Hiring a Financial Advisor

The question of whether to hire a financial advisor arises many times throughout life—when starting a career, seeking guidance from your parents, buying a home, changing jobs, starting a family, and beyond.

What do these have in common?  They are all life-impacting events that significantly impact your personal finances.  Having a financial advisor in your corner may be exactly what you need to implement important actions and recommendations to save and protect for the future. We will discuss how financial advisors work, what they charge, and if it’s worth it.

To Fee or not to Fee

The way financial advisors get paid can feel like throwing darts blindfolded—it’s all over the place. That’s why it’s important to ask the right questions to get the full picture.

One of the most important is: How are you compensated? Advisors may be paid in many different ways. Common answers you’ll hear include, ‘We charge a percentage of the assets we manage,’ or, ‘We charge a one-time or annual fee for creating your financial plan.

If you do not hear those first two things said, make sure to ask:

1.     Are you able to sell me commissionable products?

2.     What are your conflicts of interest?

o   The conflicts of interest usually appear in the form of their recommendations at the end of your meetings

Products like Whole Life insurance and proprietary funds such as American Funds' “Growth Fund of America” are products and investments that pay a commission to the salespeople.

While paying an advisory fee is not unusual, the question to you might be “Is it worth it?”. 

We encourage you to consider the following:

1.     Do you value professional advice and do you feel it’s worth the fee?

2.     Do you have the time to implement your own financial plan? 

3.     Do you have your tax plan in order? 

4.     Have you spoken to an estate planning attorney about setting up your Will or Trust? 

5.     Do you know which one you should choose between the two? 

6.     Have you found your favorite low-cost ETFs and mutual funds that represent Dave Ramsey’s 4 categories of investing? 

7.     Have you discovered your own investment philosophy? 

8.     Do you have life insurance? 

9.     Are you confident in your coverage amount? 

10.  Do you know what is needed in Life coverage and for how long? 

11.  Are you adequately protecting your greatest asset - your income - in the case of a long-term disability?

12.  Will you know when you can retire?

13.  Do you know your monthly expenses?

14.  Do you know what your income floor needs to be in retirement?

I am, of course, asking this in a bit of a tongue-in-cheek manner because I would venture to guess that those without a financial advisor would not know the answer to these questions.

Financial advisors charge their fees for the service they provide to you, which helps you answer important questions about your situation and helps solve those problems.

Value Add

Is value truly being added to my situation?  Well, Vanguard believes so, and so do we.  On investments alone, having a financial advisor to navigate the emotions and the cyclical nature of investing can add value.  Some clients balk at the idea of paying 1.25-1.5% of their assets on an annual asset fee.  Here is why that is not the right perspective:

Vanguard uses variables like suitable asset allocation using broadly diversified funds/ETFs, Cost-effective implementation (expense ratios), rebalancing, behavioral coaching, tax allowances and asset location, withdrawal order for client spending, and total-return versus income investing.  These variables, when deployed by a financial advisor, have been shown to improve average annual returns by about 3%

Financial Planning & Asset Management

Financial Planning and asset management often go hand in hand.  In the top paragraph, entering a financial planning conversation would many times include getting those numerous questions answered.  Sometimes people want to limit their scope of engagement to investment advice.

Find a financial advisor who can do both.  If you want to simplify your relationship with investment management, great.  If you just want advice on how to get out of debt, all the better.  If you want a truly comprehensive financial plan—one that addresses investments, retirement, insurance, taxes, and estate planning—you’ll have every aspect of your financial life covered and your biggest questions answered.

Many times, firms include financial planning with their asset management fee.  Sometimes companies charge separately for a financial plan, and sometimes that is your only fee, a fee for advice.

Conclusion

There are many questions to ask when finding the right advisor, and my hope with this article is for you to be better prepared when deciding whether to hire or not to hire that financial advisor.

Hiring a financial advisor would be worth it - coming from a financial advisor (there is my conflict of interest).  All jokes aside, considering the 3% potential value add from your investments and the comprehensive review of your financial life by a professional, it is more than worth it.

If you're unsure where to start, don’t hesitate to contact one of our financial advisors today. Having a team of advisors on retainer and speed dial to help navigate your financial life is quite a benefit.  Take advantage of this service today.