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I've been managing my own expenses pretty meticulously for the past 4-5 years since being out of college and on my own. Because of this, I feel I have more of a clue about finances than the average 28-year-old.

I use Mint to manage pretty much all of my accounts, though I realize this is just a quick and easy personal finance solution. Plus, there's no personally customized advice on how I invest or set up my monthly budget.

These are the reasons I think I may want to find a good financial advisor. However, I don't know what I don't know. That is, there could be a long list of things I should be doing with my money to plan for retirement or just for general financial wellbeing.

Are these the functions of a financial advisor? What can I expect if I sit down to meet with one? Most importantly, how much would I be paying for this advice and is it worth it?

  • If you do use one, ask them how they are paid, ie do they get commission. If they do get paid commission you need to consider if the product they recommend is best for you or for them. – davidjwest Apr 1 '15 at 10:31
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If you don't have the time or interest to manage investments, you need a financial advisor.

Generally speaking, you're better served by an advisor who collects an annual fee based on a percentage of your account value. Advisors who are compensated based on transactions have a vested interest to churn your account, which is often not in your best interest.

You also need to be wary of advisors who peddle expensive mutual funds with sales loads (aka kick-backs to the advisor) or annuities. Your advisor's compensation structure should be transparent as well.

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    Good point on the advisor's compensation structure being transparent. That would definitely give you insight into what is going to motivate the advisor. – Muro Jan 13 '11 at 23:50
  • Also, if you're the kind of person who will follow the herd and thus buy when markets are high and sell when they are low, you need a financial advisor to stop you from doing so. – Mike Scott Nov 27 '17 at 13:40
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A financial planner can help with investments, insurance, estate planning, budgeting, retirement planning, saving for college, tax planning/prep, and other money topics.

One way to get a sense is to look at this Certified Financial Planner topic list.

Another idea is to look at this book (my favorite I've read) which covers roughly a similar topic list in a concise form: http://www.amazon.com/Smart-Simple-Financial-Strategies-People/dp/0743269942 It could not hurt at all to read that before deciding to visit a planner, so you have baseline knowledge.

By the way, look for the CFP certification which is a generalist certification. A CFP might also have a deeper cert in certain topics or connect you with someone who does. For example:

  • someone with a CPA or Enrolled Agent certification could help with taxes (note: your average tax prep place just has people who know how to type into the computer program, they have minimal expertise; a CPA or EA does have expertise)
  • an estate planning lawyer would be an expert on setting up beneficiaries, writing your will, trusts, etc.
  • a Chartered Financial Analyst (CFA) would be an investment expert
  • there are insurance certifications and retirement plan certifications also
  • there are garbage certifications that mean very little out there ... I've tried to mention some that mean something

You really want a generalist (CFP) who may have an additional credential as well. The idea is to holistically look at what you're trying to accomplish and all finance-related areas. Especially because there may be tradeoffs. The CFP would then refer you to or work with lawyers, accountants, etc.

Importantly, some advisors are fiduciaries (must act in your interests) and some are not. In particular many stockbrokers are neither qualified planners (no CFP or equivalent) nor are they fiduciaries. Stay away.

There are several models for paying a financial planner, including:

  • loss-leader for an institution like Fidelity or Vanguard. If you have enough money with them they may give you free or discounted planning. They will of course always pick investments offered by their company, which is probably OK for say Vanguard and pretty bad for some other companies. Also this is probably on the phone, not in person, if that matters to you.
  • commissions. (or a mix, "fee-based"). These planners are in part salespeople, for either investments or insurance or both. I'd stay away but some people are comfortable with it.
  • percentage-of-assets fee-only. These planners get a fee from you, but as a percentage of investment assets managed. This creates an overemphasis on investing perhaps, though arguably an incentive not to lose your money, too. It also comes out to kind of a lot of money. One advantage is someone is doing rebalancing and other "investment maintenance" for you. This can be good if you lack the time and willpower, as many of us do.
  • hourly fee-only. Like many lawyers and CPAs, just charge you for time spent. This money will be a more visible check you have to write but is probably cheaper than percentage of assets over time. But you don't have someone managing your money for you, this is more of a "get advice, then DIY" approach. There's a franchise Garrett Planning Network that has this kind of planner.

There's an organization called NAPFA (napfa.org) for fiduciary non-commission-based planners. Membership there is a good thing to look for since it's a third party that defines what fee-only means and requires the no-commissions/fiduciary standard.

Finally, the alternative I ended up choosing was to just take the CFP course myself. You can do it online via correspondence course, it costs about the same as 1 year of professional advice. I also took the exam, just to be sure I learned the stuff. This is the "extreme DIY" approach but it is cheaper over time and you know you are not going to defraud yourself. You still might do things that are counterproductive and not in your interests, but you know that already probably ;-) Anyway I think it's equivalent to about a quarter's worth of work at a decent college, or so. There are about 6 textbooks to dig through. You won't be an experienced expert at the end, but you'll know a lot. To get an actual CFP cert, you need 3 years experience on top of the courses and the exam - I haven't done that, just the book learning. Someone who puts "CFP" after their name will have the 3 years on top of the training.

Some editorial: many planners emphasize investing, and many people looking for planners (or books on finance) emphasize investing. This is a big mistake, in my view. Investing is more or less a commodity and you just need someone who won't screw it up, overcharge, and/or lose your money on something idiotic or inappropriate.

Some people are in plain-bad and inappropriate investments, don't get me wrong. But once you fix that and just get into anything decent, your biggest planning concerns are probably elsewhere.

