It’s a myth that working with a financial advisor is only for those with wealth; in fact, doing so can contribute to the success of anyone’s financial future. An international HSBC study, The Future of Retirement, showed those with financial plans accumulated nearly 250 percent more retirement savings than those without one. In addition, nearly 44 percent of those who have a financial plan in place save more money each year for retirement.
Whether you have a complex financial situation, or just want to get ahead of the curve, a financial planner can provide the necessary assistance no matter what stage of life you’re in. Regardless of who you go with, before you begin working with a professional, here are eight questions you should ask to make sure they are the right fit for you.
1. What type of advisor are you and how are you paid?
The three most common types of financial advisors are commission-based advisors, who tend to be brokers compensated based on product sales and are paid out by the investment product sponsor; fee-based and fee-only financial advisors, who typically work at either an hourly rate, a project fee, or a percentage of assets based on the size of your portfolio; and dual-registered advisors. Ask for a breakdown of the numbers. Once you know what you’re paying for, you can ask them to explain in detail what each fee covers. A good financial professional will be willing to offer complete transparency with regard to how they’re compensated and what you’re getting in return for your money.
2. Are you a fiduciary?
In most cases, fee-based and fee-only financial advisors are fiduciaries, which means they are legally required to act in their clients’ interest, building plans and choosing products that are ideally suited to your needs. Because of this, you probably want to work with a financial professional that is a fiduciary.
Non-fiduciaries, such as broker-dealers, need only to recommend products that are “suitable”— even if they’re not the lowest-cost or most ideal for you. Fiduciaries must recommend products and services that best meet your requirements rather than those that might provide them a commission. Ask your financial professional to disclose any conflicts of interest and understand if and how they use any of their own proprietary products.
3. Can you break down the expected fees?
Fees should be 100 percent transparent and disclosed, especially if the advisor is a fiduciary. Unfortunately, there is no “normal” fee that financial advisors typically charge. Because of the variety of fee structures, certifications, services offered, and geographical differences, fees can vary significantly. However, there are some standards that you can expect. Most financial advisors charge based on how much money they manage for you, a fee structure called “assets under management,” or AUM. That fee can range from .5 percent to 1.5 percent per year, while advisors who charge flat fees can cost between $2,000 and $7,500 per year.
4. Who is your typical client?
Is there a particular net worth that they target? Find financial professionals who are familiar with a situation like yours and are able to help you meet your goals.
5. How often do you communicate with clients?
How accessible are they? You want to know how often you’ll meet and whether they’re available for phone calls or emails outside of scheduled appointments.
6. What’s your investment strategy?
It’s important to ensure you have the same investment philosophy. That might sound obvious, but financial investments can be a rollercoaster, and you need to have trust in your financial professionals when the market is high — and when it’s low. They should understand your goals, your risk tolerance, and your knowledge level when it comes to investing. In addition, you should discuss asset allocation and how they might create a diversified portfolio for you.
7. What are your qualifications?
Regardless of title, make sure to vet your potential financial professional. Not only ask family and friends about them, but look into the professional designations they have. These designations each have their own websites with databases to help understand the credentials and the education requirements. These professional designations also have strict ethical and professional guidelines individuals need to adhere to.
8. Will working with you impact my taxes?
Talking about your taxes is both a way to show that you’d like to keep that in mind when making decisions and allows you to explore what your return might look like. It is important to understand how your financial planner collaborates with your other financial professionals, like CPAs and estate planning attorneys.
We’d be happy to help you get started. At Emerj360, we provide comprehensive, impartial advice, taking into consideration the full picture of your financial situation and what you have in mind for yourself and your family. Book a meeting with us today to boost your financial future.
