The decision to hire a financial advisor is one excellent way to achieve your full potential financially.
Crucial life events like retirement, marriage, or buying a home could be nerve-racking, but the right advisor can guide you through life’s ups and downs, and help you manage your investments to bring you one step closer towards your financial goals.
Financial advisors offer various financial planning services. Determining which one is the right fit for you will depend on your situation and your needs. Here’s how you can choose.
1. Familiarise Yourself with the Types
The term financial advisor can refer to a range of services, including robo-advisors, online financial planning services, and the traditional advisors. While all of them share the same financial goal, their methods are still different from each other:
Robo-advisors deliver automated, algorithm-operated services that require little to no human involvement. A typical robo-advisor would ask you to answer some questions online, and then that data will be used to create your portfolio and automatically invest your assets.
These software tools are ideal if you’re looking for an easy, cost-efficient way to manage your investments, or if you’re preparing a retirement fund, but don’t want or can’t afford a full plan.
Online Financial Planning Services
Basic online services offer the same automated investment management you’d find on a robo-advisor, plus a virtual consultation with human financial advisors.
Broader services match their clients with advisors who will handle their investments and work with them to build a comprehensive financial plan.
This type of advisor usually costs less compared to a traditional in-person advisor, but more versus a robo-advisor. Some require a relatively high investment amount of $25,000 or more, while others require no minimum investment.
Online financial planning services are excellent if you want to have both a financial advisor and a rounded strategy at lower rates.
Traditional advisors include certified financial planners (CFPs), stockbrokers, registered investment advisors (RIAs), financial consultants, and wealth managers. Keep in mind that the same expert can have more than one title.
They are often the costliest option, with some requiring a minimum balance of $250,000 in assets. Still, they can be the right choice if you need a set of services, or you have a complicated financial situation, or you prefer face-to-face conversations.
2. Determine the Services You Need
Make sure that you know the level of financial guidance you need.
If you just need an extra hand with selecting and managing investments, a robo-advisor is an innovative, low-cost choice. It’s no account minimum requirement also makes it an ideal tool for beginners.
But, if your financial situation has grown more intricate, or you need expert advice on matters such as estate planning, insurance, etc., hiring an online financial planning service or a traditional advisor would be a better idea. Remember that online service fees are lower than a human advisor.
3. Know the Cost of Hiring a Financial Advisor
Before you seal a deal with a financial advisor, it’s important to know how much they would charge for their services. Advisor fees and pay structures can vary, that is why, you must take your budget into consideration when choosing one.
Robo-advisors – Most robo-advisors charged around 0.25% of assets under management (AUM) per year, since they used algorithms to automate trades as well as indexed strategies that employ zero-commission and low-cost ETFs.
Online Financial Planning Services – Their fees can come either in the form of a fixed subscription fee, a percentage of your AUM, or both.
Traditional Advisors – Human advisors often charged an annual fee of 1% or more of AUM, while others may charge a fixed rate, an hourly rate, or a retainer fee.
4. Check Your Advisor’s Record
Try not to do business with a financial advisor without first checking their record. You can look up their credentials through the Form ADV, which is a required submission to the Securities Exchange Commission (SEC) by an investment advisor.
The Form ADV has two sections. The first section provides the professional background of the advisor, including the clients, business practices, affiliations, and past disciplinary actions.
The second part holds information about the AUM, investment strategy, fee arrangements, and service offerings of the firm or advisor.
Choosing a financial advisor is a decision that should be taken seriously. You’ll need to research the costs and several important factors before forming a partnership.
Finding the right one for you can be tricky if it’s your first time, but you can learn how to do it. While the selection process may take some time, you can still be sure that you picked the right person to take care of your investments.