This paper was authored by Molly Stanifer, who has been a financial advisor for almost a decade.
Full disclosure: I’m a financial advisor.
I’m also an advisor at a firm that practices true financial planning. It’s why I wanted to be in this industry to begin with – to provide a service to people who need unbiased advice. There are other advisors and firms in our industry that do this. Unfortunately, there are also folks that call themselves financial advisors but are no more than product-pushers.
They can be good people. But as what they sell influences compensation, they must have some bias, and often that’s hard for clients to see.
But before choosing an advisor, do you even need one?
Advisors have to get paid. It’s how we earn a living. If you can do it yourself, you save an advisor’s fee.
But keep in mind that the all-in cost may be lower than you think, because an advisor can often offset some of their fees by finding savings elsewhere. Good financial planners look at your entire financial picture. Maybe you’re paying hidden fees in your investments. Maybe you’re paying for insurance that you don’t need.
Besides the monetary component, you should consider the value of other things that an advisor can offer you such as giving you back your valuable time, alleviation of stress, and providing confidence. One of the first services I purchased when I felt comfortable in my finances was a house cleaning service. I can’t tell you the sense of ease that it brings me. I’m sure it has positive repercussions in other areas of my life that I’m not even aware of.
If you can’t trust a third party to give you financial advice, don’t hire someone. Trust takes time to establish and vet, as it should, but for some people, the lone wolf strategy may be best.
Maybe you can do it yourself
The investing part really isn’t that complex. If you have time and interest, you can figure it out. There are plenty of online resources to help you. Especially if you use a small number of simple, low-fee funds and find a way to “automate” much of the work, it is absolutely possible to succeed without an advisor.
But there are two challenges to the do-it-yourself model. First, you have to work hard to stay on top of your entire situation, and how it may be impacted by changes in regulations, tax, new products or the market. Second, many people struggle to ignore the very human emotions of greed when the market climbs and panic when the market drops. A good advisor can help you avoid the mistake of buying high or selling low – a mistake that can really hurt your finances.
Maybe you don’t have any issues right now
If you really have addressed all your issues – investments, financial goals, tax, insurance, estate planning, etc., that’s great!
But just because you don’t go to the Emergency Department when you feel well, it does not mean that you should not go to the doctor regularly for ongoing evaluations and check-ups. Sometimes when a third-party professional looks at the same thing as you, they notice things that you have missed. Are you overpaying for insurance? Do you even need as much insurance as you have? Do you have the right estate-planning documents, and are they up to date for recent tax law changes?
Does your family need it more than you do?
Perhaps you are the lone wolf and you have the time, willingness and expertise. But do your loved ones? I despise using a fear tactic to motivate people, but one of the purposes of an advisor is to identify risks that you wouldn’t notice on your own. One of them may be setting up a proper estate plan and educating your loved ones along the way to ease the burden. This could be your spouse, your parents, your kids, or your family-like friends.
How to find a financial planner
- Use the National Association of Personal Financial Advisors (NAPFA) “Find an Advisor” search tool (https://www.napfa.org/). NAPFA advisors are fee-only, meaning they receive no compensation from products or commissions. They have a fiduciary obligation to recommend only solutions that are in the best interest of the client. There are also experience requirements, peer reviewed financial plans upon membership acceptance, and continuing education requirements.
- Use the CFP website (https://www.cfp.net/) “Find a CFP Professional” search tool. CFP® professionals have passed courses on estate planning, insurance planning, investing, college planning, retirement planning, and tax planning and then passed a standardized exam. Some equate this to becoming board certified in the medical profession, passing the bar in law, or the CPA in accounting. CFP® professionals need a bachelor’s degree, minimum industry experience, and continuing education.
- Financial planners have different styles. Meet with someone to try and get a feeling.
Do you risk waiting until it’s too late?
Most often, a person will seek out a financial advisor when a life event happens or an event is approaching. Sometimes it’s an inheritance, marriage, divorce, or a move. Many times, it’s retirement. But wouldn’t you feel more confident if you had a professional who already knew your history, preferences, and values when they provide guidance?
How can you plan for something when it has already happened? There are numerous studies that prove not only having goals, but writing them down, significantly improves your chances of success.
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