Why Do I Need An Investment Advisor

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Promoting Financial And Physical Wellness

What is a Financial Advisor?

Planning for your future is about so much more than your finances. Building a stable financial roadmap is also about your and your familys physical and emotional well-being, as navigating times of financial uncertainty can be stressful. Our financial advisors are ready to help you manage your financial, emotional and physical wellness.

When you choose to work with a financial advisor, its important to find a professional in the field of finance who’s the right fit for you, and has the right resources and experience. You can use these questions to ask a financial advisor as a starting point for what to consider as youre making your decision.

Battle For Regulatory Oversight

Although the SEC and the states have the responsibility of overseeing RIAs, FINRA has spent the past several years lobbying Congress to let it take on the task, even attempting to get a bill passed to that effect in 2012. FINRA claims that research shows that the SEC cannot adequately oversee the RIA industry by itself, and either needs more resources to do so or else needs to cede oversight of RIAs to a self-regulatory organization such as FINRA.

Indeed, a study done by the SEC itself in 2011 showed that the government only had the capacity to review less than 10% of all RIAs under its jurisdiction in 2010. FINRA has maintained that it has the resources to effectively oversee and review all RIAs on a regular basis.

However, the RIA community has fought to stop FINRA from intruding upon its territory. The cost of administrating this additional regulation would place a heavy financial burden on advisors, and many smaller firms would likely be put out of business.

Many RIAs also view FINRA as an ineffective organization that is heavily biased toward the broker-dealer community, and some statistics indicate that FINRA has ruled substantially in favor of the major wirehouses in arbitration cases where clients sought large amounts of money in transactional disputes.

Advisors also see FINRA substantially lowering the protection given to RIA clients now, as RIAs are legally required to act in a fiduciary capacity for their clients at all times.

Financial Advisors Historically Underperform

The goal when you hire a financial advisor is to see an ROI that doesnt just cover the fees youre paying. The ROI has to be high enough to outpace the market, and it has to be high enough to make you feel as if youre getting good value. As weve discussed throughout this topic so far, you can easily invest your own money these days without any fees. So, how high of a return do you need to see from your financial advisor to justify their fees?

The answer will vary from person to person. Whats worth it to us may not be worth it to you. However, industry studies estimate that financial advisory services can result in a 1.5%-4% portfolio return over the long haul.

When you really think about that return, its pretty abysmal. First and foremost, you can say goodbye to 1% of that straight away in fees. And thats if youre lucky some financial services can cost you as much as 1.5% of your AUM . Youll enjoy lower rates as your AUM grows, but small accounts just starting out will have to pay a premium.

Now, lets factor in the market. Looking at the S& P 500 for the years 1991 to 2020, the average stock market return for the last 30 years is 10.72% . Now, factor in those fees. They need to get you 12.5% ROI to break even, and over 12.5% to justify the partnership.

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How To Find Financial Advisors

The good news is that you should be able to find an English-speaking advisor anywhere in the world – but its important to do your research before you hand over any money. Fees can vary, but before you sign up for a plan, ask your advisor what their fees and charges are and when you are expected to pay for their advice. Some advisors work on a commission basis so wont charge you directly, whereas others will charge you an upfront fee for their time and expertise, and additional fees for setting up or arranging investment products thereafter.

The chances are that youll be charged a one-off fee to meet with an independent advisor, or a regular fee if theyre offering ongoing advice tailored to your retirement goals. Some pension providers offer an allowance that helps you cover the costs of financial advice, so depending on where in the world you hold pensions, you should speak to them for support.

Finding The Right Financial Professional

Do I Need a Financial Advisor? How to Know If You Should Hire One ...

When you are ready to start looking for the right financial advisor, begin by asking for referrals from colleagues, friends, or family members who seem to be managing their finances successfully.

Another avenue is professional recommendations. A Certified Public Accountant or a lawyer might make a referral. Professional associations can sometimes provide help. These include the Financial Planning Association and the National Association of Personal Financial Advisors .

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Financial Advisors Have Changed

Finally, dont forget that financial advisors have been required to adopt new fee structures over the years to keep up with changing times. Where many advisors were hardly more than financial salespeople a few decades ago, many of todays financial advisors use a fee-only model that simplifies the cost and prevents them from earning commissions on products they suggest.

Many financial advisors are also fiduciaries, meaning theyve agreed they will be legally required to put your interests first. But there are still plenty of financial salesmen out there pushing whole life and annuities that earn them big commissions at your expense.

