Although some people like to handle their own financial affairs, many people would prefer to get help from a trained financial advisor. A financial advisor should be able to help you set financial goals, write and implement your financial objectives, and create a comprehensive plan to manage aspects of your financial situation including investing, retirement planning, estate planning, and risk-management planning.
There is a debate in some circles as to whether fee-based or commission-based advisors should be utilized. In reality, what’s “best” for one person may not suit another person’s circumstances. Everything depends on the risk tolerance, objectives, goals, and situation of the individual in question.
Let’s take a look at how advisors are compensated.
Some financial advisors are paid an hourly rate or flat fee to develop a financial plan with no asset management or commissions required. If the advisor is managing your assets, his or her fee may be equivalent to a small percentage of your assets and/or income. Others are paid by receiving commissions from investment products they sell to you. Still others use a combination fee-and-commission structure whereby you pay a fee for the development of a financial plan, and the advisor also receives a commission from selling you products. When considering an advisor, you should ask about his or her fee structure and request an estimate of what it might cost to use that person’s services.
When calculating how much an advisor’s services will cost, you’ll need to consider fees, commissions, and related expenses (like transaction fees and management fees related to any recommended products). Be sure to ask for something in writing that lists all the fees you may encounter by using his or her services.
Also remember that before deciding to work with any advisor, you should thoroughly check out his or her credentials and licenses. Your advisor should provide you with written disclosure documents that contain this and other information. In the end, it’s important that you make sure you are comfortable with both the advisor’s financial planning firm and philosophy and that you trust him or her to manage your finances.
For more information on how to choose a financial advisor, call us today at 800-644-1150.