Do You Need a Financial Advisor If You Aren’t Rich? See What the Experts Say
As seen in Go Banking Rates on September 1, 2021
You may think you don’t need a financial advisor if you’re not rich, but the truth is that, depending on your situation, having one may benefit you. For many people, the expert advice and guidance they receive from working with one of these professionals far outweigh the costs. Learn whether you could benefit from a financial advisor’s services, understand the different fee structures and get tips on how to find one who meets your financial planning needs.
Do You Need a Financial Advisor If You’re Not Rich?
“Rich is a relative term,” said Curtis Bailey of Quiet Wealth Management. “There are people with $4 million who don’t feel rich because they have friends with $8-$10 million. Today, some financial advisors serve very specific needs, such as paying off student loans, budgeting, analyzing equity compensation awards, etc., to broader full-service advisors — everything from financial planning to tax preparation to investment management.
Bailey also said that not everyone needs a financial advisor but that it would benefit many people to have one.
“In fact, there are many financial advisors that have financial advisors,” he said. “Financial advice is not only about knowledge, it is also about customizing and implementing those insights. The right financial advisor to help with your personal circumstances could substantially improve your financial life.”
How Do Financial Advising Fees Work?
Financial advising fees will vary depending on the financial advisor or firm you work with. Jenna Biancavilla, female financial expert and president of Pearl Capital Management, said there are three types of advising fees:
Commission-based
Fee-only
Hybrid
Here is Biancavilla’s explanation of each type of financial advising fees:
Commission-based: “Commission-based advisors are paid different rates for the different products they sell, with some products paying them as much as 14% or more in commissions. There is an inherited conflict of interest to sell higher-paying products and move in and out of investments more often since each transaction generates a new commission.
Fee-only: “This is a flat percentage, also called flat-fee. These advisors make the same flat percentage regardless of the investments sold or the number of transactions. Usually, flat-fee advisors charge between 1% and 2% annually.
Hybrid: “This is exactly what it sounds like; advisors using both commission-based and fee-based revenue sources. Here’s the inside scoop: From a business perspective, these advisors have legacy accounts set up as commission-based and don’t want to give up that higher income, but they also realize that investors are becoming savvier and are looking for fee-based advisors, so they are set up to charge both commissions and flat fees. From a consumer perspective, it’s hard to know when you are being sold something that pays a commission from these advisors.
Biancaville also said, “Advisors also charge one-time or annual fees to write financial plans, which are quotable dollar amounts, i.e., $2,500.”
How To Find a Financial Advisor
Now that you know more about what a financial advisor can do for you and the different types of fees you may encounter, here’s how to find one that will meet your planning needs.
Websites like BrokerCheck by FINRA and the National Association of Certified Financial Fiduciaries are good places to look for qualified financial advisors, but they’re not the only way.
“There are plenty of websites that list advisors, but let’s be honest, it is an important decision, and just picking a name from a website may not be the best way to go,” said Julian Schubach, vice president of ODI Financial. “Speak to your accountant or family attorney as they usually have vetted advisors they have worked with in the past and may have a recommendation. Speak to colleagues and friends as well to see if they have an advisor they like. Interview a few advisors before making a decision the first time.”
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