Over half of Americans fear an upcoming recession.
For some, fears surrounding the economy stop them from making long-term investments. However, investing with a financial consultant is one of the best ways to make your money work for you.
What is a financial advisor? They’re someone who can provide guidance when it comes to making major life decisions. Decisions such as buying or selling a home, saving up for college, or planning retirement.
To help you hire the best advisor, at a fair rate, we’ve completed this short guide. We’ll review common charges and services advisors offer, as well as the top tips for finding an advisor you can trust.
Read on to learn how to hire a great financial consultant, you can afford.
How Much Does a Financial Advisor Charge?
Let’s dive right in by addressing the common fees for seeing a financial advisor. There are a couple of different ways financial consultants will charge you.
First, you might have to pay a retainer fee. A retainer is a flat fee for the financial consultant to provide services. This is usually an annual fee paid in advance—like once per year.
What are the pros and cons of a retainer? Well, there’s no negotiation involved in this type of fee schedule. So, that makes it easy if you want ‘X amount of hours per year and you don’t want to argue about it with your financial consultant.
The downside is that you don’t know how much time they’re giving you each month or quarter or whatever. Some financial consultants will give you an estimate like “I think I’ll be able to put in 10 hours per month” but that’s a guess.
Hourly Advisor Rates
Some financial consultants will charge you on an hourly basis. This is very transparent and allows you to see exactly how much time your financial consultant is spending with you as well as how much money they’re making off of each hour. You may also want to ask yourself if the fee schedule makes sense.
How many total hours are they claiming to spend working with you? Do the math based on the rates. For example, do 30 minutes at $100/hour seem excessive vs one hour at $200 per hour or 2 hours at $150/hr? Look for flags like these.
Percentage Based Advisor Fees
Some financial advisors will simply take a percentage of your assets under management or they’ll charge you a fee based on the amount of money you’ve invested with them. If you do have this type of payment arrangement, it’s usually designed to incentivize the financial consultant to grow your money to make more profit off of each dollar you invest with them. Again, look for red flags like “Does 1-3% seem appropriate vs 0.5%?”
The bottom line is that there’s not a standard rate financial consultants charge. It depends on the financial consultant you hire and how they charge their clients. Remember, you’re paying the financial consultant for their expertise in helping you make money and manage your assets—not just to hold cash (although that’s what many financial consultants seem to focus on). You want to pay enough for them to be focused on money-making vs cash hoarding.
Considering that the median income in America rests between $60,000 to $90,000, it’s exciting to think about the returns you could earn, even if you only invest 5 or 10%
Different Types of Financial Consultants
Next, let’s look at the different types of financial advisors you can go to for help. Oftentimes, banking institutions will have a staff member on the team who can help you review your finances. These types of financial reviews are usually free. Instead of going in-depth as to what your savings goals should be, a bank review is more basic.
You’ll be able to work with the bank’s advisor to get a firm idea of where you stand financially, and where you want to be. However, the bank’s financial consultant probably isn’t going to be able to assist you when it comes to making investments.
When you want to start taking advantage of long and short-term growth opportunities, you’ll need to reach out to a financial consultant at an investment firm.
Financial Planners for Retirement
Do you want to talk to someone specifically about retirement? If you’re not yet retired, a traditional planner isn’t the best bet for your situation. Instead, you might want to look for a financial consultant who specializes in retirement.
These financial consultants can help you understand how much money you’ll need to live comfortably in retirement and they’ll also show you how to make the right investments that will grow at a steady pace so that your money lasts as long as it needs to.
A financial planner that specializes in retirement often has more formal training (i.e., college degrees) in finance. They can help you build out your retirement plan based on how much money you’ll need to live once you’ve stopped working.
Again, expect to pay more if you want this type of service because it’s not typically free. As far as investment services go, a financial planner is likely going to be the most qualified for helping with building out a solid retirement plan for your finances.
Are You Afraid to Invest?
Only about half of the households in America are investing in the stock market. Some people think that finding the best investment options are only for millionaires, but this isn’t true. If you have some cash on hand (but not millions), it’s possible to find great investment opportunities with a good financial consultant.
There are also non-fee-based options available. This means that you can find a financial consultant who is willing to work with you for free if they think they’ll get something out of it. For instance, if you are planning to make a lot of investments in your future, they can take a non-fee-based approach.
Where Can You Find Financial Consultants?
Once you determine what type of financial advisor you need, you’ll want to make sure you hire the right person for the job. To find advisors you can trust, we suggest getting referrals from friends and family members first.
