The Rules of Thumb blog from MoneyThumb understands that when the Christmas season comes--heralding the arrival of a new year--most people are thinking heavily about the future. This year that is even truer since not only are we ending a year, we are ending a decade. With the arrival of 2020, many of us are making sure our vision for our life matches the year number, 20/20. We especially want 20/20 vision in 2020 as it relates to our finances.
The fact is, nothing makes Americans happier than having their finances organized. That is what 92% of U.S. adults said in Northwestern Mutual’s 2019 Planning & Progress Study said, "they are happiest and most confident when their financial house is in order.”
Do you feel that your financial house is in order? If not, what financial changes are you considering making in 2020? Is 2020 the year you hire a financial advisor? To help you decide if hiring a financial advisor is in the cards for you in 2020, we have listed below the major considerations and questions to ask a potential financial advisor:
What Kind of Financial Advisor Do You Need?
If your financial situation needs assistance, you could choose to work with Robo-advisors, which typically manage your money for you. These platforms are generally less expensive than working with a human financial advisor, but they may not provide the same level of customized advice and solutions.
Maybe you have a more complex financial situation, such as stock options or perhaps you help out with family financial obligations. That may require a face-to-face conversation with a human financial advisor or planner. And these professionals usually go beyond just building portfolios. They offer a wide range of services to help achieve your goals, such as helping create a budget and plan to save for a home or selecting the right college savings plan for your family or even creating tax efficiencies with your investments.
There are two types of legally defined financial professionals: brokers and investment advisors. Generally, brokers are registered with the Securities and Exchange Commission and overseen by the Financial Industry Regulatory Authority, a self-regulatory agency for the financial industry. Brokers are allowed to buy and sell stocks, bonds, mutual funds, annuities, and other investment products on behalf of their clients.
The thing to look out for is that financial pros use many different terms on their business cards: financial advisor, financial planner, money manager, wealth manager, etc. And many are registered as both brokers and investment advisors. If you’re looking for someone who will provide holistic financial advice, experts suggest you work with a certified financial planner. Those with a CFP designation have a bachelor’s degree and have passed a rigorous exam to verify that they understand all of the core aspects of financial planning. Typically, financial planners are registered as investment advisors and need to adhere to a fiduciary standard. Plus, under the new rules that went into effect in October, all those with a CFP must act in the best interests of investors.
Check Out Their Background
Meet Your Financial Advisor in Person
During the initial meeting, you need to find out how the advisor makes money and the all-in costs you can expect to pay to work with them. It can be awkward to ask, but it’s critical that you understand what their expense structure is like, as it can affect how they give advice.
Financial planners who operate on a fee-only basis only receive payment from their clients — that can take the form of AUM, a flat annual fee or an hourly fee. In theory, if a financial professional is fee-only, it means that their advice is not conflicted because they’re not receiving compensation from outside sources that could sway their recommendations, such as mutual fund companies and insurance firms that offer annuities. However, these planners may be more expensive for you to hire, so you should review their fee and feel comfortable with the payment level.
By taking our above suggestions into account, the MoneyThumb team feels confident that you will make an informed decision about whether or not to hire a financial advisor in 2020 and if you do, that your choice will be well informed.