There’s no magic age, salary level, or amount of savings you need to have before seeking out help from a professional advisor although there are several things to consider before starting your search for one. Chances are if you’re reading this blog, you’re already a TAAG client, but if you’re not, or if you know someone who may want help, keep reading.
There are a ton of successful DIYers out there who have done just fine on their own but at some point, you get busy with kids, day jobs, hobbies, family life, social life, etc. There are only so many hours in the day and if periodically rebalancing your portfolio, keeping up with changes in legislation, or worrying about what’s going on in the stock market starts sounding less and less appealing, it may be time to hire an advisor.
Delegating the not-so-fun things like rebalancing a portfolio to an advisor can also help take the emotion out of the process. One of the biggest risks to a portfolio is the ability to control our emotions and not let fear and greed take over. Last year was a great example of this. We went from an all time high in the stock market last February to a recession in 23 trading days and then we were back at all-time highs in less than 5 months. While the world was still trying to figure out how to handle the virus, the stock market had already moved on. Having a systematic approach to rebalancing, like we do here at TAAG, can help you avoid trading based on emotion.
Now, this industry can be confusing because the terms financial advisor and financial planner are used interchangeably. Not all financial advisors offer planning services, but chances are if someone is calling themselves a financial planner, they offer planning services. Although, it never hurts to ask.
A good financial planner will offer both investment management and financial planning services. They’ll have you complete a risk tolerance questionnaire to understand and gauge your attitude around risk. They’ll talk with you about your goals and investment horizon and will assist you with other things like tuition funding, retirement planning, and your day-to-day cash flow.
It’s possible to hire someone that solely manages your investments, but it’s incredibly difficult to create a strategic investment plan for someone if you don’t understand what they are saving for, what they value, and how they think about risk. This is where the full planning comes in.
So, if you decide you’d like help from a financial planner, what else should you look for?
First, seek out someone who is a fiduciary, this person must legally act in your best interest.
If you can, find a fee-only planner. Fee only planners will typically charge something like 1% on the assets under their direct management. In some cases, it can also come in the form of a flat fee. This type of fee structure ensures that your advisor has your best interest at heart and isn’t giving you advice based off their incentive compensation, which might include big bonuses or hefty commissions.
It’s worth mentioning that some fee-only firms are not set up to work with younger clients who don’t have a good chunk of assets to manage, that’s okay, there are plenty of other firms that can accommodate you and some even prefer to work with younger clients. Just remember that account minimums, if any, may not always be listed on a firm’s website. If you’d like to work with someone it doesn’t hurt to reach out and ask about account minimums, most financial planners are more than happy to answer these types of questions from potential clients.
If you’re interviewing financial planners, ask about their investment philosophy. Do you understand how they’d invest your money? Remember, more complex doesn’t always mean better. An experienced advisor will have no problem explaining their firm’s investment philosophy in plain language without all the confusing industry jargon.
Don’t forget to review their credentials. Someone who uses the CERTIFIED FINANCIAL PLANNER™ designation must hold a bachelor’s degree or higher from an accredited college or university, has completed CFP® coursework, must have 6,000 hours of financial planning experience, has passed a comprehensive two-part exam, and is required to adhere to the high ethical and professional standards laid out by the CFP® Board. There’s a lot of alphabet soup out there for financial professionals to tack on the end of their name, 212 possible designations in fact, but this is the gold standard.
Lastly, this doesn’t get mentioned enough but make sure they’re a good match for you. How do you feel when you interact with them? Do they answer all your questions? Do you feel more knowledgeable about your situation after you meet with them? Do they put you at ease? All these things are important if you want to have a successful and long-lasting relationship.