Almost no one gets up one morning and says, all of a sudden, “I can’t wait to hire a financial advisor.”
After all, if you contribute a large portion of your salary to your corporate 401(k) plan and any extra money you invest on your own seems to be paying good returns, you probably feel like you’re the master of your own financial realm.
So, when do most people start feeling the need to seek professional guidance? As life becomes more complex and finances seem to become more like a layered onion than a pie.
The real reason people pay for financial advice is to get peace of mind, so they can sleep easier knowing they are doing the right things with their money.
Uncertainty is what leads to the desire to direct. Often this is associated with career changes or life events that have occurred or are about to occur. Here are some common examples:
- A mid-career working couple with kids are struggling to figure out how they can save enough to pay the six-figure college costs of their kids and still comfortably retire.
- A married couple in their early 60s is concerned about whether their investments, combined with Social Security, will provide enough income to allow them to live the way they want for a retirement that may last 25 years or more. They know they can’t afford big slips.
- Self-directed investors whose confidence in their stock trading prowess has been shattered by the losses they have suffered due to panic selling in bear markets and want to avoid making similar mistakes in the future.
- Employees of “pre-IPO” start-up companies who want to turn their stock options into windfall cash gains without being hit by huge taxes.
- Parents of children with special needs who have a third retirement they need to save for and are looking for the best ways to plan and protect that child after their death.
- Anyone who is interested in changes in tax policy and wants to prevent Uncle Sam and his state from taking a large portion of the wealth they plan to pass on to their heirs.
People hire advisors when they feel the need to become more educated about financial planning and investing. Often one of the spouses is not interested in family money matters but suddenly realizes that it is necessary to participate in the decision-making.
In short, people hire financial advisors when they realize that their goal is no longer simply to beat the markets, but to become more confident that they are making the right decisions to build their wealth, lower taxes, and provide long-term financial security for themselves and their families.
Choosing and finding the right kind of consultants
The term “financial advisor” is a general term that covers a wide range of financial professionals. But not all advisors are alike, and it’s important to understand the differences.
Some of them are investment salespeople – also called brokers – who make their living from commissions they earn by selling mutual funds and insurance. Advice that comes from a broker or insurance agent is not entirely impartial or necessarily in your financial best interest.
Many people already know that advice should be kept separate from offers to sell. This is why they seek genuine advice from a fully vetted advisor, for a fee only and legally subject to the fiduciary standard.
Unlike brokers, advisors who receive a fee are paid only by their clients. Their fee models vary but usually do not exceed 1% of the value of your assets and can also be paid on a power of attorney.
This may sound like a lot, but in practice, advisor fees often pay themselves when the advisor’s guidelines or procedures prevent their clients from making costly mistakes that could affect their future financial security.
Take an employee with stock options worth millions of dollars. The advisor can help them avoid a seven-figure tax bill from selling them too quickly and instead reduce the tax impact by selling the options gradually.
Or think of a couple who either bought or inherited income-generating rental properties. The advisor can help them integrate these “fixed assets” into their overall investment strategy or suggest strategies (such as placing these properties in a trust) that can protect them from having to pay rental income or capital gains taxes.
It is important that you thoroughly research the background credentials and disciplinary history of any counselor recommended by a friend, family member, or found on your own.
For people who need help finding fee-only consultants with the highest standards of professional integrity, Wealthramp It is an online advisor referral service that I created to match individuals with carefully vetted investment and financial planning professionals who match their specific needs.
Partnership that delivers results
People who have managed their personal finances and investments themselves may feel that if they hire a fee-based advisor to handle only some or all of these activities, they are acknowledging, financially speaking, that they are above their heads.
But in fact, the opposite is true. In fact, financial implementers actually benefit most from working with a qualified professional financial advisor because they know the right questions to ask, fully understand the pros and cons of any advice or solutions offered by the advisor, and have the knowledge to evaluate the results.
The best financial advisors prefer clients who are fully involved, because these types of collaborative relationships almost always bring the best results for everyone. At the end of the day, this is what provides true peace of mind.
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