May 20, 2021
What’s stopping you from getting financial advice? One of the most common barriers I hear is “fear of price,” but rest assured that this obstacle can be resolved if you choose a financial advisor that's appropriate for you.
While working with a financial advisor can seem confusing, in reality, it doesn’t have to be. To simplify this, the price of the plan should reflect the complexity of your situation and the number of issues to be resolved. Choosing an advisor whose services match your situation should result in a reasonable cost.
Even though many advisors carry the same title, they offer different services or products and get compensated in various ways. This can be puzzling when you're looking to work with an advisor.
Let's take a deeper dive into how financial advisors get paid and what makes the most sense for you.
Financial advisors get compensated in various ways. Advisors acting as fiduciaries typically only accept fees paid by clients. Advisors working for banks, brokerage firms, and insurance companies can receive commissions from the sale of stocks, bonds, mutual funds, annuities, or other insurance products.
It may be hard to determine how these advisors are paid, as some of these commissions are embedded within the products. But keep in mind that advisors who are paid on commission may have an agenda to push a product and, as a result, are conflicted.
To make things easier and avoid conflicts of interest, focus on fee-only advisors. They don’t get commissions for selling products and have your best interest. Depending on the service, a fee-only advisor may charge a flat fee, an hourly fee, an asset-based fee, or a combination.
Typically, advisors charge a flat fee or hourly fee for financial planning services and an asset-based fee for portfolio management. It's important that you identify what you are trying to accomplish. For example, if you are looking for assistance with budgeting and creating a financial plan, your best bet is finding an advisor that will charge a flat fee or hourly fee for that service.
But if you are looking for help with your portfolio and want an advisor that can assist with managing the account, you might be better suited to working with an advisor that charges an advisory fee for portfolio management.
As you search for the right advisor for you and your situation, don’t be afraid to ask for transparency concerning the advisor’s compensation structure. There are three ways that planners are compensated: fees from clients (fee-only); commissions paid by a third party (commissions only); or both fees and commissions (fee-based). If the advisor indicates they do not charge for a plan, you may want to determine how comprehensive their service is and whether it will meet your needs.
Make sure you always get a quote and find out what's included for that amount, as well as what services would cost extra. You might be responsible for trading costs and other account fees. These additional costs can add up, so make sure you're aware of them before you hire a financial advisor.
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Financial advice for real people, by real people. You shouldn't need a degree to understand your money. Join Head of Education Brittney Castro and Altruist mentors as they break down financial tips and strategies in a real way to help you finally understand how to achieve your financial goals faster.