A good financial advisor can help you to get all of your finances in shape, including getting you prepared for later life and retirement so that you do not have to worry. Additionally, they can advise you on what you should do with your money in order to allow you to reach any financial goals that you may have much sooner than normal.
If you are thinking about getting a financial advisor to help with your personal financial situation, then it is helpful to know what to expect from them. In order to be able to do this though you must first understand what processes are involved.
Financial planning
The process of financial planning involves setting out what your goals are financially and then setting out a pathway on how to achieve them. In order to be able to do this successfully, a financial advisor must first ascertain some financial and personal information from you and your spouse (if you have one). This data is then used by them to produce projections that indicate how you are able to accomplish your goals and when you can expect to do this by – of course taking inflation and several other factors into account.
As part of this process, the financial advisor will give guidance on what you should be doing differently, how much of your income you need to save, what accounts for the retirement you should be using (i.e. 401(k), Roth, IRA, etc.), what mortgage product you should be using or if you should pay it off altogether, what level of insurance you need, how much money you should keep as an emergency fund, how to better improve your situation re. tax, if you should be downsizing your property, and how much investment risk you should be exposing yourself to.
Advising on investments
The investment advice that a financial advisor can give varies from making generalized recommendations on types of assets you should look into, to highly specific advice on individual stocks, shares, and even properties that you should be buying/selling. However, this is not something that every single financial advisor will give as this requires an extra level of knowledge. If this is something that you are interested in then ask them beforehand if this is a service that they can provide to you.
What are the costs?
Whilst the actual price of the fees vary from financial advisor to financial advisor, some of the types of fees that they will charge you for include a retainer fee (annual or quarterly), project fees, an hourly rate, various commissions, and fees on the assets that they manage for you.
Before using a financial advisor, it is important that you ask them to set out a clear explanation of what their costs are. If they are fully registered as an investment advisor, then they will likely provide you with a piece of documentation that is known as an ADV. As part of this, any conflicts of interest that they may have and their fees are clearly stated.
How To Avoid Being Scammed
It is only rational that when entrusting someone to look after your finances and in some cases, even having unrestricted access to them, some people will be worried about potentially being scammed or having money stolen from them. There are certain practices that a financial advisor may conduct that works to cheat their clients (you) out of money by ripping them off.
Some of the warning signs that you should look out for from a financial advisor include putting their own name onto the deeds of properties, assets, and bank accounts. Doing this will provide them with complete unrestricted access to and authority over these things at their own discretion. In order to avoid this situation from happening you should ensure that your name and your name only appear on the deeds and accounts.
Although most of the investment advice that financial offers will be legitimate and completely above board, there are some out there that will make recommendations that seem too good to be true. For example, an investment that gives high rewards but comes with very little risk is likely to be part of some kind of Ponzi scheme, or something similar. You can avoid this by only using a financial advisor that is registered with the United States Securities and Exchange Commission (SEC).
The process of churning is something that is done by some unscrupulous financial advisors in order to bump up their own level of commission. They do it by making a significant number of trades for relatively small amounts of money. This can be avoided by having a wrap account and so rather than fees being paid on each individual trade, a flat fee is paid that is charged over a set period of time.
Despite the fact that you have employed a financial advisor to help manage all of your finances, you should also have some involvement in the process. Any financial advisor that asks to do all of the dealings without your knowledge or involvement, they could be trying to obtain a power of attorney from you so that they can make investment decisions on your behalf. As a result, they would be able to transfer money straight from your bank account directly into their own. For this reason, you should never give a financial advisor power of attorney. If you do have to grant it then stipulate in the process of doing so that they do not have the power to transfer funds from accounts.
Conclusion
It is clear from this that a financial advisor can really help to improve anyone’s financial situation and regardless of how much it all costs, the money saved from bringing them on board will definitely outweigh their fees. Like anything though, you need to ensure that who you employ is appropriately certified so that you can trust them with your finances and trust the information that they are providing you with.
