Money Matters: Is It Worth Paying a Financial Advisor?

Money Matters: Is It Worth Paying a Financial Advisor?

Do you want to retire someday? At the very least, you want to give yourself that option, so you have a choice when it comes to when and how you retire.

This is when you ask yourself if it’s worth paying a financial advisor.

If you’re like many Americans, you may have to pin your hopes on winning the lottery to retire. About 28% of Americans close to retirement age have less than $50,000 set aside for retirement. Social security can’t be a reliable source of income like it once was.

Younger generations don’t fare much better. The question is will you try to rely on your 401(k) or will you get help with financial planning.

Should you hire a financial advisor and are they worth it? Read on to learn the answer.

How Are Financial Advisors Paid?

If you want to know if it’s worth paying a financial advisor, you need to know how they’re paid. Financial advisors have a few pricing structures.

It’s important to understand these structures to know that you’re not getting overcharged by a financial advisor.

The most common pricing structure is the commission-only structure. The commission is paid upfront when you invest money with the advisor. You’ll see this for advisors that work for financial services companies.

You have $10,000 to invest, and the financial advisor has a mutual fund in mind. You pull the trigger with the financial advisor and they charge a 5% commission. You’ll invest $9,500 in the mutual fund and pay $500 to the financial advisor.

Financial advisors may be fee-based. In this case, they can bill you an hourly rate, a flat fee, have a retainer. This is most common for independent financial advisors.

With a retainer, an advisor charges a rate based on the amount of time they expect to work on your account. You can pay between $7,000 – $10,000 a year.

There are financial advisors that use a hybrid pricing structure. You’ll pay a fee and a lower commission.

Why You Should Hire a Financial Advisor

What do you think a financial advisor does? Many people think that they just move money from one mutual fund account to the next so they can earn commissions on the trades.

A financial advisor does much more than that. When you meet with a financial advisor for the first time, they will ask you about your financial goals.

Maybe you want to save up for a home, or you want to have enough for retirement and go away once a year. They’ll create a savings plan for you and estimate the growth over time.

What Do You Know About Growing Wealth?

You have a nice 401(k), financial goals, and a path to get there. Do you know how financial regulations work? Do you understand the markets?

The question you have to answer is how fast can you reach your financial goals compared to a financial advisor. If you think that you can get there faster than on your own, you might want to think twice before proceeding.

Only 9% of people who handle their finances on their own have more than $100,000 saved for retirement. Compare that to the 44% who work with a financial professional and have $100,000.

Take the Emotion Out of Money

You attach a ton of emotion to money. It’s security, freedom, a place of dread, something to fear. Whatever you feel about money, you bring to your financial plan.

Excellent financial advisors are financial therapists as much as they are financial advisors. They take your level of risk into account so you feel comfortable with the work they do.

It also prevents you from making a bad decision because of fear.

You Can Focus on What’s Important

If you’re a business owner, you know how important cash flow is. You know how to manage the day-to-day operations and finances but you don’t know how to grow it.

In that case, you’d hire a CFO to help you. There are also software solutions like QuickBooks and that are good investments.

You do that so you can focus on other aspects of your business.

When you hire a financial advisor to help you plan for the future, you can focus on other areas of your life without worrying about moving money.

How to Find a Financial Advisor

Do you think it’s worth it to hire a financial advisor? You’ll need to do a bit of work to hire the best one possible. You don’t want to go with the same person your cousin uses.

Your financial goals are probably different, and you need to find the right fit for you. You can start the process by asking for recommendations.

Make sure that each financial advisor is certified to work in the industry. One common designation is the Certified Financial Planner (CFP).

You should check the financial advisor’s experience and the type of clients they work with. Be sure to get clear parameters as to how often you can communicate with them and if they charge for it.

You also need to know their fee structure and when they expect payment. Ask them more about their investing strategies. Do they like to take risks or are they more conservative?

These questions will help you find the perfect match for your money.

Is Paying a Financial Advisor Worth It?

Did you decide if it’s worth paying a financial advisor? There are many advantages to hiring a financial advisor. You have a strategy to reach your financial goals and you have someone to help you get there.

You stand a much better chance of reaching your goals with professional help than without it. If your goals are worth it, then you want to hire a financial advisor.

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