There’s a lot of money up for grabs in today’s upward economy, but it’s still not growing on trees. For someone to maximize their lifetime earning potential, they not only need to save their money, but they need to invest it. But with a variety of ways one can do so, navigating the process for a newbie is overwhelming, to say the least. That’s why, despite recent year-over-year declines, there are still 285,000 financial planners in the United States.
So, what do you look for in a financial planner? While you could just take a referral from your parents use or find one online — or you could find the right one by considering the following tips.
Advice Personalized for You
Many financial planners will immediately start spouting off about a particular stock with enormous growth potential or a client portfolio they created that’ll yield substantial gains. Don’t fall for the allure; if a financial planner doesn’t take the time to get to know you, your current and future earning potential, and your financial goals, how will they recommend the strategy that’s best for you?
According to The Balance, a good financial planner should advise on far more than a target date mutual fund:
- Financial lifestyle changes
- Savings goal
- Types of financial accounts
- Mortgage guidance
- Proper insurance levels
- Child College Fund
- Tax-savings strategies
- The rate of return needed to hit goals
- Investment risk level
Financial success requires forethought and planning in a variety of life areas. If a financial planner can’t advise you on them, they’re probably more of a salesperson pushing certain products and hunting for upfront fees.
They’re Patient Explaining Things to You
Reputable financial planners are financial experts. And real experts don’t talk over the heads of less knowledgeable people. A financial planner that talks quickly, uses industry jargon and strange lingo, and acts like you should be following along, probably won’t be an enjoyable—let alone trustworthy person to hold accountable with your finances.
They’re Clear About the Fees
Financial planners alleviate a lot of our financial pressure in exchange for payment. But the fees a financial planner may charge you can vary widely. Do they charge by the hour? Do they take an overall percent fee of your portfolio balance? Do they work on retainer? Do they operate on commissions? Is it a combination of the above?
However, a financial planner operates, if they’re legitimate, they’ll be upfront and transparent explaining everything to you.
Some financial planners, on the other hand, will be quick and loose with the details, then put you in a fund that has a front-loaded sales charge on top of their management fee. Paying for a mutual fund isn’t a scam or a bad move necessarily, but it’s less than honorable for a financial planner to put you in that fund without you explaining the overall percentage you’ll be paying, which might end up being three percent, and these fees are fixed, regardless of what happens in the market.
They’re Credible
A financial planner might sound credible, but are they a Certified Financial Planner(CFP)? Another key question to ask potential financial advisors is whether they adhere to the fiduciary standard or suitability rule. The former means that planners are regulated and required to put their client’s interest first, and that advice is given using accurate and complete information and must not involve any conflicts of interest.
If an advisor practices the suitability rule, they only have to act reasonably in your best interest, and their primary obligation is to the broker-dealer with whom they’re employed. Suitability-rule brokers also don’t have to follow as strict of guidelines regarding conflict of interest and making choices consistent with an investor’s profile and goals.
In general, however, staying abreast of red flags across financial industries can serve you well. In the debt relief industry where both scams and legitimacy exist, the main scam alerts include guarantees, as shown in this Freedom Debt Relief reviews page on scams.
You Like Them
Whether it’s work, our personal lives or the businesses, we all want to be around people and organizations with which we resonate. If a financial planner appears to be an expert, listens to your situation and recommends suitable strategies—but you don’t like them—well, perhaps you should keep looking. Per a 2015 study, half of individuals with a net worth between $100,000 and $1 million had changed financial advisors in their lifetime. Not only is it a time drain to find and decide on a new financial advisor, but it’s also expensive to make a change. Consider that moving funds means paying state and federal income taxes on any capital gains you’ve made, and even higher taxes if you haven’t had your portfolio for at least a year. Your investment holdings may be subjected to surrender charges and back-end loads, and your new advisor may charge transactions fees as well.
If You’re Willing to Learn, You’ll Save A Lot of Money
If you’re interested in finance, you’ll save a lot of money over your life by managing your portfolio yourself. How much, exactly? A one percent fee could cost over $590,000 in realized gains over a 40-year investing period, according to a NerdWallet study. Of course, that assumes you’d be doing a good job, yielding average annualized returns of seven percent. But still, it’s worth stating that one percent over 40 years of steady investing can eat a quarter of your retirement nest egg. If you’re in a traditional IRA, even more will be siphoned to taxes.
The world is full of possibilities, and money makes some of them more attainable. Whether you opt for a financial planner or take it upon yourself to build your financial life, the important thing is getting started.
