You expect your financial adviser to know things you don’t, since you don’t speak NASDAQ and never quite figured out what a subprime mortgage backed security was. After all, that’s why you’re consulting an expert.
But there are some things about financial management that everyone should know — and it bothers the reputable financial advisers when their clients don’t know them.
Here are four facts you need to know about finances before hiring a financial adviser.
Unfortunately, there is no regulatory body that oversees people who call themselves financial planners, which means that someone offering financial advice could be a financial planner, an insurance agent, an investment adviser, or a tax attorney.
In general, most clients will do best with a fee-only certified financial planner (CFP). The certification ensures a standard level of education and experience as well as the CFP board’s standard of ethics. Fee-only advisers are also more likely to be unbiased, since they do not earn a commission from your decisions.
According to CFP Jeff Rose who blogs at GoodFinancialCents.com, “many people working with financial advisers have no idea how much they are really paying in fees.” For instance, a 2% annual fee on a mutual fund will eat away nearly two-thirds of your investment over a fifty-year time frame.
Add in the fact that commission-based advisers may not make it clear that their compensation take a bite out of their clients’ returns, and it should be obvious that understanding fees is paramount.
This tip comes from Joe Saul-Sehy, a former financial adviser with 16 years of experience who now blogs at StackingBenjamins.com. According to Saul-Sehy, many otherwise savvy clients would fixate on what whatever hot new thing was making headlines.
Ultimately, you need to put your energy where you can actually make a difference — in your own spending and saving habits.
Financial planner Dominique Brown, CEO of S&D Capital Holdings and author of the blog YourFinancesSimplified.com, gets frustrated seeing clients who are unaware of how much they spend on their lifestyle.
Finances can be intimidating, and it can be tempting to leave decisions to financial experts. But you need to familiarize yourself with the ins-and-outs of how money works, especially when someone else is managing it, so you can protect yourself.
No one will take care of your money like you will. So be sure you understand these important tips!
Have you worked with a financial adviser before? What are some other tips you’ve learned from them?
Do You Need to Talk to a Financial Advisor?
Awesome advice we can all use. I heard a wise friend saying that you do not get rich by the money you earn but by the money you save.
Definitely some great points here! It’s so important for people to understand this when getting a financial adviser. Especially about how profits don’t automatically equal success! Thanks so much for sharing!
This is one of my personal favorites…. Buying Vanguard, Fidelity, and/or “enter your favorite company here”, doesn’t mean your good. In fact, it doesn’t really mean anything about your actual investments.