Not everyone can make good financial decisions for themselves. In fact, most people cant. And there’s nothing wrong with that. The complex financial landscape often confuses even finance-minded people. The average person must balance their savings, investing, retirement, tuition, and expenses, all at once to have any type of financial strategy. And that’s where a good financial advisor comes in.
The difference between a financial planner and a financial advisor
“Financial advisor” is term that is used to cover many types of financial services including stockbrokers, insurance products, retirement products, and even bankers. A financial planner is a type of financial advisor whose main goal is to help you plan your wealth building and preservation.
Many financial advisors operate on a “fee-based” model whereby they charge you for their services and they are compensated by financial institutions for selling their products. However, this can often create a conflict of interest as certain advisors may care more about their own financial wellbeing than they do about yours. And they may not be required to inform you about how they are being compensated.
On the other hand, financial planners are fee-only and so they are only compensated by you in exchange for their services. They have a fiduciary responsibility to give you unbiased and accurate financial advice. Financial advisors carry some type of certification (CFA, CFP, RIA, etc.) and are required to pass certain exams to be licensed.
How do I find a good financial planner?
There are lots of financial planners out there and you want to make sure you find a good one. While you can always do an internet search, a better place would be to start by asking friends. But keep in mind that not all financial planners have the same type of clients. Try asking friends who are in a similar financial situation as you.
Make sure your financial planner is independent
The best and most unbiased financial advisors are CPA/PFS/RIA/CFP fee only advisors, who have the strictest Fiduciary standards. When you are speaking with potential advisors, it is very important to ask them if they sell any financial products and if they are compensated in any way outside of their fee. If they are, move on.
What does a financial planner cost?
Most fee-only financial planners charge on an hourly rate. Their rates can range from $150-$300 a month. The amount of hours required to manage your account will depend on your needs, with the hours being heavier early on in the relationship.
It’s a smart decision to have a financial planner, but picking the wrong one could do more harm than good. Make sure you pick the right type of advisor for you and you fully understand how they are being compensated. If you are not happy with your current advisor, be sure to start your search for a new one immediately.