Should I hire a financial advisor or a broker to begin investing?
I am 19 years old and for a while now, I've been very interested in investing. I've been doing research on how to invest, but I just can't get the information that I'm looking for. I watch a lot of videos and read, but they all provide motivation techniques instead of just cutting right to the chase. I was talking to one person and he told me to go to a financial advisor rather than a stock broker. What should I do in order to take my first step into investing and who should I invest it through? Should I hire a stock broker, a financial advisor, or should I just flat out buy a share single handed?
Good question. The problem you are running into is the same problem the industry is discussing right now. Salesmen, or brokers, are selling products or services that do not put your interest first. So, it is not really advice they are selling. True advice does not have any conflicts of interest, they only wish to educate and advise. Many calling themselves "financial planners" are not selling conflict-free advice.
If you are looking for someone selling advice, then a fee-only fiduciary planner from www.napfa.org is a good place to start. Many work on an hourly basis, which is probably what you need. When you are comparing prices, make sure you are comparing apples to apples. With most brokers or old-school firms, the fees are hidden or they will sell mutual funds where they have revenue sharing or sell from their own inventory, they will "advise" for things that are in their interest, not necessarily yours.
You are doing the right thing. Make sure you find a real fiduciary, someone that will act in your best interest.
Mark Struthers CFA, CFP®
Good for you. I think it's important to cut right to the chase. You seem eager to want to start making some money, so, take a prudent plunge into the pool. Why not hire two or three different consultants, and see what each one brings to the table? Allocate a reasonable amount of time for them to show what they can do, then evaluate.
At your age and stage, it's hard to make a long-term commitment because you are just getting your footing. True, you have to learn about the world of investing, but you also have to learn about the world of finance in general. Most importantly, you have to learn about who you are and what you want from life. What kind of person do you want to be? You need to be focused on this because what happens if you experience a windfall and make a ton of money in the next few years? What would you do with it? The motivation-type questions are really key because at the end of the day, it's not the money itself, but what we do with it, that affects our health and happiness.
That's why I recommend you hire a few different types of advisors and see what they can do for you. See what it's like dealing with them and how comfortable you feel with their methodology, with their practice. How they treat you. Such a competition will challenge you to determine what you really want from a financial advisor. These kinds of challenges are essential for you to become a tried-and-true investor, financial consumer, and responsible adult.
Great question! At your stage, I would highly consider starting with a robo-advisor. You can go to a platform like Betterment and get your start there. It is very inexpensive, they have great learning material, and make it very easy to get started.
If you're looking for financial planning along with help in investing, then reach out to a financial advisor who specializes in millennials. You can find one near you by going to xyplanningnetwork.com. All the advisors on that site specialize in younger clients, charge reasonable fees, and are considered fiduciaries.
As you get older and your accounts start to grow, I would then really consider working with an actual advisor who can do both investment management and financial planning, but for now I'd stick with a robo-advisor.
Congratulations on doing something that I wish everyone did, you are starting to invest at a time in your life when you have many years to build your nest-egg. The extra time over someone who doesn't start until they are 30, for example, is very, very valuable.
Keep in mind that brokers are in the business to make money. They are not teachers, they are salespeople. They aren't going to spend a lot of time with you, or give you particularly good advice, unless you have enough in your account to make it worthwhile to them. Even then, they may steer you to investment products that maximize their employer's revenue (and their share of it).
A registered advisory firm (such as the one I run) is duty-bound to act in your best interests. To the extent that an advisor has the time, he or she can help answer your questions and steer you to relevant investment literature. But we all have account minimums and can't usually take time with small accounts, since the big ones are demanding our time as well. If you are at college, check out whatever investing courses might be offered. And maybe you should post another question on Investopedia asking what the best three or four books are. In my opinion, you should get 'One Up On Wall Street' by Peter Lynch and 'A Random Walk Down Wall Street' by Burton Malkiel. Both are fabulous basic texts. Good luck, and feel free to message me privately if you have further questions.
I would recommend starting with a fee-only financial advisor. Look for someone that charges on an hourly basis or on a retainer model. At 19, a comprehensive fee-only financial advisor who has their CFP (as opposed to a broker/dealer) can help you structure a financial plan for saving, debt, budgets, etc., in addition to investments. Because you seem interested in this, I would also recommend looking for someone that emphasizes education and can help you understand finances better. Best of luck.