You may think hiring a financial planner is necessary only if you're Scrooge McDuck. After all, professional money advice comes at a cost -- and not exactly a small one.
It varies depending on your net worth, but the average fee for holistic financial planning services is about 1% of assets under management.
That may not sound like much, but if you have a limited investment portfolio, you may wonder if it's worth it. Every cent counts, and that's 1% that won't be working for you, growing via the magic of compound interest. You have a good head on your shoulders. Why fix what isn't broken?
But even if you don't have a ton of dough, hiring a financial professional can make managing what you do have easier -- and possibly increase your returns. Advisors can help you steer clear of not-so-savvy market behaviors and help you with asset allocation and reallocation. They can also save you time and stress, especially if your monetary road map just got more complicated. Major life changes such a career switch, retirement, or a new business venture can leave even a seasoned investor reeling. Financial planners know the ins, outs, and loopholes that can help you make the most of your money and avoid the mistakes that are so easy to make during transitional periods.
Hiring a financial planner? Here's how to do it right
Of course, it's up to you whether or not those insights and savings are worth the investment. But if you are going to hire a financial planner, here are some things to keep in mind.
First, "financial advisor" could mean anything, so shop around. Stockbrokers, tax preparers, investment planners, and even bankers can all fall under its umbrella.
Since darn near anyone with even a tangential background in finance can put out a shingle that says "advisor," it's a good idea to seek out some more specific qualifications. For example, a Certified Financial Planner is required to pass comprehensive exams on topics such as taxes, estate planning, and retirement.
From registered representatives to CFAs, there are plenty of other alphabet-soup honorifics out there to choose from. Investigate all your options ahead of time to find out which kind of financial professional is right for your needs.
Second, get clear on how you'll be paying ahead of time. Financial planners bill for their services in all sorts of ways, and you want to be sure you're clear on what you're paying for -- and how -- before you sign any paperwork. A "fee-only" advisor is paid based on their time or as a percentage of the assets under management, rather than making commissions on selling financial products. And that's an important distinction! It's way too easy to accidentally hire brokers or insurance salespeople who are more interested in selling you a product than creating a comprehensive, individualized strategy that suits your needs.
That's why looking for the words "fee-only" is a relatively surefire shortcut to success. The vast majority of fee-only advisors bear fiduciary responsibility -- meaning they're required by law to act in their clients' best interests. (By the way, "fee-only" and "fee-based" are not the same thing, confusingly enough. You want the first one.)
Not ready to hire a professional? There are plenty of DIY options
If your budget is tight or you're still working on paying down debt, there are plenty of ways to invest in your future without shelling out for professional advice. Start by contributing to your 401(k) or stashing even $50 per paycheck into your IRA, for example.
Thanks to simple apps such as Acorns and Stash, you can even start investing with as little as $5, using only your smartphone.
No matter how you do it, just be sure you're planning for your financial future in some capacity. Almost half of Americans aren't.