You may think you don’t need a financial advisor if you’re not rich, but the truth is that, depending on your situation, having one may benefit you. For many people, the expert advice and guidance they receive from working with one of these professionals far outweigh the costs. Learn whether you could benefit from a financial advisor’s services, understand the different fee structures and get tips on how to find one who meets your financial planning needs.
Do You Need a Financial Advisor If You’re Not Rich?
“Rich is a relative term,” said Curtis Bailey of Quiet Wealth Management. “There are people with $4 million who don’t feel rich because they have friends with $8-$10 million. Today, some financial advisors serve very specific needs, such as paying off student loans, budgeting, analyzing equity compensation awards, etc., to broader full-service advisors — everything from financial planning to tax preparation to investment management.
Bailey also said that not everyone needs a financial advisor but that it would benefit many people to have one.
“In fact, there are many financial advisors that have financial advisors,” he said. “Financial advice is not only about knowledge, it is also about customizing and implementing those insights. The right financial advisor to help with your personal circumstances could substantially improve your financial life.”
How Much Does It Cost To Hire a Financial Advisor?
What it will cost you to work with a financial advisor depends on various factors, according to Zack Hubbard, a financial advisor and certified financial planner with Greenspring Advisors.
“The cost of financial advice often depends on the advisor, the level of service provided, and the level of complexity of your situation,” he said.
How much you’ll pay also depends on the type of fees the advisor charges.
How Do Financial Advising Fees Work?
Financial advising fees will vary depending on the financial advisor or firm you work with. Jenna Biancavilla, female financial expert and president of Pearl Capital Management, said there are three types of advising fees:
- Commission-based
- Fee-only
- Hybrid
Here is Biancavilla’s explanation of each type of financial advising fees:
- Commission-based: “Commission-based advisors are paid different rates for the different products they sell, with some products paying them as much as 14% or more in commissions. There is an inherited conflict of interest to sell higher-paying products and move in and out of investments more often since each transaction generates a new commission.
- Fee-only: “This is a flat percentage, also called flat-fee. These advisors make the same flat percentage regardless of the investments sold or the number of transactions. Usually, flat-fee advisors charge between 1% and 2% annually.
- Hybrid: “This is exactly what it sounds like; advisors using both commission-based and fee-based revenue sources. Here’s the inside scoop: From a business perspective, these advisors have legacy accounts set up as commission-based and don’t want to give up that higher income, but they also realize that investors are becoming savvier and are looking for fee-based advisors, so they are set up to charge both commissions and flat fees. From a consumer perspective, it’s hard to know when you are being sold something that pays a commission from these advisors.
Biancaville also said, “Advisors also charge one-time or annual fees to write financial plans, which are quotable dollar amounts, i.e., $2,500.”
How To Find a Financial Advisor
Now that you know more about what a financial advisor can do for you and the different types of fees you may encounter, here’s how to find one that will meet your planning needs.
Websites like BrokerCheck by FINRA and the National Association of Certified Financial Fiduciaries are good places to look for qualified financial advisors, but they’re not the only way.
“There are plenty of websites that list advisors, but let’s be honest, it is an important decision, and just picking a name from a website may not be the best way to go,” said Julian Schubach, vice president of ODI Financial. “Speak to your accountant or family attorney as they usually have vetted advisors they have worked with in the past and may have a recommendation. Speak to colleagues and friends as well to see if they have an advisor they like. Interview a few advisors before making a decision the first time.”
Questions You Should Ask a Financial Advisor
Schubach advised asking a financial advisor these three important questions before moving forward.
3 Questions To Ask
- “Ask if the advisor is a fiduciary. Does the advisor put your needs before their own?
- Ask if the advisor is a broker or an investment advisor. Remember, a broker earns commission and could be incentivized to sell you products that earn the most commission even if it isn’t the best thing for you.
- Ask about fees. If the advisor isn’t 100% transparent, move along.”
“As a bonus, visit BrokerCheck to see the advisor’s employment background, which exams they have passed and if they have ever been fined or sued by a client,” Schubach said.
Kathleen Fish, a certified financial planner and president of Fish and Associates, advised asking the following questions of financial advisors you are interested in working with:
“Ask what types of services that they provide for their clients,” she said. “Do they provide financial planning? … Does the firm have set minimums for who they will work with? Most importantly, you have to determine if you are a good fit for them and vice versa. For example, a firm that only works with business owners is not going to be a good fit for a young professional who would need completely different services.”
Good Advice When Searching for a Financial Advisor
For best results, you’ll want to find a financial advisor you can relate to and who truly understands your specific planning needs.
Kenny Senour, a certified financial planner with Millennial Wealth Management, said to consider working with a financial advisor who is no more than a decade or so older than you are. It’s worth your time to find an advisor who has experience working with people in your situation because he or she will know how best to strategize for your future success.
“Younger generations are faced with new and unique challenges, like how to pay for the cost of childcare while paying off your student loans,” Senour said. “Working with a professional who is in the exact same life stages or perhaps a few years ahead can be extremely helpful for your advisor understanding your unique situation.
“Make sure you have a clear understanding of how your financial advisor is compensated and if there is any conflict of interest when it comes to making a recommendation. The first step is to make sure the professional you work with is a fiduciary, meaning they are legally and ethically obligated to act in your best interest, versus their own interests or their firm’s. A great resource is one that the CFP Board provides … called 10 Questions To Ask Your Financial Advisor.
“The advisor you work with should be able to clearly and effectively communicate their fee structure and value proposition,” Senour said. “Find an advisor who can be a teacher and advocate for you versus someone who will talk over your head and not help you understand why a strategy is being recommended.”
