When it comes to frugality, most people would agree being thrifty is usually a good character trait. However, when it comes to your financial future that probably isn’t the best area to skimp. With more and more people turning to financial advisors, there are still many that chose to go at it alone. Some believe they can handle it all their own, while others are simply scared of how much it will cost them. They fear overpaying an advisor.
I recently spoke with a friend of mine in another state that was concerned about this very scenario. He is in the process of interviewing local financial advisors and wanted to get my take on choosing the right one. He said, “I’m just baffled. They all brag about how their approach is better than everyone else’s. Is there a way to know who would be the best fit for me? How do I know I’m not overpaying an advisor and I’m actually getting what I’m paying for?”
I said, “Man, that is a great question!” Then I gave him a few tips to help settle on the right advisor.
The very first thing I pointed out was the importance of knowing how the advisor is paid. This is a crucial component, even before you decide to meet them face to face. Are they paid a commission? Or do they charge a flat fee? Perhaps, they couple a fee with commissions.
Commission based advisors fees can range from 5%,8%, and in some cases even more depending on a particular product’s commission. For those that charge fees, those vary as well. They can be fixed or asset-based. I know planners that charge a fixed fee before they even take on a client. I have a CFP friend in Arizona that charges $6000 upon the commencement of the relationship. He won’t even do the written financial plan until then. And if that client chooses to go beyond financial planning, maybe they invest with him as well, then there is another fee. He charges between 1% to 2% of an account’s value and an annual basis. You may say, “WOW, that’s a ton of money.” Yes it is, but his firm manages about 1 billion in assets.
Other advisors may just charge a percentage of assets. So they may not charge the upfront fee before they go in and do all the ancillary work of planning, budgeting, tax planning, projections, etc. However, instead they of charging 1.1%, they may charge 1.5% to cover all their time and the various jobs they take on as your advisor.
Once you understand how your advisor is paid, then you can look at these four areas to see if they are a good match and you are not overpaying an advisor.
Many times, prospective clients walk in and have self-diagnosed their problems. I often meet with individuals that think they need one thing. However, after our initial encounter, we discover they are in need of something completely different. If you think you have a relatively simple life, and you get confirmation from three or four different planners that you interview. If that’s the case, you MAY do great with just a robo-advisor.
I will tell you this, if you are a business owner then you do not have a simple life. Perhaps you are involved with real estate investments. Then I can tell you, that you do not have a simple life. Now, if you’re like me and have real estate, a business, and a farm—then you’re life is messed up—especially if you receive W-2 income and K-1 income! In that case, you seriously need to hire a planner, and I mean NOW!
So start by deciding what you need. Ask yourself what you want from an advisor. Are you just wanting someone to manage your investments? If so, then seek out that type of advisor. If you’re a business owner, then try to find an advisor that specializes in working with businesses.
I think it’s awesome when a client asks us if we would be a good fit for them. Not every advisor out their lists their client criteria. That’s something we’re actually working on for our own site. In doing so that alone can help answer the question.
There are some advisers who refuse to meet with those that do not have a $1 million in liquid assets. As a CERTIFIED FINANCIAL PLANNER™ in Knoxville, Tennessee, I can tell you that there are actually firms in my own area that wouldn’t even talk to me! While I have a multi-million dollar net worth, it is wrapped up in business and real estate. So they wouldn’t even consider taking me on as a client.
When you meet with an advisor, if all they want to talk about is themselves, that’s not someone you want to work with you want to work with. Hire someone that is going to ask lots of questions about you. It is best to cultivate a relationship with someone that understands you and your needs. They are your advisor, and they are there to answers your questions. Not leave you hanging by dodging questions. In fact, hiring an advisor that will take on the task of teaching you is worth every penny—even if they have a high premium fee.
Finally, don’t lose track of why you are hiring an advisor. Many times people want to focus on the fee. However, fees are not everything. They think this one is charging me 1% and this one costs me 1.3%. You have to look into that because, as they say, the devil is in the details. One advisor may cover custodial account cost like trade ticket charges, and the other may pass the account charges along to you.
In our firm, when we have a client that has more than $600,000 in assets we include annual written financial planning complementary. Yes, our fees are a little bit higher. We are also making sure to meet with that client four times a year, either face to face or via video. What we offer them is tangible results, that make our higher fee worth every penny in their eyes. If you don’t see the value of using a human advisor, then use a robo-advisor.
Here at Heritage Investors, we desire to work with a small group of clients and give them the absolute best investment experience that they’ve ever had in their life. We want to examine everything in their finances and guide them to the end they have always dreamed of. Let’s talk.