It seems like everywhere you turn, there are commercials, advertisements, and articles urging you to hire a financial advisor. They always talk about how important it is to plan for the future and maximize your returns, but few (if any) stop to talk about the costs of hiring a financial advisor. At Harvest Asset Group, we believe this is just as important of a consideration as the potential benefits. So, before you hire a financial advisor (or unsubscribe from their monthly newsletter), make sure you are aware of both the common benefits as well as the potential pitfalls associated with hiring a financial advisor.
What Do Financial Advisors Do?
Put simply, financial advisors help manage your money in accordance with specified goals and objectives. They work with you to identify and select goals as well as outline and implement concrete steps to achieve them. The specific role of a financial advisor can vary greatly depending on their area of expertise and your specific needs. Some clients need very little management, while others need a lot of hand-holding.
When sorting through all the financial advisors out there, be sure to look for specific financial certifications and designations. For instance, a CERTIFIED FINANCIAL PLANNER™ designation indicates this advisor will provide comprehensive financial planning that covers all aspects of your financial life, from cash flow management and debt-payoff to retirement planning and taxes. On the other hand, if an advisor holds the Chartered Financial Analyst® designation, they will focus mainly on investment advice and will probably not be suited to help you with questions regarding insurance.
Benefits
Now that you know a little bit more about what financial advisors do, let’s go through some of the concrete benefits associated with their services.
Provides Guidance & Answers Important Financial Questions
Often, it’s not until we face a major decision or make a mistake when we realize that we weren’t equipped with the proper knowledge. And then it may be too late to find help or rectify any missteps.
A financial advisor isn’t just there to hand you a financial plan and set you on your way; rather, they can be thought of as a lifelong financial partner. They can provide education, objective advice, and ongoing guidance as you encounter new challenges and opportunities. This could mean everything from adjusting your strategies to simply reassuring you of your progress. With education and a reliable partner available to answer your questions, you can feel more empowered to make informed decisions.
Helps Ensure Continuity With Your Finances
There’s often one financial manager of each household who pays the bills, renews the insurance policies, and handles the financial plans. But what would happen if that financial manager passed away unexpectedly? Is your family prepared? Would your spouse or loved ones know where all accounts are housed and what policies are in place?
A financial advisor can ensure you are properly covered insurance-wise and that all the proper documents (wills, healthcare proxies, powers of attorney, etc.) are in place. A financial advisor doesn’t serve you alone; they also help your entire family and can even assist the next generation. Should a financial setback occur, your advisor can help your family pick up the pieces and take the proper next steps to keep their financial house in order.
Saves Time & Reduces Stress
Managing your finances and investments can quickly become a full-time job. Trends, strategies, and legislation are always changing, and it’s hard to keep up.
Part of a financial advisor’s job is to stay up to date on investment vehicles, insurance companies, tax laws, and retirement plan strategies. They then use their knowledge, training, and experience to recommend options that align with your particular circumstances, needs, and goals. Many financial advisors will also work directly with any other financial professionals you may use (a CPA, for example), ensuring comprehensive assessment and management of your full financial plan.
Costs
Despite the many benefits, there are important costs to think about when considering hiring a financial advisor.
Difficulty Finding the Right Advisor
As mentioned, there are many different certifications, designations, and licenses in the financial services industry, each with their own education and experience requirements. It can be very confusing and difficult to sort through all the acronyms to understand exactly what you need and exactly what you are getting. A lot of up-front effort is required to fully vet prospective advisors, and many people just don’t have the time to do it. The CFP® certification is commonly regarded as the industry gold standard, but CFA®, Chartered Investment Counselor (CIC), and Chartered Financial Consultant® (ChFC®) are also highly sought-after designations. (1)
Confusion Around Fees & How Advisors Are Paid
Just as there are many different certifications, there are almost as many fee structures in the financial planning world. This can make it extremely confusing to understand exactly what you’re paying, and it can lead many prospective clients to avoid the industry altogether.
The nitty-gritty details of fees often vary based on the firm and the individual advisor, but there are two common structures defined by the CFP Board:
- Fee-only: Advisors are paid based on the services provided to clients, which can come in the form of an hourly rate, flat fee, or percent of assets under management (AUM). Fee-only advisors do not receive commissions.
- Fee-based: Advisors are paid in a combination of fees and sales-related compensation, meaning they will receive either an hourly rate, flat fee, or percent of AUM in addition to any commissions earned on products sold (like life insurance or specific investments).
Potential for Conflicts of Interest
Because of the confusing (and often overlapping) fee structures, prospective clients are often worried about the potential for conflicts of interest. It’s easy to see why with a fee-based or solely commission-based fee structure. How can you trust that the product your advisor is recommending is actually in your best interest—and not just a way to line their pockets? It’s an understandable concern to have. Many designations require that the financial advisor put the client’s interest above their own, but this doesn’t always put the client’s mind at ease.
As a CERTIFIED FINANCIAL PLANNER™ professional, I can tell you that I am required by law to act as a fiduciary for my clients, regardless of my fee structure. But I have personally chosen to set up my firm with a fee-only structure in order to reduce any misgivings or concerns my clients may have. I strive to manage every person’s money as if it were my own.
Make the Right Choice
Choosing the right financial advisor can be an overwhelming process. Between researching, vetting, and planning, many people wonder if it’s actually worth it. We at Harvest Asset Group have seen the tangible results of good financial planning and we would love to be a part of your financial journey. If you would like to learn more about how we can help, call us at (207) 775-1151 or email us at info@harvestassetgroup.com. You can also get access to our best financial insights and tips by signing up for our valued-packed newsletter.
About Michael
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.
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(1) https://smartasset.com/financial-advisor/top-10-financial-certifications
