Smith 
Thanks to new technology, almost anyone can manage their investment accounts. However, not everyone has the time or expertise to do it effectively, which might lead to lower returns. That’s why many people prefer working with a financial advisor. These professionals are trained to help you invest wisely, balancing risk and potential returns.
Choosing a financial advisor can be tricky since there are many out there, and some have a reputation for prioritizing their interests over their clients’. But by knowing what to look for, you can find an advisor who truly has your best interests at heart. Statistics even suggest that professional guidance can add value to your portfolio.
When deciding whether to hire a financial advisor, consider your personal situation carefully. Here are some steps to help you find the best match for you:
Consider Your Needs and Budget
Define Your Unique Needs
Start by assessing your own financial needs. Are you just starting to build wealth, or are you nearing retirement and looking to make final adjustments? Decide if you need comprehensive financial planning services with ongoing support, or if a more hands-off, technology-driven approach would suffice.
Understand the Pay Structure
Be aware that financial advice comes at a cost. Many advisors charge a flat fee of around 1% of your portfolio annually, while some earn commissions from the investments they recommend, which could include fees that reduce your invested amount. Online financial planning services may charge less, typically between 0.25% and 0.80% of your portfolio each year. Understand how any prospective advisor gets paid and consider if they earn commissions on the investments they sell. The most common payment method involves assets under management (AUM), where the advisor’s fee is deducted from your investment account. This can be convenient but may obscure the actual costs over time.
Types of Financial Advisors
Robo-Advisors
Robo-advisors use technology to invest your money according to your risk tolerance. They generally charge a percentage of your portfolio each year. Firms like Wealthfront and Betterment are examples, with fees around 0.25% to 0.40% annually.
Online Financial Advisors
These advisors work online and might offer lower rates or one-time fees for their advice. Some robo-advisors also offer access to human financial planners for additional fees. Firms like Personal Capital provide dedicated advisors for those with significant assets.
Traditional Financial Planners
These advisors, often known as wealth planners or investment advisors, may hold certifications like Certified Financial Planner (CFP). Payment methods vary: some are fee-based, some commission-based, and others a combination of the two. Fee-based advisors can provide objective advice without the conflict of commission-based sales, which is crucial for obtaining unbiased financial guidance.
Questions to Ask Every Financial Advisor
When considering a financial professional, ask these key questions:
- How do you get paid?
- Are you a fiduciary?
- Are you a Registered Investment Advisor (RIA) or an Investment Advisor Representative (IAR)?
- Do you hold any certifications?
- What services do you offer?
Red Flags to Watch Out For
Be cautious of advisors who:
- Are not transparent about how they get paid.
- Work for firms pushing specific products like whole life insurance.
- Recommend investments without understanding your full financial situation.
- Don’t take the time to understand your goals.
- Aren’t acting as fiduciaries.
- Have questionable backgrounds, which you can check using FINRA’s BrokerCheck.
Frequently Asked Questions (FAQs)
- A financial fiduciary must put their client’s interests first legally.
- The BrokerCheck tool from FINRA lets you check the background of financial brokers and firms.
- Financial advisors may be paid via flat fees, AUM, commissions, or a combination.
- Robo-advisors are cost-effective, tech-driven platforms for managing your money.
The Bottom Line
Finding a financial advisor who fits your needs is crucial. Their advice could significantly impact your financial goals and retirement plans. Always ask questions about their payment methods and background to ensure they’re the right fit for you. Remember, trustworthy financial advisors have nothing to hide.
Disclosure: Investing involves risk, including possible loss of principal. Vanguard’s advisory services do not guarantee profit or protection from loss. Service levels and fees may vary based on portfolio amounts. For details, refer to the Vanguard Personal Advisor Services Brochure.
