If you do your own investing, have you ever wondered whether you should turn things over to a professional advisor? This article attempts to shed some light on this topic and provide you with some things to think about so you can make the best decision.
When the Time Comes
Professional advisors say there is no magic asset number that pushes an investor to seek advice. Rather, it is more likely an event that spooks a person and sends him scurrying through an advisor's door. The event could be something that requires the individual to manage an asset himself.
According to Charles Hughes, a certified financial planner in Bayshore, N.Y., the event typically involves either the receipt of or access to a large sum of money that the individual didn't have before.
"When you reach a point in which you're constantly afraid that you're going to make a mistake with your investments, then you need professional advice," according to Raymond Mignone, a certified financial planner in Little Neck, N.Y.
Often, someone who has never spent or managed more than a few thousand dollars is looking at managing a six-figure or group of accounts.
If this happens to someone just about to retire, the decisions that need to made are more critical, as the retiree will want to make this money last. As such, people often seek professional advice just before they retire, because they feel that they need professional advice to make such long-term decisions.
When it comes to portfolio management, it is important to determine your plan of attack. Take the 401(k) plan, for example. When you're contributing to the plan, you may feel like it's not your money. You can't do with it what you want because you'll be penalized. But when retirement is coming and you can access that money, the question often arises about what you are going to do with it. For many, this can be when they decide whether they can manage their own affairs or should seek professional advice.
The need for critical self-evaluation is vital when determining whether to hire a financial planner. Advisors say the decision depends on the investor.
The following questions should help you sort out whether you need an advisor:
- Do you have a fair knowledge of investments?
- Do you enjoy reading about investments and doing research?
- Do you have expertise in investments? Do you have the time to monitor, evaluate them and make periodic changes to your portfolio?
If you answered "yes" to the above questions, you may not need an advisor or financial planner.
Not So Fast
However, Loren Dunton, one of the founders of the financial planning movement, says that many people who believe they don't need a financial planner could benefit from one anyway.
"Most people need a planner. The ones who don't need one are usually smart enough to use one," wrote Dunton in "Financial Planning Can Make You Rich" (1987).
So let's assume someone decides that, for any of the reasons stated above, he or she does need an advisor. There's another difficult task: finding the right advisor.
Finding the Right Financial Professional
How should you go about finding the right advisor? Begin by asking for referrals from colleagues, friends or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. A Certified Public Accountant or a lawyer might make a referral. Professional associations can sometimes provide help. These include the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).
The client must also decide how the advisor will be paid. Some advisors charge a straight commission every time a transaction is recorded. Others charge a fee based on the amount of money they have been given to manage. Some fee advisors assess an hourly fee. As such, fee advisors can be very expensive, which could put them beyond the reach of many middle-class clients.
Fee advisors claim that their advice is superior because it has no conflict of interest. In other words, using an advisor paid through commissions, which is a payment received by an advisor or a broker whenever a transaction is recorded, can compromise an advisor's integrity. As such, those who advocate fee advisors suggest that commission advisors may have an incentive to record too many transactions. However, commission advisors argue that their services are certainly less expensive than paying fees that can run as high as $100/hour or more.
The Wrong Advisor
If your advisor only records some transactions from time to time but never sits down and discusses long-term goals with you, you may want to look for a new advisor. Similarly, if your advisor never writes an investment plan to lay out your goals and assess whether they are being reached, you may be better served elsewhere.
A written plan for each client is critical. In addition, good advisors have semiannual conferences with clients and talk to their clients on a regular basis. In addition, a good advisor who is just beginning to work with a client should never recommend a product until he has learned a lot about his or her circumstances and goals.
Finally, the individual should ensure that any financial professional has the proper credentials. Avoid any advisor who is little more than a broker but calls himself a financial planner or advisor.
Many planners or advisors only sell financial products. In fact, the term "financial planner" has been a much-abused term. A person can label himself or herself as a financial planner, but not be a certified financial planner unless he or she has fulfilled the necessary credentials. Therefore, don't allow yourself to be impressed by the title on an advisor's business card until you understand what qualifications and certifications he or she actually has.
The Bottom Line
The decision about whether to seek advice can be critical. If you do choose to seek advice, carefully choose the right professional for the job, and you should be on your way to a better financial plan. If you decide to go it alone, remember if at first you don't succeed, you can try again ... or call an advisor.
ProfessionalsThe CFP designation is heavily favored by both the finanical and the mainstream media and offers a wealth of benefits for certificants.
ProfessionalsProfessional ethics in the financial services profession can be confusing. Here are some ways to ensure you are getting the best out of your advisor.
ProfessionalsThe best advisors love what they do for a living, but they also know what to do to get to the top. This shared advice can help you get there, as well.
ProfessionalsThe reasons most clients fire their advisors are very simple and easy to address. Find out what you should be doing to keep your clients.
ProfessionalsAttaining the AIF or AIFA could help both you and your clients enjoy a comfortable retirement.
Mutual Funds & ETFsLearn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
InsuranceLearn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
InvestingWith so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
ProfessionalsAdvisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
ProfessionalsThe start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
A financial singularity is the point at which investment decisions ...
The option offered by an investment firm to let its clients invest ...
Fintech is a portmanteau of financial technology that describes ...
The endowment effect describes a circumstance in which an individual ...
Anchoring and adjustment is a cognitive error described by behavioral ...
Definition of Robo Financial Advisers
A Chartered Financial Analyst (CFA) has successfully passed rigorous coursework in the fields of economics, financial analysis, ... Read Full Answer >>
The Chartered Financial Analyst, or CFA, program is a professional certification awarded by the CFA Institute. CFA candidates ... Read Full Answer >>
The asset management industry has a variety of different career paths. Depending on what asset management area you would ... Read Full Answer >>
A high-net-worth insurance policy is specifically tailored to suit the needs of high-net-worth individuals. It is specifically ... Read Full Answer >>
An investor who is a high-net-worth individual (HNWI) may require private wealth management services. HNWIs have unique financial ... Read Full Answer >>
The difference between a fee-based adviser and a commission-based adviser is that the former collects a flat fee for investment ... Read Full Answer >>