Finding a Financial Advisor or Planner
Getting Your Financials Right
You may have noticed how complex and important saving,
investing, maximizing the value of your wealth, and planning for a safe,
comfortable retirement can be. If so, you've probably asked yourself how to
find a financial planner or advisor and why you might need one.
You may also have felt the pressure of making a big financial
decision. Whether it is buying a home, investing in further education, or
managing the finances for a wedding, birth of a child, divorce, death of a
spouse, or major illness, you've probably wondered how a financial advisor could
help.
Services of Advisors and Planners
The National Association of Financial Planners estimates that
only 30% of investors have a paid financial advisor. 57% of those without an
advisor say they prefer to manage their own money, while 95% with an advisor
say they believe the advisor is worth the money.
So what kind of
services do financial advisors and planners provide? Broadly, they can help you
manage your financial life using various strategies and products to manage your
wealth and improve your financial habits.
Types of Financial Advice
Not all financial advisors are the same. Some specialize in
certain practice areas, types of clients, income levels, investment strategies,
and products. Some work with clients all over the country, while others focus
on clients in their town. Some can help you with your taxes, insurance needs,
or estate planning, and others will focus on retirement planning. There are
advisors for the younger client, and some specialize in retirees. You can find
a planner to help with life stages planning, estate distribution strategies,
and business planning.
From managing every aspect of your personal or business
financial life to simply suggesting directions, specialized professionals are
available to help.
Reasons to Seek Financial Advice
You may need a good financial advisor for many reasons. For
example, perhaps you just received a considerable sum of money from a relative
who died or a windfall from the state lottery. As a person goes through
different stages in life, their need for a financial professional will change.
Perhaps you just had a baby and want to ensure their future
in case the worst happens. Many parents seek help for college savings for
children and setting up estates that can convey wealth to future generations.
The approach to investing at or during retirement is
different than that of a young worker. As you near retirement, your risk
tolerance level will change, and your investing style should change as well.
Perhaps your company is offering a too-good-to-resist early-retirement package,
and you want to make sure the money lasts. Any of these events (and many
others) could naturally trigger the desire for some professional help in
managing your financial affairs.
How to Find Good Financial Help
How should you go about finding the right advisor? The first
step is to figure out what sort of professional financial help you need. Like
many people, some of your deepest economic thinking comes at tax time. So if
you want someone to dole out tax advice and preparation, an excellent certified
public accountant (CPA) will probably suffice. That CPA may or may not also be
a financial advisor.
Investment Management: Financial Planners
Financial planners are professionals who help businesses and
individuals create investment plans that meet long-term goals.
Say you're looking for help in creating a savings plan,
devising investment strategies for your investment portfolio, getting out of
debt, and start saving for a house. In short, if you want someone to look at
your entire situation, you should seek the help of a comprehensive financial
planning firm or an individual financial planner.
Firms typically have a staff of professionals that includes a
financial planner. Solo-practitioner planners may not be able to provide you
with the full range of services that a firm can, but many will work
hand-in-hand with other professionals who can provide those services.
Managing Money: Financial Advisors
A financial advisor is a broad term that covers many types of
professionals. They may help you manage your investments by facilitating the
buying and selling of securities. These individuals include bankers,
accountants, stockbrokers, insurance agents, and estate planners. Financial
advisors handle a wide range of money matters for individuals and businesses,
while financial planner handles more specialized matters.
Financial advisors may work in independent practices or as
part of a firm or financial institution. All advisors who work with the public
must have a current Series 65 License. The National Association of Personal
Financial Advisors (NAPFA) is a good place to start your search for help.
Fee-Only vs. Fee-Based
A fee-based structure can be hourly, project, retainer, or a
flat ongoing amount derived from the percentage of assets being managed, and
usually, the greater the assets, the lower the percentage. Commission-based
means the advisor charges a straight commission every time a transaction occurs
or a financial product is purchased.
Commission Based
Although most of the big retail brokerages offer financial
planning services, be cautious with their personnel. While many are highly
trained and trusted, others may just be glorified stockbrokers hired by large
wirehouses to sell proprietary mutual funds and stocks. Known as fee-based,
they are incentivized, sometimes even required, to push these products, which
are owned by their firm—and for which they receive top commissions. With some
wirehouses, it's all about quantity, not quality.
But be aware: the more buying and selling a broker does in an
investor's account, the higher the commissions generated.
Fee-Only
Another type of advisor is the fee-only advisor. These
professionals carry designations such as registered investment advisor (RIA) or
investment advisor representative (IAR). They are held to a high degree of
accountability, and you'll typically find them among the more knowledgeable in
their field. They are also required to provide to all potential investors upon
request a Form ADV Part II. This form is a uniform submission used by advisors
to register with state regulators and the Securities and Exchange Commission
(SEC).
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