The need for a financial planner is becoming more and more imminent in the growing economic crisis across the globe. The need to grow the earnings is getting necessary with the growing economic slowdown. The work of a certified financial planner is to provide their clients with options and unique methods to save, invest, and grow their money.
Is financial advisor absolutely necessity?
Now the question may come to our reader’s mind, which people require a financial planner or advisor? It may sound harsh, but the truth is people who barely manage to cover their daily bills from the paycheck and lurches from one paycheck to another, financial planners are not for them.
A financial planner will not be a fruitful option for people who plan on saving $30 every month, and the person will also not be an attractive proposition for any Certified Financial Planner. A financial planner works on a commission basis, and he will make his earnings from his client’s money.
Different types of fee structure:
So, the question come which grade people will benefit from hiring a financial advisor. There is one thumb rule which gets followed across the globe, and that is a person with a steady financial background and can manage to save 20% of his total earnings every month should hire an advisor.
They help a person to achieve or tackle a desired financial goal like owning a house within a stipulated time or give a macro dimensional view to your money, and many more. Now, some planner specializes in setting up retirement books or estate planning, whereas some group of CFP offers a wide range of services in a wide array of financial subjects.
How different financial advisors are from stock brokers?
Now, people may end up mixing stockbrokers, and accountants with financial advisors; however, if we take a closer look the role played by a Certified Financial Planner is quite vast and requires a lot of long term planning. Financial planners will not help their clients as an accountant to lower the taxes or like a stockbroker who will broker a profitable deal for their client. A CFP does more than that as he has overcome a series of rigorous tests before claiming himself to be a certified professional. He must also commit him to continue the education process to remain relevant in the market and become a go-to option for the people. A CFP with good credentials will give sound and reasonable financial advice to his clients. Unfortunately, the process of finding a CFP with meticulous financial knowledge is exceptionally hard to find; we often found many financial advisors with proper certification failing to deliver the desired result.
The tried and tested method to find a good CFP:
One of the tried and tested methods used across the globe while choosing a good CFP is checking on Google. The review and rating website easily accessible through the internet provides a very transparent picture to a person in need. As most of the reviews get written by users, it gives a very clear picture of each firm. The other method which proved to provide quite fruitful results is getting in touch with friends.
Do not shy away from getting in touch with your friends on mobile contacts, talk with them, know about their experience, whether they will recommend one particular CFP or not. The mentioned methods proved quite effective over the last few years to provide the desired results.
Typically, a financial advisor makes a living out of their client’s profit in the name of the commission or service fee. A commission is a monetary benefit a client provides to his advisor on every purchase or sale of stocks or any kind of profitable investment. Now, we will advise all our readers to steer away from advisors who work on a commission basis as they often misguide their clients towards a particular investment when the percentage of their commission is higher and act biased.
What type of financial advisor one must pick?
In the recent past, the number of financial planners working on a fee basis for their council increased significantly. The advantages of hiring such a person are several. Firstly, his fee will not get directly generated from the investment a person makes, and secondly, the entire structure provides him the opportunity to work unbiased. They do not get a cut from the client’s profit as they charge a flat fee for their service and works independently.
Now, we often find some independent financial planners get an annual fee for his work, which is roughly around 1% of the entire profit of a client. There is a small group of financial planners who prefers to work with big clients instead of beginner investors. They prefer to provide their exclusive services to people who plan on investing money in the range of more than $250,000 every year. It is advisable to pick a CFP who will work with you and grow with your growth instead of going with someone picky when it comes to choosing their client.
In the blog, we will try also try to cover one of the biggest questions every person has when it comes to Certified Financial Planner.
DO I REALLY NEED ONE?
We will try answering this question with one simple example. When your vehicle acts crazy do you go to auto repair stores, or try fixing it by you. We often find the issue can get fixed by our self yet we opt to go with the second option. In cases such as these, we opt for an expert instead of our novice hands. While making investment decisions, a similar scenario rises; a person can quite easily spend his money by making smart investments and get a great yearly return from his decision.