To find out how an advisor operates, you have to ask. Schulte says that, just like choosing a doctor or lawyer, its important to find an advisor whos a specialist and has the right expertise to help with your unique situation. Look for a fee-only financial advisor or a CFP whos a fiduciary. And if an advisor you interview refuses to answer when you ask, that could be a huge red flag.

You’re Having A Baby Soon

Some of the most exciting life milestones also happen to be the most costly. If you’re expanding your family, there’s a good chance you’ll need to find room in your budget to accommodate the increased expenses you’re feeding, housing, and clothing another human, after all.

A financial planner can sit down and estimate the true costs of parenthood, reorganize your cash flow, and plan for any savings goals you have as a family.

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Should You Use A Financial Advisor

A Tea Reader: Living Life One Cup at a Time

If you do your own investing, have you ever wondered whether you should turn things over to a professional financial advisor? If you have significant assets, you have probably felt anxiety when making choices with your money.

Perhaps you sensed that you might make better investing decisions if you knew just a little more and could invest without emotion. If this is the case, consulting a financial advisor makes perfect sense.

Active Investing And Advice

Do I Really Need A Financial Advisor? When To Hire A Financial Advisor

Our active investing option features actively managed funds exclusive to our advice clients. We partner with leading fund managers from around the world and advisors knowledgeable about the role active stock funds can play in improving investment outcomes.

During onboarding, an investment professional will guide you through a risk assessment to help determine your risk tolerance for active investing.

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Focus On Asset Protection

Youve worked hard to build up your nest egg. It may represent your retirement fund, savings for college, or money for investment opportunities. You dont want it to diminish because of investment mistakes. If you manage your own assets, youre more likely to make a bad choiceusuallythat happens because emotions get in your way. A qualified financial advisor can offer experience and unbiased advice to help you make the best possible choices that align with your personal situation and future goals.

What Is The Difference Between A Wealth Manager And A Financial Advisor

The key difference is that a wealth manager is largely tasked with preserving and growing existing assets and wealth, while a financial advisor is concerned with managing day-to-day finances and investments, as well as achieving long-term goals. Sometimes, the same professional may be able to provide both wealth management and financial advisory services. Other times, a specialist will focus on just one aspect.

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Time Efficiency For Financial Advisors And Clients/advisor Capacity Limitations

Ultimately, the key takeaway from our Kitces Research study is that, notwithstanding the focus of financial advisors on working with clients and giving financial advice, the typical financial advisor only spends 50% of his/her time on direct client activity, and less than half of that is in the actual process of meeting with clients.

In fact, the ongoing pressure on financial advisors to both service clients and develop new ones which is only recently beginning to shift with the evolution of more formal career ladders at larger advisory firms means that the typical financial advisor still spends as much or more time trying to find the next new client as they do meeting with all of their existing clients ! Though still, both of those activities meeting with current clients, and with prospective clients still only accounts for 1/3rd of a financial advisors time.

In turn, the typical financial advisor still spends more time on back-office tasks for clients, from meeting preparation and planning analyses to client servicing and administrative tasks, than all their client and prospect meeting time put together. A phenomenon that isnt materially different amongst advisors who hire support staff to delegate such activities as the end result is simply that financial advisors end out spending less time per client on such tasks, but the same time in total as they serve a larger number of clients, and serve them more deeply in the first place.

Advisors Help Set Clear Goals

Why Do You Need Financial Advisor

Perhaps one of the biggest reasons to work with an independent financial advisor as an expat is so you can set clear, realistic goals about your future finances. A consultation with a professional will help you assess whether youre doing enough for your future self, and could offer some food for thought on expanding that side hustle or going for a promotion at work. If your plan is to retire early from work or help your children buy their first property, a financial advisor will guide you through the process and ensure you come out of it in the best possible manner. Be warned: you might not like what your advisor has to say, but take their advice as a reality check and be prepared to make changes to your lifestyle to maximise your funds.

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Consider How Much You Can Afford To Pay An Advisor

Financial advisors have a reputation for being costly, but there is an option for every budget. It’s important to understand how much a financial advisor costs before you commit to services. Generally speaking, there are three cost levels you’re likely to encounter:

  • Robo-advisors often charge an annual fee that is a percentage of your account balance with the service. Robo-advisor fees frequently start at 0.25% of the assets they manage for you, with many top providers charging 0.50% or less. On a $50,000 account balance, 0.25% works out to $125 a year.

