Sometimes, it helps to have someone knowledgeable look at your finances. There are cases in which a financial advisor can help you create a plan for the future, as well as help you stay on track with a plan you might already have. On the other hand, some people may feel overwhelmed by trying to manage their own investments, and may be better off hiring a professional to help them make the right decisions.
Whether you are a beginning investor, or putting together a debt reduction strategy, or figuring out how much you need to set aside for college, hiring a financial planner may be for you.
What is a Financial Planner?
Financial planners are investment professionals who help individuals assess their long-term financial goals and then make recommendations for investment products and services that will accomplish those goals along with a detailed plan of action.
Some financial planners can examine and plan for every aspect of your financial life, including deposit accounts, investments, taxes, retirement and estate planning and more. Others offer a more narrow focus and range of services.
Why Do I Need a Financial Planner?
If you have a substantial level of wealth and would like to not only preserve it, but grow it, too, you will need a professional to help you. As Emma Johnson of MSN Money states, “the fact remains that the financial landscape is increasingly complicated, and most people are not savvy enough — or interested enough — to navigate [it].”
Even if you consider yourself a financially savvy individual, you’re better off at least consulting a professional at some point. No matter how much you may know about finances, a financial planner is the ultimate authority. Even if you choose to devise your own plan, it is wise to hire a financial planner to look it over and make any necessary revisions.
There are many reputable financial planners that will assist you in working out a plan you can follow on your own for a flat fee. Then, if you want to make your own tweaks to the plan later you can. Sometimes a second set of eyes can help you avoid a costly mistake, or give you reassurance your financial plan is on the right track.
Advantages of Using a Financial Advisor
The right financial planner can help you plot out your road to financial freedom. A financial advisor can come in handy if you aren’t sure how to put a retirement plan into action, or if you feel overwhelmed by your debt situation.
A good financial planner can look at your situation and recommend a course of action that can be beneficial to you in the long run. Your financial advisor looks at your entire picture, and then helps you figure out how to meet your goals.
You need a financial advisor if you start to feel overwhelmed at the thought of working out your own financial future. If you feel as though you are too disorganized, or if there is too much to do in order to get started, you could probably benefit from financial planning help. At the very least, you can get pointed in the right direction.
Criteria for Hiring a Financial Planner
The Securities and Exchange Commission lists a few questions you should always consider when hiring a financial professional. They include:
- What are their credentials?
- How are they paid for their services?
- Can they provide references?
A Certified Financial Planner is more likely someone to be trusted in the field than someone without the certification. In order to receive certification in financial planning, a person must hold a bachelors degree and have obtained a CFP certification. This includes courses in the mastery of over 100 financial topics like general principles of financial planning, investment planning, retirement planning and estate planning. Finally, they are given an exam, which they must pass to be certified.
A financial planner affiliated with the National Association of Personal Financial Advisors (NAPFA) is a huge plus as well and adds to their credibility.
How Does the Financial Planner Get Paid?
I don’t begrudge anyone from making a profit. Everyone should have the opportunity to be rewarded for their knowledge and hard work. But it’s important to be aware of how your prospective financial planner is paid. It’s possible the form of compensation they receive may affect the guidance you receive. Some financial planners receive commissions for investments they recommend. This may present a conflict of interest when it comes to the investment advice they give you, but it is not always the case. You want to make sure your financial planner has a fiduciary duty to you, meaning that your financial interests have to be put first.
In many cases, if all you want is a basic plan, and some general direction for your specific situation, you can pay a flat fee, or pay an hourly rate. However, if your finances are complex enough that you want a full-on financial adviser and money manager, you’ll need to pay attention to the way that your candidate is paid. You’ll want to know whether he or she receives a percentage of assets under management, and whether some of the income is based on commission. You may instead choose a fee-only financial planner who will charge you based on an hourly rate or as a percent of assets and does not stand to gain anything by making investment recommendations.
References Are Important – But Don’t Have Blind Faith
References are important as well, as with hiring any professional. A person may be a self-proclaimed financial planner yet be completely inept. Another consideration is hiring a financial planner from a large company, or an independent financial advisor. There are pros and cons to both.
In addition, you should never hire the first planner you meet unless they are the best out of several interviews you have conducted with others. Your trusted friend may have provided you with the name of planner who did great things with their portfolio. They very well may have, too. They may not, however, be the best fit for you. The only way you will know is if you spend time with several financial planners to discuss the above points first.
Finally, it is a good idea to run a background check on the financial advisor before you hire him or her. A background check can alert you to consumer complaints, see if they have had any disciplinary actions, verify their licenses and certifications, and more. Also, consider checking online for reviews, or with the Better Business Bureau. If a financial planner has been problematic, that will show up, and you can consider it a red flag to stay away.
Choosing Your Financial Planner
As you decide on a financial advisor, you need to make sure that you are working with someone you feel comfortable with. Most financial advisors are willing to speak with you for up to an hour, getting a feel for your financial situation, and allowing you to vet them. This can be helpful as you choose someone to act as an adviser.