Finding a Financial Professional That’s Right For You
5 minute read
By Jean Chatzky, Host of Your Money Map show, and Education Fellow, Alliance Retirement Income Institute
It’s estimated only 35% of Americans work with a financial professional. One of the things holding them back? Thinking they’re only for the wealthy. And it’s one of the biggest misnomers about financial advice. Experts say if you’re not working with a financial professional, you could be missing out on opportunities to straighten out your finances, build wealth or reach your retirement-related goals.
Whether it’s knowing where to invest your 401K savings, creating a retirement income plan, managing investments in your financial portfolio, or all the above, there’s a financial professional out there for you. So, the first order of business is figuring out your needs first and then finding the right financial professional that fits.
What Is a Financial Professional?
There are a variety of different types of financial professionals who serve different needs. Since their training, certifications, services and fees can vary widely (some are capable of working across multiple areas), it’s important to understand the various types.
To start, let’s tackle what a financial professional is and does. Financial professionals work with clients toward different financial goals. They offer expertise on issues like investing, retirement, tax planning, insurance, estate planning and overall budgeting. They can advise, help you plan, make recommendations and/or buy or sell financial products such as stocks, bonds, mutual funds and annuities, depending on their training, Federal and/or State certifications.
WATCH Your Money Map: Finding a Financial Professional That’s Right For You
Michael Kitces, “Chief Financial Planning Nerd” at Kitces.com and a guest on Your Money Map show, describes financial professionals based on two general categories: those who are fee-based and those who are commission-based. Fee-only advisors typically earn their money by charging fees based on a percentage of your assets under management (AUM), a flat rate by the hour, or one-time project basis, while commission-based advisors earn their money by recommending, buying and selling financial products for their clients. There are also many advisors who are a hybrid of these two and compensated by both fees and commissions from brokerage firms, mutual fund companies or insurance companies when they recommend, sell or buy products on your behalf.
While financial professionals will typically fall into one of those groups, the way they deliver their services to clients continues to evolve. “Business models are changing,” says Kitces. “With the rise of various fee-for-service models, subscription fees, retainer fees and flat fee models that don’t require a product purchase or assets, advice accessibility is expanding to more people.”
The most important thing to do when talking with any financial professional for the first time is to ask questions about their fees and/or how they’re compensated up-front.
When You Should Hire a Financial Professional
The decision of whether or not to hire a financial professional to meet your money goals is a highly personal one. As mentioned earlier, it could be as simple as needing help to organize your finances by creating a budget and savings plan, or a more complex need such as investing and/or managing a retirement portfolio. That said, Kitces advises there are several common groupings of those who should be working with a financial pro, including:
Those who need help with a specific issue: If you have a life event with financial implications–for example, you receive a large inheritance or are in the middle of a divorce–a planner can help you work through it.
People for whom life has become more complex: Has life changed in such a way that you’re not sure how to navigate your financial future? A planner can help. “There’s a point where we have the time, knowledge, and inclination to do things ourselves,” says Kitces. “But sometimes we get to a complexity point where it’s not so manageable anymore.”
Anyone who just doesn’t understand or have the time: There are probably things you’d rather be doing than poring over financial documents for hours every month. Paying a professional to oversee your finances can get you back some time for things like travel or spending time with family.
Do I Have Enough Money To Hire A Financial Professional?
You might be thinking you don’t have enough money to warrant hiring a financial professional. However, gone are the days when financial professionals were just for the very wealthy. The industry – and its professionals – are getting more creative and flexible with the way they deliver their services, and that means financial planning and investing has become a lot more accessible to more people. “The big industry shift is that it doesn’t have to be based on buying a product or having a portfolio,” says Kitces. “You can just pay for advice from your income.”
In general, Kitces says that professionals who engage in this way tend to do so with consumers who allocate around 2% of their annual income to financial planning services. “That’s not a small number, but most of us can easily come up with mistakes we’ve made that cost us more than 2% of our income,” says Kitces.
The Bottom Line
Managing your money in a way that helps you reach your long-term goals, like paying for retirement, can be challenging. Financial professionals can make things easier and these days, you don’t need to have millions to work with one. If you think you could benefit from talking with a financial professional, the best place to start is with an initial consultation, which many professionals offer free of charge.
Finally, when you’re ready to talk to a financial professional, here’s a helpful list of key questions to ask so you can figure out if they fit your needs and you feel comfortable working with them. Even better, print this list and take it with you to your meeting.