Before You Pay for Financial Advice, Read This Guide

At ARS Wealth, we often get asked by prospective and current clients how to differentiate between the different types of financial advisors and firms. This article explains some of the different ways that financial professionals work with the public and the right questions to ask to make sure your advisor is working for you!

Tara Siegel Bernard, NYTIMES

Many people turn to a professional for financial advice when they have a big problem to solve: How much do I need to save for my children’s college? Can I afford the bigger house? Will I run out of money in retirement? The answers to these questions could vary — widely — depending on the type of financial adviser you work with. If you find yourself sitting across from an annuity sales agent, for example, chances are that person will find some way to justify an annuity. And that may not be the right solution.

A new consumer protection rule that recently went into effect requires advisers to act in your best interest. But that doesn’t provide any guarantees, either; it covers only your retirement accounts, and the rule is being challenged by the current administration. All of this means that the onus remains on savers to ensure the professional they choose is the right one.

Here are several questions to ask yourself when considering paying for financial advice.

What kind of adviser should I work with?

You’ll want to hire the type of financial adviser who promises to act as a fiduciary all of the time, with all of your money, which is a fancy way of saying that person must be loyal to you first. Investment advisers, who generally must register with the S.E.C. or a state securities regulator, must work in their clients’ best interest, regardless of what accounts they are working with. But being a “registered investment adviser” alone doesn’t qualify a professional to answer your most challenging money questions. You also need to check that person’s educational background and training. Certified financial planners, for example, must satisfy some of the more rigorous curriculum and experience requirements. Chartered financial consultants undergo something similar.

Brokers, who may call themselves advisers, don’t necessarily carry any of these credentials. Instead, they may simply pass licensing exams that permit them to sell certain investments. Outside of your retirement money, they are required only to recommend products that are “suitable,” which isn’t necessarily the best or most cost-effective. And why should you settle for less?

How much advice do I need?

If you want to get started saving — or make sure you’re on track to meet certain goals — you may want to pay a financial adviser for a financial plan (which could cost somewhere in the neighborhood of $1,200 in New York). Otherwise, you may want to pay a planner by the hour — or some other flat fee arrangement — for time and advice.

People who want to hand over the reins of their portfolio to be managed by a professional may pay a percentage of their assets, typically around 1 percent. The key is to find an adviser who does not get compensated only if that person sells you something.

What if I don't want a full-time human adviser?

Check out the robo-advisers or hybrid services that use human planners who rely heavily on technology. They typically charge just a fraction of what a full-time human money manager costs.

A note of caution here, you get what you pay for. A robot advisor will not be there to talk to you during market corrections or planning for big life changes that require thoughtful financial planning.

What if I need advice about insurance or annuities?

This is a tricky area where a lot of people get talked into buying products they don’t really need. If you want to buy life insurance, you might pay a financial planner, for example, for a couple of hours to analyze what’s appropriate for your situation.

Where can I start my search?

Peruse the Garrett Planning Network, the National Association of Personal Financial Advisors and XY Planning Network for someone with expertise working with people like you. And be sure to check their history for any black marks. Try the Investment Adviser Public Disclosure website. It scans data from the Securities and Exchange Commission, as well as BrokerCheck and state securities regulators’ sites.

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