Do I need a Financial Advisor?
I will do my best to be as unbiased as possible.
Why Financial Advisors get a Bad Reputation – Not all people calling themselves financial advisors are held to the Fiduciary Standard. In fact most advisors are NOT fiduciaries. The Fiduciary standard requires an advisor to act in the best interest of their client at all times, and to put clients’ interests first.
Insurance products get a bad rap. If you seek advice from someone that works for an insurance company, they are going to try and sell you insurance. That is their job and how they get paid. Do you need that type of insurance? Maybe/Maybe not. Will the advisor recommend the product regardless of your individual situation? Probably. Will the advisor earn compensation if you buy? Yes. In fact, some insurance agents earn a commission equal to 50% of the first-year premium.
Some firms have a compensation structure loaded with commissions and extra fees. When “advisors” are compensated based on commission from products they sell, conflicts of interest are present. This shows up with loaded mutual funds that have a +5% commission to the advisor. Side note - back in the 1980s basically all mutual funds were sold this way, with a 5% (or higher) commission. But this is 2023 and why should you pay 5% for the privilege to own a mutual fund when there are comparable options without the 5% commission?
Are all non-Fiduciary advisors bad? No - there are some great advisors out there. If someone works for BIGNameHere, they are serving you and their employer. They can be great advisors and offer appropriate products, and they will also be trying to make money for their employer.
But do I need an Advisor? Investing in the stock market can be a roller coaster. If you check your balance daily, monthly, quarterly – it can be scary to watch the ups and downs. An advisor can help keep you on track and prevent you from selling low based on an emotional response. Advisors can also help you prioritize investment goals and learn along the way.
Do I have enough to retire? When should I take social security? How much house can I really afford? Am I fully protected with my insurance policies (home, auto, umbrella, life, ect)? I just got divorced, now what? How do I prioritize student loans, saving for my future? How do I save for my children’s education? How do I create my income in retirement? I want a second opinion on my investment allocation… A thoughtful financial advisor can help guide you along your journey and help you Look Both Ways.
What do I look for in an Advisor? Ask if your advisor is a Fiduciary! Ask about the compensation structure – beware of advisors that earn a commission on things they recommend. If you get a bad feeling in your gut, trust your instinct and run.
What is an AUM Fee? Many planners will charge an “assets under management” annual fee, AUM. The advisor will manage your investments and charge you a fee for this convenience. Some people want to delegate their investment management – keep in mind that if you choose to pay an advisor 1% for this service, you are starting out the year with a -1% return every single year. The investment performance must beat the market by 1% every year to pay for this fee.
How do I find an Advisor? The CFP® (Certified financial Planner TM) designation is the gold standard for financial planning. Why? Because CFPs have significant education requirements and fiduciary duty as part of their certification. Check out www.letsmakeaplan.org
About Kaki – Kaki is a Certified Public Accountant and Certified Financial Planner TM. Look Both Ways Financial is not a CPA firm.
