Is Getting a Financial Advisor Worth It?
NEW YORK ( MainStreet) The service industry is a driving force behind the US economy, accounting for four out of five jobs in America. Included in that count are hair stylists, restaurant workers, plumbers and financial service professionals. While it may be easy to determine whether or not your hair stylist is worth the cost, a financial advisor is a bit more challenging.
Morningstar, an independent investment research firm, recently attempted to quantify the benefit of hiring a financial advisor. Their results showed that investors who sought professional help gained an increase of 1.82% of retirement income per year.
But with a wide array of business models, fee structures and certifications, it would be wrong to blindly apply that number to the entire financial services industry. If you're trying to determine whether or not your advisor is worth the cost, we propose asking these three questions:
1. What have you done for me lately?
Morningstar's study assumed advisors were doing more than just picking investments. Asset allocation is important, but a good advisor should also help with tax planning, insurance product selection and portfolio withdrawal strategies, among other tasks. To get the most from your advisor, you should meet regularly to review your plan and current strategies. What you really need is an advisor who cares about your specific goals and can provide comprehensive advice to make sure you're on track.
2. What have I paid you and what have you made me?
Financial professionals often auto-debit the fees they charge, much like Netflix or your gym membership. And some advisors earn fees from selling certain products. Transparency can be an issue, but you have a right and a responsibility to understand how much you're paying and for what. Keep in mind financial advisors are ultimately in the business of doing math. That means your advisor should be able to easily demonstrate the value they've added to your situationwhether it's through investment returns, tax savings or other techniques. If they can't, that's the equivalent of a hair stylist without a set of scissors. In other words, go somewhere else.
3. Am I getting the best possible advice?
Most high-quality service professionals undergo a certification process, and financial advisors are no different. It can be difficult to wade through the various designations, but there's a wealth of information online if you want to investigate those letters after your advisor's name. The top three financial advisor certifications are generally considered to be the CFA, CFP and CPA, though other designations may be acceptable as well.
At the end of the day, one of the best things you can do is listen to your gut. Turn up your BS meter and make sure you trust the person who's got their hands in your cash.