Selecting The Financial Advisor That’s Right For You


Start By Understanding The Costs And Services Provided

As people begin to accumulate wealth, they may find themselves needing financial advice to help grow their portfolio. After you have been working for years and perhaps have more than $250,000, seeking advice on a financial strategy may be beneficial.

But before hiring a financial advisor, it is important to know exactly what their fees are and what services are included. Most financial advisors offer a range of services and fee structures to fit different investor portfolio levels. Unfortunately, many investors feel uncomfortable questioning advisors about the details or lack understanding due to the complexity of fee structures. 

Fee structures can vary depending on a range of variables including amount of assets being managed, level of client contact and types of services requested. Fee-only advisors will have a yearly fee based on the assets managed, such as 1% a year. However, the total costs associated with the portfolio can end up being significantly higher due to various factors. 

One reason is that some of the financial products in a client’s portfolio can include embedded fees. Most active mutual funds have a one-time fee for when it is purchased or sold. As well, both active funds and ETFs (Exchange Traded Funds) have expense ratios, meaning that there is an annual percentage of assets that they charge shareholders to manage and administrate expenses. These fees tend to be lower when someone works with an advisor, rather than when investing alone. 

These expenses tend to average from 0.5% annually for ETFs to 1% for active funds. So someone who is paying 1% of assets under management in advisory fees may actually end up having a cost of 1.6% a year due to other investment expenses.

Some advisors will spell out these additional fees with their overall charges. Once you have a full understanding of the advisor’s fee structures, it’s also important to be aware of what services are available. Because there are so many alternatives, consumers need to be mindful of how much advice they actually need. Everyone’s situation will be different but there are generally some rough guidelines to follow. As you progress through life, your needs pertaining to your financial planning will also change. The financial services that you need now probably won’t be the same as five to ten years from now. When selecting a financial advisor, find one who offers a wide range of services, so that they can provide you with help now as well as in the future. 

It pays to engage a financial advisorto evaluate every facet of your personal situation, since different components of your life impact your finances. While investments are a huge component, they are only one piece of financial planning. Developing a personalized financial strategy will allow focus on all aspects that are unique to a person or family. A person’s lifestyle as well as life events will affect the financial services they need. 

Prospective financial advisors should provide you with an overview of the services they provide. To get a full picture including what is offered and what is not, people can check the Securities and Exchange Commission’s Investment Advisor Public Disclosure website, which lets users search for advisors by name or by firm and review the ADV form they must file when registering with the SEC. Oftentimes consumers may assume their fees cover a certain bundle of services when they actually don’t. When facing an unexpected event like a financial reversal or a divorce, you don’t want to be left scrambling to track down another professional since your financial advisor doesn’t offer the services you need.



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