Before making a smart decision in our life, we are always looking look for an expert who can provide us with proper guidance. Those expert people are called financial advisors; they earn money by helping common people to take decisions on different financial matters like money management, investment, debt management, real estate, and how to complete your financial goals.
The term “financial advisor” means a person with a variety of expertise. The person can be a certified public accountant who may provide guidance in accounting services and tax laws. The person might be a real estate agent who deals with the local housing industry. A registered investment banker will be a best financial advisor who can guide you to invest in random financial sectors. One of the most popular financial advisor categories is a personal financial specialist. This financial advisor will help people to focus on expert financial planning.
So, it is time to remove the confusion, stop being a fool, and keep looking below to check out the basics.
Let’s know about the 4 major types of financial advisors who are here to help you:
1 A registered investment advisor
As per the size of their company, registered investment advisors are registered with the U.S. Securities and Exchange Commission or with a state regulator. Some registered investment advisors work on investment portfolios, some others adopt a financial planning approach to their work.
2 A certified financial planner
The Certified Financial Planner Board of Standards approves this designation of the persons who fulfill high education requirements, qualify through the advanced test levels, and carry a good work experience.
3 A robo-advisor
These online advisors use hi-tech software and algorithms for customizing clients’ investment portfolios. Some robo-advisors provide contact information of human advisors for customers.
4 A broker or an agent
Brokers are also called registered representatives. They deal with stocks, mutual funds, and other investment options. Brokers sell products or services as per the customers’ requirement. The standard of the service might seem suitable to you. But it is also a fact that the service or the product isn’t necessarily made for your needs. A broker might suggest and lure you towards a costly investment option that’ll get a handsome brokerage or commission to the broker.
How much do your financial advisors can cost you?
Those financial advisors a.k.a financial planners, who work on the fee-only basis, will charge between $1,000 and $2,000 for formatting a complete financial plan. For ongoing advice, the advisor may ask a couple hundred dollars per month.
Most fee-only financial advisors may charge a percentage of your assets that you’ve invested. The percentage of the fee is settled at 1 percent. But many financial advisors may ask some more or less. So, if your invested asset value is $500,000, you would pay $5,000 a year.
Consider the pros and cons of a financial advisor before hiring one:
A Pros of hiring a financial advisor
Do you need a financial advisor? You can’t avoid this question when you are in serious need of guidance on finances. These financial advisors are those people who are open-minded, and will provide you with the best money management tips by using their deep knowledge on various finance streams.
Practically, consulting a financial advisor will come in handy when it comes to dealing with complex investments and tax matters.
A certified financial planner can help you to make the right decision on multiple finance sectors like investing, financial planning, retirement planning, and forming strategies for saving.
You can plan those things all by yourself. But, that will take a lot of time and effort, which you can’t afford to spend.
So, in this case, those professionals can help you save a lot of time. You may need to consult your financial advisor about your future money goals and how much growth you have in your investment. The advisor will also be responsible for certain matters like rebalancing your accounts.
If you hire a fee-only financial advisor, you’ll find it cheaper as a professional advice. You just need to find the right financial advisor who will provide expert advice at reasonable fees.
B Cons of hiring a financial advisor
One of the biggest cons of hiring a financial advisor is that they will not always think of your interest before making any financial decision. Sometimes, you may disagree with the decision that a financial advisor is going to make. It's usual that both of your decisions may create conflicts of interest.
You might have a good deal if you work with a fee-only advisor. Normal advisors may push you towards a specific product or/and service that you don’t require mostly. So, it’s better to verify that your financial advisor is willing to work as a fiduciary.
Fiduciaries are bound by the law to suggest investment ideas that are beneficial for clients. As per the rule by the Department of Labor, on April 2017, advisors dealing with 401(k) and IRA participants will be considered a fiduciary.
Another problem with hiring a financial advisor would be your financial portfolio.
If you don’t have a big investment portfolio to expect a good return from your invested money, it’ll be worthless to hire an advisor by engaging a quite handsome amount towards the fees.
Think first, if you are investing a big amount for advice, your investment and expected returns must also need to be big, or else what is the point to hire a professional?
At the beginning level, having a small portfolio if not worse . You must work hard, make own decisions, make mistakes, and learn with experience.
Before hiring an advisor, you must also think about other options. You should consider other good alternatives like online investing market portals. You’ll also find different online tools like Motif Investing and Personal Capital, which can guide you with investing and you’ll be less dependable on financial advisors.
These tools will require payments for their services, but the cost will be much lower than what you might require to pay a fee to an advisor.
The best thing about using those tools is that you’ll become self-sufficient in managing your own investment portfolio.
It is hard to decide if you really need a financial advisor or you can manage your finances on your own better. But practically, sometimes it is wise to appoint someone who knows the market better than you. But this isn't always right. Consider other options well before making any decision.