If you know someone who has a financial consultant, ask them for the contact information. You can also search online through professional networking sites. (Some of the better-known sites include: Monster, LinkedIn, and Facebook.)
If you go this route, just make sure to check out the advisor’s background before hiring them. Sadly, people are pretending to be advisors online, so be careful.
Credentials Advisors Need to Possess
Fortunately, there are some ways you can separate the good from the bad in the world of financial advising. The simplest way is to check if the advisor or planners have a license or certification.
For example, the CFP and CFA credentials are among the most respected licenses in the industry today. The inability to find a license is a pretty good red flag, too. If you want to check out someone’s background and credentials in more detail, try digging around on FINRA’s BrokerCheck site.
The site is free and helps every day people find a certified financial advisor. You can also look at their complaint history and disciplinary actions there.
Experience Level You Should Seek Out
You want to find an individual with experience, but that doesn’t mean he or she needs to have been working in your industry for more than 10 years. That said, if they haven’t worked in your specific industry recently (e.g., finance), they should at least have some background from a relatively recent job.
You want to make sure that you keep yourself protected financially, so be sure you ask about their policies if something goes awry.
Ask things like, Are there any red flags that I should know about?. What is your policy on client confidentiality?
How are fees paid? Can we draw up contracts to protect both of us going forward? Is there anything that I should be aware of before we start working together?
If you don’t agree with their answers, then you’ll want to move on and find someone else.
Short Term Benefits of Seeing a Financial Consultant
Planning for retirement is only one of the goals a financial consultant can help you with. You’ll also be setting yourself up to finally be debt-free, so you can start working towards other goals, like homeownership.
A trusted advisor can also help you start a college fund for your kids, or fund your education if you’re going back to school. Advisors can also help you find ways to save for fun goals, like vacations!
Instead of wishing you had enough money to travel the world, you can finally make your travel dreams a reality. One of the ways advisors make it possible for individuals to have more fun money is by helping them save on taxes.
Save On Taxes
If you have a financial consultant, he or she can help you take advantage of deductions and credits that could be causing you to lose out on a lot of money. Did you know that your tax bracket directly impacts how your investment gains are taxed?
Typically, investments are taxed at a lower percentage, which means you could easily have an extra $5,000 or $10,000 in tax savings. What would you do with an extra $10 grand? Buy a new car? Go on a trip?
The possibilities are endless. Of course, you could always beef up your retirement fund by investing the money you save on taxes. You might be wondering, “are financial advisor fees tax deductible?”. The answer can vary based on your financial situation, so you’ll want to run it by your advisor when you meet with them.
Don’t Rush the Hiring Process
Lastly, let’s talk about the top mistakes to avoid when you’re hiring a financial guide or advisor. We already mentioned the importance of checking the advisor’s credentials. However, just because someone can legally advise you, it doesn’t mean they’re the right person for the job.
Instead, you’ll want to hold out for a trusted advisor that you feel comfortable with. Remember that you want to find someone who’s sincere and concerned about your financial future.
Avoid penny stock recommendations. A lot of investors have become very wealthy off of penny stock recommendations in the past, but now it’s so saturated with fraudsters that it’s extremely risky to invest in any penny stocks. You’re better off not investing in them at all.
If you only follow one piece of advice from this article, use that tip to avoid penny stock scams. The government is cracking down on unsavory sales practices, so it’s not a good time to be taking that kind of approach to investing.
Financial Consultant Red Flags
Next, be wary of advisors that only want you to do short-term investments. Short-term investments are great if you want quick returns, but they typically aren’t the safest type of investment because of their volatility. If you’re looking for something with longevity, a good advisor can help set up a long-term investment agenda that is best for you.
Finally, don’t work with an advisor who wants to manage your whole portfolio. Instead, you’ll want to find someone who will advise you on the best way to take care of certain aspects of your financial future. Listen closely as they talk about what you need and then let them know what type of relationship you’d like moving forward based upon the sound advice they give you.
Set Up a Consultation
As long as you follow the advice in this article, you shouldn’t have any trouble finding an advisor who can help you grow your money. Remember, different advisors charge different fees.
Be confident about the fee structure you’re signing up for, before agreeing to work with any type of financial guide. Since banks are usually willing to offer free financial advice, see what services your banking institution offers today.
Set up an appointment with a financial advisor today. Before you know it, you’ll be enjoying financial security and independence! For more tips like these, check out another article.