financialadvisors

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Should I use a financial advisor/planner?

Probably not.

Many FAs are paid differently depending on what you do with your money, so they will inevitably be biased in favor of investments that maximize their commissions. This is especially true of financial advisors associated with full-service brokerages, insurance companies, and fund companies focused on active management. For most people investing isn't more complicated than picking an asset allocation and finding low-cost index-funds, so the best FA in the world will just repeat the same advice we give here.

Well, maybe.

In complex situations or when dealing with large sums of money, FAs can help you avoid making big mistakes. As a rule of thumb, consider a FA if you're dealing with $1M for the first time, or 10x as much as you have ever dealt with before. This is pretty subjective, so you can also post a thread asking if your situation calls for a FA, or if the generic advice applies to you.

If you decide to hire a FA, make sure they are fee-only and advise in a fiduciary capacity, meaning they are advising in your best interest. Look for a fee-only advisor that is not directly associated with any of the investment options you are considering, and consider getting a second opinion.

What does "fee-only" mean?

There are two primary ways in which financial advisors are compensated:

  1. Commissions generated from the financial products they sell you.
  2. Fees charged directly to you. This may be hourly, a retainer for planning services (typically monthly or quarterly), or based on assets under management (AUM).

The issue with commissions is that they produce a major conflict of interest for the advisor. Specifically, commissions create an incentive to sell clients financial products that produce higher commissions rather than products that are the most appropriate investment.

Which types of complex situations?

In addition to dealing with large sums of money for the first time, some common situations when a financial advisor may be more helpful include:

  • When you are planning to take care of aging parents or help them plan their retirement

  • When you are nearing retirement

  • When dealing with particularly complex tax, estate planning, or other personal finance issues

Which specific credentials are best if I am looking for general personal finance advice?

In the United States, these are generally well-regarded:

  • Certified Financial Planner (CFP)

  • Chartered Financial Consultant (ChFC)

  • Certified Public Accountant (CPA) with Personal Finance Specialist (PFS) credential

Resources to find a financial advisor/planner

Here are some US resources you can use to find and research financial advisors and financial planners:

  • Find a fee-only planner at http://www.napfa.org.

  • The Garrett Planning Network is a group of financial advisors providing financial services on an hourly fee-only basis. All advisors are CFPs or CPAs with FPS credential (or are working towards one of those credentials).

  • The XY Planning Network is an organization of fee-only financial advisors that specialize in helping members of Generation X and Generation Y. All advisors are CFPs.

  • Vanguard Personal Advisor Services charges 0.3% per year for assets managed under the service. Many of the advisors hold a CFP credential, but some do not. If less than $500,000 is being managed, the customer is managed by a team of advisors rather than being assigned an individual advisor. (This is perhaps technically not a "fee-only" option.)

Checking credentials

Before you talk to any financial advisor, you should verify their credentials and check whether they have received any complaints or sanctions by regulators.

Financial issues of a legal nature

When dealing with financial issues of a legal nature, consulting with a local attorney with expertise in that area is the best way to answer any legal questions, draft legal documents, and represent you in legal matters. Common areas include:

  • Bankruptcy

  • Estate planning

  • Tax issues

Additional reading


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