  • Some big picture understanding of your life goals and how money fits into them and what you need to do to get there.
  • Few people are properly insured. (Disability, life, umbrella, etc.)
  • Budgeting, spending, and saving.
  • Estate plan, at least a will and setting up proper beneficiaries on retirement accounts and insurance policies. Especially if you have kids, this is must-do.
  • Getting all the tax benefits you can, especially if self-employed or you own a business or real estate.

On investments, I'd look for a planner to just get you out of overpriced annuities and expensive mutual funds you may have been sold (anything you were sold by a salesperson is probably crap). And look for them to help you decide how much to invest, and how much in stocks vs. bonds. Those are the most important investment decisions.

  • A pretty long answer, but a good one, and worth reading. +1 – johnny Nov 3 '13 at 19:11
  • Your CFP link is down...... – Pacerier Nov 27 '13 at 11:07
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Technically, anyone who advises how you should spend or proportion your money is a financial adviser. A person that does it for money is a Financial Advisor (difference in spelling).

Financial Advisors are people that basically build, manage, or advise on your portfolio. They have a little more institutional knowledge on how/where to invest, given your goals, since they do it on a daily basis.

They may know a little more than you since, they deal with many different assets: stocks, ETFs, mutual funds, bonds, insurances (home/health/life), REITs, options, futures, LEAPS, etc.

There is risk in everything you do, which is why what they propose is generally according to the risk-level you want to assume. Since you're younger, your risk level could be a little higher, as you approach retirement, your risk level will be lower. Risk level should be associated with how likely you're able to reacquire your assets if you lose it all as well as, your likelihood to enjoy the fruits from your investments.

Financial Advisors are great, however, be careful about them. Some are payed on commissions, which are given money for investing in packages that they support. Basically, they could get paid $$ for putting you in a losing situation. Also be careful because some announce that they are fee-based - these advisers often receive fees as well as commissions. Basically, associate the term "commission" with "conflict-of-interest", so you want a fee-only Advisor, which isn't persuaded to steer you wrong.


Another thing worth noting is that some trading companies (like e*trade) has financial services that may be free, depending how much money you have with them. Generally, $50K is on the lower end to get a Financial Advisors. There has been corruption in the past, where Financial Advisors are only given a limited number of accounts to manage, that means they took the lower-valued ones and basically ran them into the ground, so they could get newer ones from the lot that were hopefully worth more - the larger their portfolio, the more $$ they could make (higher fees or more commissions) and subjectively less work (less accounts to have to deal with), that's subjective, since the spread of the wealth was accross many markets.

  • Good point on the type of assets and risk level. I didn't know about the last paragraph either. thx – vol7ron Jan 15 '11 at 15:06
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In my experience financial advisors do not normally assist with budgeting and personal everyday finance. There certainly are people who do that, but you would normally only consult them when you have financial difficulties, especially debt.

The more common find of financial advisor is mostly focussed on advising you about savings and investments. A lot work for banks and investment companies. They will usually advise you for free, the downside being that they will only recommend their company's products. This may or may not be a bad thing, depending on the company. Others will charge you a commission on purchases, and their advice will be more neutral.

This question will also be interesting: Are all financial advisors compensated in the same way?

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    napfa.org these are the fee only people. I would not consider a commission based advisor working for an investment company. – MrChrister Jan 13 '11 at 14:54
  • I really didn't mean a commission on sales, more like a fee for each transaction. – DJClayworth Jan 13 '11 at 17:52
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    When you have $100,000 in retirement savings, and you need advice on how much you should put in stocks / how much you should put in bonds, and you've got kids' college expenses coming up, and you're deciding whether you should look into refinancing a mortgage or getting a college loan, and want to take into consideration that you work at a telecom technology firm and your wife works in real estate, and you have a good chunk of change in the company stock plan which gets taxed differently depending on when you sell it... those are the sort of things your financial advisor can talk to you about! – user296 Jan 14 '11 at 5:42
  • @fennec That's a good comment, and could probably be a good answer. – DJClayworth May 19 '11 at 13:42
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There are several types of financial advisors.

Some are associated with brokerages and insurance companies and the like. Their services are often free. On the other hand, the advice they give you will generally be strongly biased toward their own company's products, and may be biased toward their own profits rather than your gains. (Remember, anything free is being paid for by someone, and if you don't know who it's generally going to be you.) There are some who are good, but I couldn't give you any advice on finding them.

Others are not associated with any of the above, and serve entirely as experts who can suggest ways of distributing your money based on your own needs versus resources versus risk-tolerance, without any affiliation to any particular company. Consulting these folks does cost you (or, if it's offered as a benefit, your employer) some money, but their fiduciary responsibility is clearly to you rather than to someone else. They aren't likely to suggest you try anything very sexy, but when it comes to your primary long-term savings "exciting" is usually not a good thing.

The folks I spoke to were of the latter type. They looked at my savings and my plans, talked to me about my risk tolerance and my goals, picked a fairly "standard" strategy from their files, ran simulations against it to sanity-check it, and gave me a suggested mix of low-overhead index fund types that takes almost zero effort to maintain (rebalance occasionally between funds), has acceptable levels of risk, and (I admit I've been lucky) has been delivering more than acceptable returns. Nothing exciting, but even though I'm relatively risk-tolerant I'd say excitement is the last thing I need in my long-term savings. I should actually talk to them again some time soon to sanity-check a few things; they can also offer advice on other financial decisions (whether/when I might want to talk to charities about gift annuity plans, whether Roth versus traditional 401(k) makes any difference at all at this point in my career, and so on).

protected by John Bensin Oct 11 '13 at 11:15

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