For most people, there's usually a point where their financial life becomes complicated enough that they realize it's time to hire a professional. For working professionals, this point in their life often sneaks up unexpectedly. You may be realizing you are making good money, but you feel you need to do better with your money. You've hit that stage where you think you need to begin "adulting." You are asking yourself "Should I hire a financial planner?" and "How do I pick a financial advisor?"
Here are a few situations you may begin wondering if you need a financial planner:
You've got your first big job – but you still carry a lot of education debt.
You desire to purchase your first home or move up into a home more accommodating to your ideal life.
You have equity or deferred compensation and need to understand the process, develop a strategy, and navigate the tax consequences.
You want to enjoy your life now – but you want to create the option to work or for one spouse to leave the workforce.
You own your own business or are considering starting a business.
You wish to save for your children's education.
You want to make the most of your inheritance.
Each situation is unique, and a financial planner's advice would guide you through each specific problem and need. While each scenario involves money, the solutions go beyond managing investments or advising on how much to put away in savings.
In each scenario, a financial planner can work effectively across an entire financial plan to incorporate necessary elements. Cash flow planning, tax planning, investments that maximize flexibility and opportunity, retirement savings, and estate planning are all part of what a planner can bring to the relationship.
But the most critical piece is listening to you, helping you understand what you want to accomplish, and helping you create a plan. A planner's job is to help you choose the best path for your goals.
Determine Your Needs
The first step to hiring a financial advisor is understanding what you need. Are you someone that likes to manage your investments but needs financial planning to pull all the pieces of your life together? Or do you want someone to take charge of all aspects of your financial life? Do you need help with a specific issue? Do you want someone to be a partner for years to come, or do you need someone to create a plan and teach you how to move forward on your own?
If you are married or have a partner, think about what you want to accomplish as a couple. Here are questions you should consider as a couple:
Do you share the same goals?
Do you share the same priority of those goals? Do you think about money the same way?
Do individual spending or saving habits cause stress in your relationship?
Taking the time to think about your needs can put you on track to finding a financial planner who matches your needs and wants. For example, when starting down your financial journey, you don't want to hire someone specializing in retirement.
You want to clearly understand your needs, challenges, goals, and personal style to find an advisor who can relate to you. They need the skills and experience to solve your problems and create a plan matching your goals.
How Does the Advisor Charge?
Financial advisors have many different models for the fees that they charge. The diversity of payment methods is good because it allows you to find the model that works best for you.
There is three primary models advisors charge for their services. They may charge as fee-only, fee-based, or commission based.
Fee-Only: The fee-only planner gets paid to advise their clients, whether in financial planning, asset management, or both. They are required to operate as a fiduciary. Understanding the fiduciary standard is vital. When acting as a fiduciary, an advisor must always put the client's interest above their own. Fee-only advisors get paid exclusively by their clients and do not receive commissions or kickbacks for recommending certain products or services.
Commission-Based: The commission-based advisor usually gets paid a percentage of the sale price of a financial product sold. Typical products sold under this model include mutual funds, insurance policies, or annuities. There are inherent conflicts of interest with the commission-based model. Under this model, the advisor can be incentivized to recommend the product with the highest payout - which may or may not be the product best for your situation. However, these products may still be necessary when solving a specific need; be aware of the advisor's incentive structure.
Fee-Based: Many advisors operate under the fee-based model. Under this model, the advisor can sell products for a commission and receive fees directly from the client. Think of this model as a blend of the Fee-Only and Commission Based models. In other words, the fee-based advisor wears two hats. In addition to the potential commission-based conflict of interest, these advisors may receive fees from other third parties. Transparency of costs and incentives can be difficult with this model.
How Fee-Only Advisors Typically Charge
Fee-Only advisors typically offer the following compensation structure for their services.
One-time fee: This is a one-time charge for financial planning advice. The relationship isn't meant to be ongoing. The advisor will meet you through a series of meetings, gather your information, and create a plan. You'll usually review it together to ensure it works for you, and they'll incorporate necessary changes. You'll be responsible for implementing the plan over time.
Ongoing (subscription) fees: These are charged monthly or quarterly and reflect a relationship anticipated to last potentially for years. Working with a financial advisor is a lifelong relationship for many people. Some advisors offer fees based on the complexity of the financial plan.
Assets under management fee: This is a percentage of the total assets under management that the advisor is responsible for managing. This fee arrangement is used when you have money saved and need to invest. But you don't want to manage the funds yourself. Under this model, you provide the advisor access and discretion to manage the funds on your behalf.
Within these broad categories, advisors may create different combinations of fees or charge a flat fee. The most important thing is that the advisor should be completely transparent about all the costs. You should know what you are paying for and what services you receive.
Is it a Good Fit?
This element is subjective – but don't overlook it. For the relationship to be successful, you'll need to disclose personal information about your finances, income, debts, issues with money, and history.
It can be very uncomfortable to tell someone about situations where finances were precarious or you made mistakes that need cleaning up. It would be best if you also had someone who relates to you and your style. Importantly, if you have a partner, you both need to be comfortable with the advisor, and the advisor should always consider both partners' desires.
Many advisors will offer an initial consultation meeting to get to know you and allow you to discover and assess them. They'll tell you that the relationship needs to be a good fit – and they mean it.
Planners want to help you succeed, so be sure you ask questions and allow yourself to understand what they do and if you are comfortable with it. Do you like them? Do you trust them? Please research, spend time on their website, and check out their social media.
The Takeaway when Hiring a Financial Planner
Working with a financial planner can be one of your most productive professional relationships. You can structure the relationship any way you want to reflect your style, needs, and comfort level.
Whether you want an advisor who will be a partner for many years to come, who will be your "first call" no matter what happens, or if you like to DIY your money and need some help creating a plan you can implement – there's an advisor for everyone.
Pursuit Planning and Investment, LLC is a fee-only fiduciary financial planning firm in Portland, Oregon. We sign a fiduciary oath and do not receive a commission for selling products. We offer virtual financial planning services for working professionals. Feel free to review our services and place a commitment-free 30-minute discovery meeting on the calendar. Plan your pursuit!
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