Is a Financial Advisor Worth It? 12 Tips to Help You Figure Out if You Need to Pay for Financial Advice

A lot of people wonder if hiring a financial advisor is worth it. Are they really worth the time, cost, and hassle? It can be a sizable expense and you don’t want to make mistakes or feel uncomfortable about the process. If you decide you could benefit, it is important to choose an advisor that is not only well qualified, but you need them to be right for YOU and YOUR needs. Here are 12 tricks for finding the right advisor and having a productive worthwhile relationship with them:

1. Determine Your Primary Financial Advising Need

There are multiple reasons to seek financial advice. In general, the most common reason to hire an advisor is to get help with investments. But, investing is not the only thing advisors do. In fact, not all advisors offer investment guidance and there are multiple kinds of investment advice from those that do. Common advisor services include:

• Building a long term financial plan and an overall financial strategy for achieving your goals
• Assurances that what you have been doing on your own is adequate
• Setting an investment strategy (but enabling you to make and manage the investments)
• Setting an investment strategy and active management  of those investments
• Behavioral coaching to help you actually do what you ought to be doing
• Reducing tax expenditures
• Help reviewing employee benefit choices, determining insurance needs (including Medicare options), figuring out how to pay for college, optimizing your debt, building a long term budget, setting a plan for adequate retirement income, planning your Social  Security start age, mitigating risks, building an estate plan and getting answers to key questions like how much to save,  when can you retire and so much more.

Knowing what you want from an advisor is critical to a successful relationship.

2. Assess How Much Help You Want With Your Finances

You have options for how to plan and manage your financial life. Many people feel like they might benefit from an advisor, but either can’t or don’t want to pay for the input. In fact, a mere 24% of people have hired a professional financial advisor. And, only 30% of U.S.. households have a written long-term financial plan. Here are your options you might not have considered for developing a high quality financial plan:

Do it Yourself

Lots of people build their own spreadsheets or use online tools and resources to manage their short- and long-term finances. Do it yourself-ers are dedicated to learning about  personal finance, but by no means is everyone an expert. For planning, online tools like the Boldin Retirement Planner can be incredibly helpful to all kinds of do-it-yourselfers. For DIY investments, many use a company like Vanguard to help them set a low cost investment strategy and then manage their portfolio themselves.

• Boldin Retirement Planner: The Boldin Retirement Planner and PlannerPlus can guide personal finance experts as well as curious newbies toward a secure future. The platform enables you to build a comprehensive retirement plan. You can build a basic plan for free. Or, for $96 a year, access tools to help with taxes, retirement income, detailed budgeting, real estate decisions, advanced monitoring, and more. The cost of PlannerPlus is whole lot less than the $2,500 most fee-only advisors  charge to build a plan and you get a lot more control.

Do it With Me

A hybrid approach to planning is becoming increasingly common. You might hire an advisor on an hourly basis to advise you on strategy or to help you get started, but you manage your own plan and investments.

• Boldin Live: For just $150, you can set up a one on one session to learn how to set up and stress test your retirement plan. Get the assurances you need to feel more confident about your future.

• Boldin Classes: Boldin Classes meet once a week for 8 weeks in an online group and learn how to create an accurate plan, gain insight into whether your resources align with your retirement dreams and get ideas for how to do better.

Do it For Me

This is the traditional advisor relationship. You go to an advisor, they gather information from you, set your strategy and keep you on track over time.

• Boldin Financial Advisor: Do a flat fee consultation with a licensed fiduciary who will collaborate with you to create personalized retirement strategies.

3. Look for a Fiduciary Relationship

The term fiduciary derives from the Latin fiducia, meaning “trust” and it means that a person acting as a fiduciary for you has a legal or moral obligation to put your needs and interests before any needs or interests of themselves. For example, a financial advisor with whom you have a fiduciary relationship will not make a recommendation that you buy life insurance policy that they don’t think you actually need. However, it does not mean that they will always make the “right” recommendations. “If an advisor is a fiduciary he or she is required to put your interests before his/hers,” says Judy McNary, of Broomfield, Colorado-based McNary Financial Planning, LLC. You want the advisor’s recommendations to be objective and not tied to his or her own compensation. It also wouldn’t hurt to ask if your advisor can sign a Fiduciary Oath, pledging to put your interests first, according to Austin Chinn, a certified financial planner with California-based Fountain Strategies, LLC.

4. Take Referrals with a Grain of Salt!

When we asked Boldin users about the worst financial advice they ever received, a couple of people responded with something along the lines of: “go talk to my buddy who is a financial advisor.” While referrals can actually be a great way to find an advisor who has been vetted by a trusted associate, your needs may be nothing like your friend’s needs. Find out why your friend recommends them, be open but a bit skeptical. If an advisor sounds too good to be true, they probably are.

5. Don’t Abdicate All Responsibility

Sure, it would be nice to turn over all of your accounts and have an advisor magically turn your money into millions or billions. However, the advisor relationship shouldn’t work that way and anyone who tries to convince you otherwise is suspect. You have an obligation and need to be involved in the planning process. A good advisor client relationship involves BOTH of you asking A LOT of questions and BOTH of you listening closely and really gaining an understanding of each others’ answers.