  • Online financial planning services and advisors typically charge either a flat subscription fee, a percentage of your assets or both. For example, Personal Capital charges 0.49% to 0.89% of assets under management per year. Facet Wealth charges an annual fee that starts at $1,800 a year and goes up based on the complexity of your financial situation. Both fees include portfolio management and financial planning.

  • Traditional financial advisors also often charge a percentage of the amount managed, with a median fee of 1%, although it can range higher for small accounts and lower for large ones. Others may charge a flat fee, an hourly rate or a retainer.

How To Choose A Financial Advisor

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The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Financial advisors help people manage their money and reach their financial goals. They can provide a range of financial planning services, from investment management to budgeting guidance to estate planning. Picking the right financial advisor for your situation is key doing so means you won’t end up paying for services you don’t need or working with an advisor who isn’t a good fit for your financial goals. Here’s how to find the right financial advisor for you.

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What Does A Financial Planner Do

A financial advisor may be able to help close the gap between where you are financially and where you’d like to be.

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Effective financial planners provide guidance that helps you reach your financial goals. Investment management and strategy is a primary component of that guidance. You can tap an advisor for a comprehensive investing strategy and more specific services like:

  • Household spending review and budgeting
  • Retirement planning
  • Assessment of and recommendations for insurance protection
  • Consultation with estate planners, tax planners, and other advisors

Financial planners are essentially personal finance mentors. They learn your situation, provide advice, and guide you towards informed financial decisions.

Why Do I Need An Investment Advisor

Why do you need a Financial Advisor?

When you know the why of a subject matter the how becomes simple and easy to implement. Investment involves a lot of risks and an investment advisor helps you control some of those risks. Others include

1. To help you meet your investment goals

As you make progress in life and your assets and income begin to expand, you can start considering how to heighten your position rather than consolidate it. This could be planning to retire early, change of location, and choice of a new car.

Whatever your goal is, an investment advisor can help assess what is attainably possible and plan with you to help you achieve it.

2. To find the right combination of assets

Investment is as much about protecting against potential downsides as it is about targeting maximum growth. High returns are often associated with high risk and not everyone likes the idea that their investment might fall by a third or more overnight!

An investment advisor will make a detailed assessment of your attitude to risk before making recommendations. They will also ensure you dont put all your eggs in one basket by helping you diversify not only across asset classes but also across accounts, individual funds, and product providers.

3. To obtain an objective assessment

An investment advisor knows how products work in different markets and will identify possible downsides for you as well as the potential benefits so that you can then make an informed decision about where to invest.

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How Investment Advisors Charge

Most investment advisors charge an annual fee that’s a percentage of the assets managed on your behalf. This percentage is usually higher for smaller portfolios and shrinks as the portfolios get larger. For example, Vanguard charges a 0.3% annual fee for an account investing $50,000, but Edward Jones charges 1.35% in program fees for fund accounts starting at $25,000.

Instead of, or in addition to, asset management fees, some investment advisors may charge in any of the following ways:

  • A flat fee to complete a review of your existing portfolio
  • A quarterly or annual retainer fee
  • A combination of fees and commissions

It is important to always ask investment advisors for a clear explanation of how they are compensated. Every investment advisor is also required to provide you with a disclosure document drawn up in accordance with the requirements of the Securities and Exchange Commission . Officially called the Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Adviser, it includes a section known as Form ADV Part 2 that discloses compensation formulas and any potential conflicts of interest.

What Are Financial Advisors And What Do They Do

A financial advisor is anyone you pay to recommend investments, assist you with financial planning, or buy and sell securities on your behalf.

But there are several specific types of financial professionals, and each one is different. Some handle your stock portfolio and advise you on the suitability of trades. Others work with you on the larger financial picture to create a financial plan that involves your retirement accounts, real estate, and childrens education accounts. Still others go a step further and create an estate plan for your children and future generations.

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Know What Financial Services You Need

Identify why you’re looking for financial help by asking the following questions:

  • Do you need help with a budget?

  • Do you want help investing?

  • Would you like to create a financial plan?

  • Do you need to get your estate plan in order or create a trust?

  • Do you need tax help?

Your answers to these questions will help determine what kind of financial advisor you’ll need. If you just want assistance investing, a robo-advisor can invest for you for a minimal fee. If you have a complex financial life you may want to work with an online or traditional financial advisor.

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