From taxes to investing to debt-busting, theresa lotthat goes into financial planning.
When is it time to hire a financial advisor?
A financial advisor can lay down the basics and help you manage your finances as a married couple.
Youre starting a new business.Or youve started freelancing.
When you decide on self-employmentwhether its freelancing or launching a businesstalking to a financial advisor is a good idea.
Youre switching careers.Financial advisors can help you prepare for the switch and stay afloat during the transition.
Your family has grown.If you become a parent, there are a lot of financial considerations to make.
How will your taxes change?
How do you start saving for college?
Do you need an estate plan?
A financial advisor can help you answer those questions and more.
Simply put, a financial advisor is a general term for any professional who gives you financial advice.
If they mess up, they lose that certification.
To make things even more confusing, there are also CPAsCertified Public Accountants.
How much an advisor costs
The cost of an advisor varies depending on what kind you choose.
Some advisors may chargea flat fee ranging from $1,000 to $3,000.
Some brokerage firms likeFidelityorVanguardoffer free or discounted financial advisory services.
Of course, you get what you pay for, and theyll primarily suggest you buy their own funds.
For that reason, theyre not usually recommended.
This is also known as assets under management or AUM commissions.
Its usually 1-2% of whatever amount is in your AUM.
Itshugely important to ask your advisor how theyre paid.
Ideally, you want a fee-only advisor.
Okay, so lets say an advisor charges an hourly, fee-only rate.
That alone doesnt tell you much.
How long will it take them to complete the work?
Bump that fee up to $300 an hour, and youre looking at $3,600.
Investing: Your investments, risk tolerance, retirement goals.
Once your advisor has a thorough idea of your financial situation, thats when the advising comes in.
If your financial planner handles investing, they might help you open and fund an investment account, too.
Every firm has a different investment policy, so the approach may vary.
Some firms only work with one fund company and limit your investments to that company.
At the very least,learn the basics of investing on your own.
TheFinancial Planning Associationis another good option for finding CFPs.
To start your search, youll want to pick a few potential candidates, then do a little research.
Check their company website and bio.
NAPFA recommends specifically reviewing their Form ADV (registration with the SEC).
The FPA suggests meeting with at least three advisors before you decide.
Again, you should have them clarify how theyre paid.
Specifically, ask about their fee structure.
Even if youre sure theyre fee-only, get them to confirm it.
NAPFA suggests some additional, specific questions:
Do you provide comprehensive financial planning or just investment management?
How will you help me reach my financial goals?
What happens to my relationship with the firm if something happens to you?
Are you held to a fiduciary standard at all times?
In general, talk about your specific financial needs and verify theyre able to help you with them.
However, you also want toweed out a good financial advisor from a bad one.
Their investing philosophy: This is why it helps to learn the basics of investing.
We recommend along-term buy and hold portfolio, and so do most personal finance experts.
You want to ensure your advisors investment philosophy matches your own.
A good financial advisor will do more listening than talking.
They should also ask questions about your situation and offer insight.
Thestock market averages about 6-7%, and even thats not guaranteed.
They should have a thorough idea of your financial health so they can offer a customized plan of action.
You feel rushed orpressured.
It can be intimidating disclosing and handing over your finances to someone else.
Take your time with the processand do your researchand it shouldnt be too hard to find one whos reliable.
This piece was originally published in September 2015 and updated on June 23, 2020 by Emily Long.