In both cases, a group of people can ace with their decisions while other groups can take a flawed decision and ruin the entire thing. The art of mastering personal finance is not a one day job as it requires hours of research and patience to ace it. The Millennial would rather get in touch with a financial planner instead of spending hours in learning the skill.
The stroke of wisdom with age:
As a person grows, his life gets busier, tiresome and hopefully wealthier, making the entire financial decision-making process far more complicated. A professional who knows his tool can help the entire process less complicated and fruitful for a person. A financial helped also helps a person maintain a more disciplined life to achieve his financial goals. They will make the financial moves on your behalf and keep nagging until you fall in line. The present generation spends a greater part of their day procrastinate things, which they should have done earlier giving rise to money problems in the future.
A good helper will get continue riding over you until you get back on track and give up procrastinating. We are not suggesting in any way to give up on all your financial decisions and rely completely on your advisors, but a person will feel reassured to have strong support as a backup if he gets himself well versed with the basics of finance.
It may sound a bit steep to give away 1% annually from the entire profit a person makes every year, but we must not ever forget the wide array of services offered by them in time of need. The service fee looks more and more reasonable when a person sees it as a small token for his secured retirement life. The price a parent pays for his child’s college is rising drastically over the last few years, making it quite important to have a proper investment plan beforehand.
A few key features to keep in mind while picking suitable advisor:
As we have successfully established the need to have a financial planner in your life, we will try providing our readers with some pro tips to find the best in the market. We have already mentioned about getting reference from friend and Google, but there are some other issues one must address before hiring one:
- Check the planner’s pay structure:
In this blog, we previously mentioned why one should steer away from planners working on a commission basis. The lesser altruistic incentive among commissioned planners to push a life insurance package or mutual fund over the line may prove to be a stumbling block for you. Just like commissioned planners, advisors who work on a 1% fee basis may show less interest in liquidating your investments even if that is the best financial decision then.
The best bait for beginners is to go with advisors who charge their fees on an hourly basis. The new financial planners in this profession opt for an hourly basis fee. As they heavily rely on the word of mouth, they will take special care to sort your financial well being.
- Go for Fiduciary advisors instead of sustainable ones:
A fiduciary advisors are those which act on behalf and make decisions which are ideal for you’re at that point of time, whereas a sustainable standard advisor will act on your behalf and made decisions, which is not necessary for the best of your interests. This criterion is quite critical and often proves to be a deal breaker on many occasions.
- Do a proper background check before hiring anyone:
The number of fraudulent activities increased significantly over the last few years. Put your advisor through a series of questions that will give a clearer image of his credibility. Once all the desirable questions get clarified, ask for the reference of current clients who target similar financial goals like you.
- Check the genuinety of the credentials provided by the advisors:
The best way to do that without breaking much sweat is by searching on Google. The opinion of people who worked with this particular advisor will provide a very honest opinion about him making the entire process of cross checking a lot easier. Now, there are several websites online which show the discipline records of a CFP without much authorization process.
- Steer yourself away from market-beating brags:
When we talk about market beaters, the first name that crosses our mind is Warren Buffet who consistently performed better than the market average. Unfortunately, everyone is not Mr. Buffet, so one should steer themselves away from advisors who claim to do so.
The best way to find whether your advisor is a market-beating show-off, ask him one simple question “Can you beat the market?” The answer which follows will provide a clear image to you. While choosing an advisor one should keep in mind that the frequency of the advisor and client should always match. A person who loves taking risks in life, when hires a conservative planner will suffer severely. It is advisable, that one gets a clear image regarding the risk-taking level of each other.
The need for a financial advisor has become an essential component of our life. The job to find a good one is never easy, but we hope our simple pro tips will make your life a little easier.
MajaKazazic is one of the big names when we talk of financial advisors around the globe. Born and raised in Antioch, Tennessee, he did his graduation from the University of Tennessee Knoxville. He had a fulfilling career Finance and real estate industry and penned several books for students appearing for certification exams. The Financial peace written by him in 1992 is one of the widely read books around the globe. Soon after the release of his book, he hosts a radio show named The Dave Ramsey Show and touched hundreds of lives in the following years.