Think you don’t need a financial advisor? Think again. It’s not just big cheeses who need to keep up with their cash in an official capacity. Even regular people with regular amounts of money can benefit from the expertise of a finance professional. But before you decide whether or not you need one, let’s first clear up some common misconceptions about the different types of financial experts and how they can help you.
The term ‘financial advisor’ is sometimes used as a catch-all covering a number of niche professionals in finance. Advisors evaluate the financial needs of their clients and help them with everything from investments to tax laws to insurance. They cover planning for short-term and long-term goals—think funding a new business or retirement planning. Advisors are able to recommend investments that align with their clients’ goals.
Certified Financial Advisors who are registered with the Securities and Exchange Commission have a fiduciary duty to their clients, which means that they are obligated to act in your best interest at all times. An advisor who is not SEC-registered is under no obligation to look out for you and could be selling products that aren’t that great for you but do line their pockets. Beware and do your research.
You can break advisors down into a few categories, either by how they’re paid or their specialty. Learning where they make their money is a smart first step in vetting a pro because it tells you where their loyalty lies.
Brokers: Brokers are like the IRL influencers of financial products. They’ll suggest what’s best for you from the selection of products that they sell and you will be charged a fee for their services. They are not bound to a fiduciary standard and work for both you and their boss, a broker-dealer like Merrill Lynch or Morgan Stanley.
Independent advisors: These folks also work for a broker-dealer, but they do have the option to advise you on their own and under the fiduciary rules. It can be a little tricky to work with someone who is playing both sides of the coin, so double down on your research (just like they’re doubling down on commissions).
Fee-only advisors: Because they make no commission from selling you products offered by their bosses, fee-only advisors will make their money on the back end, often taking a few percentage points off the top of your assets under their management. If you don’t have a large portfolio they may opt to charge a flat yearly fee. Fee-only advisors generally wear many hats and can work with you in every aspect of your financial life: budgeting, estate planning, investing, and debt pay-off are all in their wheelhouse.
Planners: Financial planners generally charge by the hour or by the planning package. Think of them as the consultants of the financial advisor world. Planners are great if you really don’t have a lot of money (yet!) and need some direction to set yourself up for the future. The XY Planning Network is a great tool to help you narrow your search.
Financial planners are like the general practitioner of your finances. They’re great with the 10,000-foot view of your finances and are able to guide you toward a specialist if you need a closer look. Small business owners looking for tax advice need to look no further than a financial planner. If they can’t advise you, they’ll hook you up with someone who can.
Financial advisors and professionals often specialize in one thing above all else when it comes to your money. Any pro you hire should have a discipline that aligns with your needs, otherwise, you’ll both be left frustrated.
Money coaches: Money coaches work with you to bring the big picture of your finances into view. They’ll often work with you to suss out your goals and dreams, making sure that your habits are in tune with your vision.
Debt counselors: Debt counselors are money coaches who specialize in debt pay-off. They’ll work with you to create a holistic plan for your budget so that debts won’t squeeze your lifestyle dry. And if that doesn’t work, they can negotiate on your behalf to get you lower interest rates, smaller monthly payments, and fewer penalties.
Investment advisors: Investment advisors are only able to advise you on your investment strategy and the actual investments themselves. When choosing an investment advisor it’s crucial to investigate how they’re paid. Are they recommending stocks because they work for your objectives or because they’re under a quota to sell X shares this month?
Accountants: Accountants handle the nitty-gritty work of keeping you solvent and on the right side of the IRS. They fill out and file your returns (quarterly and annually), know about all of the loopholes and deductions that you don’t, and can give you pointers on philanthropic efforts.
There are times when you just need a finance professional—either to double-check your work or to take over the whole thing and get it done right. The right financial advisor can make your life easier, save you a ton of money, and help you reach your biggest personal goals fast.
When you’re close to retirement: Don’t mess this one up. Generally, we need to reallocate our investments into safer asset classes as we get closer to selling them off. An advisor can’t predict if the market will drop, but they can protect your money from the fallout.
When you hit a milestone: New baby? New business? New house? Take a meeting to make sure you’re on the right path and that your taxes are paid, you’re covered in case of the worst, and that you can keep on doing whatever you want to do because you’ve got a safety net in place.
When you’ve never had money before: Your first real job brings (hopefully) more money and the problems that go along with a bigger bank account. Tax brackets are real and you’re not supposed to spend every dollar you earn.
The idea of dropping a giant box of paperwork onto someone’s desk and just Letting. Them. Handle. It. is so appealing. But it’s not necessarily the right answer every time. Knowing the difference between your capacity for guidance and your desire to be hands-off is key.
When you can’t afford one: If you’re not able to afford the monthly fees associated with a planner, advisor, or coach, then paid planning, advising, or coaching may not be what you need. Find your crew of broke people who want to learn about money and saddle up. There are several organizations that offer planning, debt resources, and tax advice for free.
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