Despite popular belief, financial advisors are not just about the rich and famous. Many people give up using financial advisors because they are intimidated by the extra cost. It’s easy to give up a financial advisor because you can’t afford it, but the question you need to ask yourself is, “Can I afford it without a financial advisor?”
Take a closer look at what a financial advisor can do to your finances. If you’re living one life after another right now, with little to no retirement savings, and can’t seem to reach the next level of your financial goals, think twice before you say you can’t afford a consultant. With helpful planning and advice from the right advisor, you’re more likely to achieve your financial goals.
- Hiring a financial advisor may seem like an unnecessary expense, but they will often save you money in the long run.
- If you choose to hire a financial advisor, make sure all their fees are transparent before you sign off.
- Often, financial advisors will recommend you when their fees are less than what they save you.
- Financial advisors are not stock-picking wizards but may help solidify your unique financial situation.
Find a fee-only consultant
There are three types of financial advisors: fee-only planners, fee-only planners, and commission planners. With fee-based planners and commission-based planners, you’ll pay less upfront. However, these types of advisors work on commissions for certain products, and as such, their recommendations may be more biased. They may force you to buy certain products without always having your best interests at heart.
A fee-based advisor is more likely to be a Registered Investment Advisor (RIA), which means they must give you financial advice based on what is best for your unique financial situation, rather than advice that will help them sell a product.
Yes, a fee-only consultant can cost you a lot of money. If your advisor is charging $200 an hour and they spend 5 hours in the first meeting developing your plan, paying the initial $1,000 can be daunting. However, while the first two meetings with your advisor are expensive due to the amount of work they do to create a personalized plan for you, your follow-up meetings and check-ins should be much shorter and less expensive.
Percentage or flat fee-based advisors
Another option to consider is a financial advisor, who charges a percentage based on the assets they manage. This fee ranges from 0.5% to 2%. Typically, advisors who charge a percentage fee will want to work with clients with minimum portfolios of around $100,000. This makes their time worthwhile and can earn $1,000 to $2,000 a year.
Again, this may seem like a huge price tag to pay annually once your portfolio is filled, but these advisors can be more aggressive in increasing your investments. The more your investment grows, the more money they make from it.
For some services, such as estate planning or wills, it is best to choose a flat fee advisor. If an advisor charges you a flat fee for their services, you don’t have to worry about them taking your time or whether you need to make any simple modifications.
How much can a consultant save you?
Financial advisors are an expense that can feel like a waste of money when your budget is already tight. However, think about how much money a financial advisor can save you and make in a year. If you pay an average of $1000-2000 per year to an advisor, but they allow you to save an extra $2000 per year through careful planning and boost your retirement savings by $2000 per year through portfolio diversification, you’re on the top of the list.
Before completely ruling out the possibility of hiring a financial advisor, calculate the benefits. Don’t be afraid to ask about an information-only session that will give you a better idea of what a financial advisor can do for you.
Weighing the Benefits of a Consultant
Financial advisors don’t just affect your retirement portfolio. They can also help you manage difficult student loan repayments, help with proper estate planning, and even make sure you have enough money to send your kids to college.
If a spouse dies or becomes disabled, if you receive an estate, the IRS reviews you, or you face divorce, a financial advisor should be your first point of contact. Don’t wait until your finances are in the red to seek expert help.