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What’s It Like to Use a Financial Advisor?

Whether you pick low-fee investment help or comprehensive financial planning, expect to discuss goals and risk tolerance. Ask lots of questions before committing.
July 23, 2018
Advisors, Financial Planning, Investing
Find the Right Financial Advisor at the Right Cost
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You’ve got financial questions. The internet’s got answers. So do friends, family members and late-night TV money gurus.

But sometimes you need a professional who can provide money advice that’s tailored specifically to your needs. And that raises more questions: Whom do I hire? How much will it cost? What will they ask? Where do I start?

Find the right help, at the right cost

Financial pros are like doctors: Some are specialists in defined areas, such as taxes or managing investments. Others are general practitioners, offering advice on everything from budgeting and investing to insurance and retirement planning.

Just starting out? For financial situations that aren’t complex — you’re looking for low-cost investment guidance or to open your first IRA — automation has enabled traditional firms like Vanguard and Fidelity as well as online-only companies like Betterment and Wealthfront to substantially lower the price of portfolio management.

These so-called robo-advisors build and manage a portfolio of low-cost investments suited to your financial goal for a small fee — many top choices charge 0.50% or less of your account balance. The investment mix is determined by a computer algorithm and is automatically adjusted when needed. At the basic account level, you can start investing with $500 or even less.

The low-cost, easy-entry nature of robo-advisors reduces barriers to just getting going on your financial goals.

The low-cost, easy-entry nature of robo-advisors reduces barriers to just getting going on your financial goals. That’s important because avoiding the market can starve your retirement. You can start with a robo and add a human advisor later on if needed.

Need comprehensive hands-on help? For those juggling multiple priorities — like saving for college, retirement, a new deck and a nose job — a certified financial planner can provide holistic one-on-one advice for even the most complex financial situations. The official CFP designation indicates that a provider has gone through a rigorous formal training and testing process.

A fee-only CFP typically charges by the hour (usually $200 to $400) or by the task (a flat $1,000 to $3,000 fee, for example). The initial consultation to discuss your needs and their services is usually free.

Ask whether the person you’re considering is a fiduciary, a term that means they’re obligated to put the client’s best interests first. (Members of the Garrett Planning Network and National Association of Personal Financial Advisors fill both the fiduciary and fee-only requirements.)

Want something in between? Many robo-advisors combine computer-driven portfolio management with access to living, breathing financial advisors. Depending on account size or the robo-advisor’s subscription model, the level of service varies — from online and email-only consultations with trained staff, to scheduled phone conferences with a dedicated advisor.

» Ready for a robot assist? See NerdWallet’s top robo-advisor picks 

Getting acquainted

Whether you hire human help or opt for electronic money management, you’ll begin with a review of where you stand. You’ll be asked about:

  • Your goals: What are your short- and long-term financial priorities?
  • Your current financial picture: How much money comes in and goes out? What do you own, and what do you owe?
  • Your risk tolerance: This series of questions about how queasy stock market gyrations make you informs how much of your portfolio should be in stocks versus other investments like bonds.

Online advisories offer virtual tours, demos and even the chance to test-drive the investment platform before you sign up. Wealthsimple even jumps right into advice mode by performing a free portfolio review for potential clients and discussing their savings and debt.

An initial meeting with a human financial planner, even the free consultation, is more involved. Like a first date, it’s the chance to get to know one another and see if you mesh on a personal and philosophical level. Take this opportunity to find out everything you can, including how much you can expect to pay, how the financial plan will be presented and how often to expect ongoing communication. (Here are 10 questions to ask an advisor to gather information and see whether you click.)

» Do a background check: Ask to see Form ADV, which shows fee structure, firm history and any misconduct.

Working together

No matter whom you hire, keep in mind that the effectiveness of a financial plan depends on the quality and completeness of the information you provide. Don’t be shy about revealing your money issues. You want to feel comfortable sharing your financial details, in order to receive advice tailored to your unique needs and goals.

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