You may be thinking that you can do-it-yourself for your financial planning and investment management, as DIY seems to be the choice of many these days. With all the technology we have at our fingertips, it might seem that finance apps, retirement calculators, or robo-advisors are the future of financial planning and advice.
So, why do so many people still pay financial advisors and planners fees to provide advice to them?
We know the secret – or rather, what can drive the value of working with a financial advisor instead of other DIY options:
Accountability – Even the best-laid plans do not always come to fruition. Sometimes we just need an advisor to “hold us accountable,” whether it’s saving towards our goals, reducing debt, making sure our estate plan is in-line with our goals, or any number of other financial tracks we’re trying to follow.
Exclusive Access to Investments – Many retail investors do not have access to the entire universe of investments. Your advisor’s firm should be large enough to gain access to specific strategies, such as institutional mutual funds, separately managed accounts, and alternative investments.
Experienced / Market Savvy – A good advisor has lived through the ups and downs of the stock market, and they have experience with many different types of investments. They can guide you through market cycles and provide specific, personalized advice for you. This can include navigating the myriad of investment choices and information available today.
Life Changing Events – These events can include retirement, divorce, death, or an inheritance.
- Retirement should be a celebratory event. An experienced advisor can help you on a path for your financial needs to be met prior to your retirement date.
- In the event of a divorce, your advisor can work closely with the divorce attorneys to help divide the assets efficiently, as this process can be very complex and expensive.
- Similarly, estate attorneys will want to work closely with your financial advisor to ensure your assets are tilted in a tax-efficient and/or creditor protected way.
- If you are fortunate enough to receive an inheritance, your advisor can help you understand how that changes your personal financial plan and how those dollars could be invested to help coordinate with your risk tolerance and goals.
Peace of Mind/Less Stress – We all lead very busy lives, and financial stress can be one of hardest stresses to handle. Hiring a professional advisor can help you cut through the plethora of investment/economic information available every minute of every day, and help you work toward your specific financial goals.
Tax Planning – One of the most overlooked reasons to pay a financial advisor is to help you identify tax planning opportunities. The complex world of tax rules and regulations should be navigated by tax professionals, but financial professionals also provide value as they see the world through a different lens. Some of these strategies could include tax-loss or tax-gain harvesting, pre-tax savings opportunities, Roth conversions, tax location options, or rebalancing your portfolio in a tax-efficient manner. Selecting an investment firm with CPAs on staff can certainly be a plus!
Trustworthy Advice – Maybe you like managing your money, but you understand that you would benefit from an expert third-party opinion who likely has more credentials, training, and expertise than you. This personalized advice can help you navigate planning opportunities and investment options that may benefit you. To help ensure the advice is trustworthy, selecting advisors who adhere to the Fiduciary Standard is the first place to start. Not all financial advisors are fiduciaries, so this is a very important consideration. Investment Advisor Representatives of Registered Investment Advisory firms (RIAs) are required as fiduciaries to always put your interests first.
Being a fiduciary means that we as investment advisers must make full and fair disclosure of any conflicts of interest, and we must put our client’s interests ahead of our own. This fiduciary duty applies throughout our relationship with you, which is a special relationship of trust and confidence that we have with our clients.
There are many different types of financial advisors, and there are many certifications or licenses that an advisor can hold. One way to ensure that your advisor is a fiduciary is to work with a CFP® professional. This certification requires a fiduciary duty and requires the advisor to have significant financial education. Selecting an investment firm with CFP® professionals on staff is a plus!
Now that you understand “why” to hire a financial advisor, here are reasons why you should consider hiring a “fee-only” financial advisor. A fee-only advisor gets paid solely by clients in a transparent manner. They do not receive commissions or other revenue-sharing arrangements from an employer or product provider.
- Focus on Advice – Fee-only advisors are paid for their advice, not for the product that is implemented. By personalizing the advice to your needs, the product is simply the vehicle to help you achieve your goals.
- Fewer Conflicts of Interest – A fee-only advisor will receive the same compensation no matter what product or investment they use. They can put their client’s interests ahead of their own, as the opportunity to earn higher fees for different investments is eliminated.
- Choice of Payment Options – Many fee-only advisors offer a choice on payment options, from paying a percentage of the assets that are managed, to hourly fees, or annual retainer fees.
As you can see, paying for advice via fees can provide significant benefits to you. Finding the right firm ideally should include CFP® professionals and licensed CPAs, while also ensuring they are a fiduciary advisor that is fee-only. If you’d ever like to have a conversation exploring how Domani Wealth could serve as a trusted partner for your finances or enhancements we can offer to your current plan, we would be pleased to schedule a no-obligation consultation! Get in touch with us today.