- "There's so much a planner can do to help everybody, no matter what stage they're in," says Financial Planning Association President Dennis Moore.
- "A lot of advisors say, 'We earn our fees,' but when you actually quantify what they're charging, their clients don't know how much they're giving up," says Darrell Armuth, founder of Sensible Portfolios.
To quote financial luminary Mike Tyson, "everyone has a plan until they get punched in the mouth." OK, Iron Mike hasn't always been known to be a solid money manager, but his wisdom applies to financial plans as well as strategies in the ring.
For the last several years, amid a roaring bull market and record-high savings rates, many Americans' long-term financial plans were doing just fine until — pow. A choppy stock market. A rout in cryptocurrency prices. Rampant inflation. Your jaw feeling sore yet?
If it seems like the path forward financially has gotten significantly more complicated, it may be time to consider hiring a financial advisor.
"The time is now. You don't need to wait," says Dennis Moore, a certified financial planner and resident of the Financial Planning Association. "There's so much a planner can do to help everybody, no matter what stage they're in. Just make sure you do your homework and know what you're getting out of it."
Making sure you find an advisor who meets your needs will likely come down to sitting down and chatting with a few candidates, financial experts say. Here are three questions they recommend you ask to make sure you find the perfect fit.
Financial experts recommend a variety of strategies for investors to get the biggest returns from their portfolios, but they're generally united when it comes to one rule of investing: Keep your costs as low as possible. That's because the fees you pay to the pros who manage your money can take a major bite out of your returns.
"High fees damage portfolio growth. You can do a simple math calculation to quantify the damage," says Darrell Armuth, founder of investment advisory Sensory Portfolios. "A lot of advisors say, 'We earn our fees,' but when you actually quantify what they're charging, their clients don't know how much they're giving up."
Under a classic model, advisors charge clients a percentage of "assets under management" — the amount of money the firm is managing on your behalf. If your advisor charges a 1% annual fee on your $100,000 portfolio, you'd pay $1,000 per year.
Some advisors may charge an hourly rate or offer a flat fee for one-time financial advice or for the duration of a particular project. Others have adopted "subscription" pricing for ongoing access to a suite of financial planning services.
Video by Courtney Stith
Regardless of how your advisor charges clients, you'd be wise to make sure they're not bringing in money for recommending certain financial products. Advisors can receive commissions from financial firms for pushing instruments — such as annuities and high-fee mutual funds — that may not align with your financial goals.
To avoid this conflict of interest, financial experts say, gravitate toward fee-only advisors who receive 100% of their compensation from clients and who have a fiduciary obligation to act in their clients' best interest.
"You'll get much more objective financial and investment advice, without conflicts of interest, from a fee-only planner," Justin Nichols, a CFP and director of operations at the Garrett Planning Network, told Grow.
Even if they aren't paid to recommend specific products, you'd be wise to ask anyone helping you with portfolio decisions how they choose investments, says Moore. "What is their investment philosophy? Is it individual stocks? Mutual funds? ETFs?" he says.
Video by Jason Armesto
"Don't be bashful about asking," Moore adds. "You have to find the right fit for what you're looking for."
Generally, most investors stand to benefit from an advisor who helps them build well diversified, low-cost portfolios. But what makes sense for one type of investor may not make sense for your particular goals and tolerance for risk, Moore says.
"You may find an advisor who has a super-aggressive investing philosophy," he says. "They may have a great long-term track record, but that may be more risk than you're comfortable with."
Look up a financial advisor on LinkedIn, and you're likely to see a name followed by a host of three-letter initialisms. They're not all created equal. One to home in on: CFP.
To become a certified financial planner, you must pass a rigorous exam, accrue 6,000 hours of professional experience or 4,000 hours of apprenticeship under the tutelage of another CFP, and meet annual obligations for continuing financial education, among other requirements.
But while the CFP designation is a good place to start if you're looking for a financial generalist, it's also smart to look into advisors with areas of expertise that may fit in with your specific needs, says Moore. "Feel free to ask the protentional planner what those designations mean, what they represent. Why did they get that designation?" he says.
"We don't want anybody to feel intimidated by the alphabet soup. People need to understand what they mean, and planner should be able to talk their way through that."
Video by Ian Wolsten
If you have a complicated tax situation, for instance, a certified public accountant (CPA) who also holds the personal financial specialist (PFS) designation may make the most sense for you.
And if you think you fall into a financial niche, don't be afraid to shop around until you find someone who you think fits your profile. "If you just joined a company and were offered a lot of stock options, find someone with an expertise in stock options," says Moore. "Understand what value you're hoping to get so that once you start doing interviews and looking at designations you know what you're looking for. This is going to be a personal experience and relationship."
The views expressed are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses.
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