by asking around for referrals from people you trust. “Begin by asking for referrals from colleagues, friends, or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. A Certified Public Accountant or a lawyer might make a referral,” says Investopedia.
You can also seek advice from associations such as the Financial Planning Association and the National Association of Personal Financial Advisors. These planners are fee-only, meaning their only revenue comes from their clients. They don’t accept commissions and take a pledge to act in their clients’ best interests.
The Wall Street Journal also suggests finding a planner in the Garrett Planning Network, which is a group of certified financial planners who pledge to make themselves available for smaller projects at an hourly fee. This is a great option if you just have a few questions you’d like answers to.
A few other things to take into consideration:
Consider the planner’s pay structure: Try to avoid commission-based advisors; they “may have less than altruistic incentives to push a certain life insurance package or mutual fund if they’re getting a cut of that revenue,” says the Wall Street Journal. However, also be wary of fee-based advisors. If they’re earning 1 percent of your annual assets, they might not encourage you to liquidate your investments or buy a large house, even if that could be a great option for you.
Look for a fiduciary: This means that the planner has pledged to act in a client’s best interests no matter what. Advisors who aren’t fiduciaries are often held to a lesser standard.
Run a background check: Just make sure you’ve answered these two questions: Have you ever been convicted of a crime? Has any regulatory body ever put you under investigation, even if you weren’t found guilty?
Verify credentials: Make sure that the financial advisor you’re looking into has current credentials. Google them, see who administers the designation, and then call the administrator to verify it.
Beware of market-beating brags: According to the Wall Street Journal, “Warren Buffet outperforms the market averages. There aren’t a lot of people like him. If you have an initial meeting with an adviser and you hear predictions of market-beating performance, get up and walk away. No one can safely make such guarantees, and anyone who’s trying may be taking risks that you don’t want to take.” Asking the financial advisor whether they plan to beat the market is a pretty good test to see whether you should work with them. Their main goal should be promising to offer you good advice.