There are several challenges life throws at you and one of the most important ones is the need to balance finances for a consistent lifestyle.
Financial restructuring has become part and parcel of modern life because there are several avenues that money travels in and out of your bank account. Modern life has demanding financial requirements that can most often overwhelm the best of us. So, what would be the solution to have a comfortable hands-off financial lifestyle? The answer would be to hire a financial advisor.
A financial advisor or planner can give you a lot of leverage when it comes to managing assets throughout your life – from planning your finances through education to taking care of retirement savings for you to lean back on.
When should you hire a financial advisor?
Ideally, you should have someone watching your back all the time – especially when you make a purchase or decide to invest in something. That kind of commitment is going to cost you though because professional financial planners do not work cheap. Here, you need to do your research and figure out what exactly is you’re looking for with a financial advisor. You need to have your cost/analysis research on point, so that you can get the most value out of your financial advisor.
How much do financial advisors or planner cost?
Like most professions, all financial advisors and planners are not created equal. They have different rates and methods of remuneration which they think justifies their time spent for you. You are the person who has to take the call regarding this. Again, you should think about how much a financial advisor can help you with your assets before you make the hire.
How do financial advisors calculate their fees?
There are different ways financial advisors calculate their fees and this is an important part of the hiring decision for you.
Commission Based Advisors
While on paper they might look like they are the least expensive, we wouldn’t recommend these types of financial advisors. This is because they get commissions off products that they sell to you, which means they might not have your best interests in mind when they are planning your financial future. It is important to understand that here, the commission comes out of your own pocket.
This is one of the most common practices of remuneration globally and still in use today with financial planning. This is a quick and easy method when you know exactly what you want and want to be in and out quickly paying for exactly what you need. This option is very flexible for ad hoc financial needs and for people who are not looking for a long-term commitment.
Pay Per Plan/Service
This is an alternative to the hourly plan – if you are not looking to pay your financial advisor by the hour, you can ask them if they offer this payment option. What you will get from the financial advisor is what exactly they can do for you and a flat fee for accomplishing it. It is less complicated than hourly based work.
Retainer for Continued Services
Here you’re basically making a long-term financial planning commitment with your advisor and this means you’ll be paying them an annual or monthly retainer for continued service. This is your best choice if you want holistic advice regarding your finances like how you should go about saving for your retirement and allocation of goals among different financial end goals. The financial planner creates a financial plan for you, assists you in implementing it and tracks your progress while suggesting changes when necessary.
Assets Under Management Percentage
A lot of financial planners go by this method of calculating their fee. This is a percentage of the total value of assets under the investment accounts. This means the greater the value of the assets the financial advisor is in charge, the greater the fee. While this makes it seem like financial planning is only for the super-rich, some advisors do scale down the percentage as the value of assets increase.
When it comes to hiring the right financial advisor, the way they calculate their fees, how you’re going to pay them and what they’re offering for the price are extremely important factors. These are the important things you need to know about when classifying financial advisor based on their methods of charging clients.
A fee-only, fee-based and a commission-only advisor are the different types. A commission-only advisor makes their money off products or services that they sell you. Ideally, a fee-only based advisor is your best option for objective advice about your financial future. They have your best interests in focus when planning your finances and are likely to give you the best option available.