6. If You Don’t Understand the Advisor’s Plan for You, Don’t Do It

Personal finance is complicated. There are a lot of layers to it. However, it is not particle physics. You can understand it. You want to make sure that the advisor explains things in a way that makes sense to you. If your advisor makes recommendations that you don’t understand (and couldn’t confidently explain to someone else), don’t do it.

7. Use Technology to Help You Understand the Advisor’s Recommendations

An advisor will usually make a series of recommendations for your finances. Some of these suggestions will easily make sense to you, others won’t. One trick we recommend is to use an online retirement planning tool like the Boldin Retirement Planner so that you can test out the advisor’s recommendations (as well as your own ideas). Boldin users report that it is really reassuring to see the advisor’s recommendations in action in their plans. You can easily see how different suggestions will impact your cash flow, returns, taxes, estate value and more! Then, you can go back to your advisor with knowledgeable questions.

8. Understand Your Advisor’s Business Model (How They Make Money)

Advisors operate under a variety of business models. These are the most common: Commission-based: An advisor who works for commissions is earning money when they sell you an investment, insurance and other financial products. Commission-based advisors have an inherent conflict of interest because they are paid based on what products they sell you. It is not necessarily nefarious, but you need to be cautious in this type of relationship and know exactly what they are earning and why they are making recommendations. Fee-only: Fee only means that the advisor is only compensated by fees that you pay. There are a variety of fee models:

• Flat fee: The advisor charges an agreed upon fee in return for agreed upon services.
• Hourly fee: You are charged only for the time the advisor spends working for you.
• Assets Under Management (AUM): A fee is charged (0.5-1.5% paid annually) based on the amount of money the advisor is managing for you. This is the common structure when the advisor is actively managing your money, making trades, rebalancing, etc. (It is important to note, that this can be incredibly expensive. One point five percent on $100,000 is $1,500 a year or $15,000 over 10 years. Put another way, if you are getting a 15% rate of return on your money with a 1.5% fee, then you are really only earning 13.5%.)

Fee-based: With a fee based system, the advisor charges a combination of a flat fee plus commissions. Under this type of arrangement, you need to ask a lot of questions about how they’re actually getting paid and for what. You might be paying high fees AND the advisor is earning commissions on products they recommend to you.

9. Ask About the Advisor’s Specialty

Some advisors are really focused on how to help you grow your money when you are young. Others are more focused on retirement and helping you figure out how to grow, but also drawdown assets. Some specialize in helping you turn assets into reliable retirement income. However, many advisors also offer different kinds of sub specialties. They have a tendency to like certain strategies over others. When interviewing, it is great for you to try to find out what makes each advisor unique and make sure that what they offer is what you genuinely need. You should also know about all of the advisor’s certifications. There is a virtual alphabet soup of different types of financial advisors (CFP, ChFC, RFP, CSA, RICP and more… ) A Certified Financial Planner (CFP) is widely accepted as the gold standard, with additional designations being a bonus.

10. Get Excited About the Potential Benefits of Working With an Advisor

Multiple studies show that people feel better about their finances and are more successful when working with an advisor. Data from Northwestern Mutual show that those who work with advisors report substantially greater financial security, confidence and clarity than those who go it alone: The differences are not incredibly dramatic (except for being prepared to handle market ups and downs), but real. Of those with financial advisors:

• 66% feel very financially secure (vs. 31% without an advisor)
• 85% feel like they are headed in the right direction (vs 71% without an advisor)
• 71% feel happy with their life (vs 50% without an advisor)
• 61% have clarity on balancing spending now vs. saving for later (vs 50% without an advisor)
• 81% set specific goals for the next 5-10 years (vs 67% without an advisor)
• 68% are confident they will achieve their goals (vs 55% without an advisor)
• 73% have financial plans built to endure market ups and downs (vs 30% without an advisor)

11. Know Your Own Levers, Strengths and Weaknesses

It is not a great idea to go into an advisor relationship without a good understanding of where you stand right now. You should have an idea of the type of services you need. We think that the Boldin Retirement Planner is a great way to gain insight into your current situation and also how you might be able to improve. And, it is not always all about investment returns. Everyone has strengths and weaknesses in their plan and endless opportunity for strengthening their financial future. What are you doing right? Where do you need to improve?

12. Did You Know that Boldin Offers Advisory Services?

Not everyone needs a financial advisor. But, did you know that Boldin offers flat fee advisory services? You can collaborate with a Certified Financial Planner who has taken a fiduciary oath and specializes in retirement. Your advisor will:

• Review your Boldin plan to quickly understand your circumstances and make sure it is set up properly.
• Help you establish goals and identify ways to strengthen your finances.
• Meet with you via phone or video call to discuss your goals and suggest ideas for how to do better.
• Provide ongoing support.

Click here if you would like to learn more about Boldin Advisors.