If you're unsure about how to properly prepare for your financial future, you're in the majority. Approximately six out of 10 Americans said that their financial planning needs improvement, according to the 2019 Northwestern Mutual Planning & Progress survey, and nearly half of those surveyed said they're uncertain about how much they can afford to spend now and how much they should be saving.
Educating yourself about personal finance is always a wise investment, but some people lack the time or interest to do so. There's another way to make sure you stay on track for your future goals, but only about one in three Americans are currently taking advantage of it. Talking to a financial advisor can relieve some of the pressure on you while giving you greater confidence in how you're doing financially. Let's take a closer look at how an advisor can help you and how to choose the right one for you.
Benefits of a financial advisor
Financial advisors are knowledgeable about saving, investing, and long-term financial planning, so they can provide tailored advice on the best ways for you to achieve your goals. This helps you make smart decisions even if you don't know anything about finance yourself. Your advisor can also help you grow your money more quickly than you could on your own by allocating it more effectively.
That's the obvious benefit of employing a financial advisor, but the Northwestern Mutual survey highlighted some less obvious benefits, too. Compared to those who don't employ a financial advisor, Americans who use financial advisors are:
- 35% more likely to feel financially secure
- 11% more likely to have clarity on how to balance spending and saving
- 13% more likely to feel confident that they'll achieve their financial goals over the next five to 10 years
- 43% more likely to have financial plans built to weather market ups and downs
- 21% more likely to be happier with their lives
Money is a common source of stress for Americans of all backgrounds and income levels, but using a financial advisor can help ease some of that stress by giving you confidence that you have a solid plan to meet your goals. Even if you think you have a smart financial plan already, having that reinforced by a financial advisor can help you feel more optimistic about your future.
Costs of a financial advisor
Financial advisors typically fall into two categories: fee-only and fee-based. Fee-only advisors charge flat fees for their services. This might be an hourly fee based on how much time they spend on your account or it could be a per-month or per-service fee. Fee-based advisors might have flat fees for some services, but they can also receive commissions if you invest in certain assets that they recommend. This can lead some unscrupulous advisors to recommend investments that don't suit you so they can line their own pockets.
You should always work with a fee-only advisor or one that is a fiduciary. This means they're legally required to put your best interests ahead of their own. Contrary to popular belief, not all financial advisors operate this way, so you must choose yours carefully.
How to choose the right financial advisor for you
It's always best to meet with a few financial advisors to get a feel for which one you mesh the best with. You can get recommendations from friends or family members if they use a financial advisor or you can look up advisors in your area using the National Association of Personal Financial Advisors (NAPFA) search tool.
Your advisor should have some type of credential after his or her name like Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Certified Retirement Counselor (CRC). In order to obtain these credentials, advisors must have several years of financial planning experience and must complete a rigorous training course and pass an exam. Credentialed advisors usually are fiduciaries, so you can feel confident that they'll work in your best interests.
Choose a few advisors and schedule appointments with them to discuss your concerns and financial goals. They should explain how they'll manage your money. Ask questions when you need to and avoid any advisors who struggle to or refuse to explain things to you in plain English. You should also ask for a copy of the advisor's fee schedule and ask about how often he or she will check in with you or how you may contact him or her with questions. Weigh all of these factors when deciding which financial advisor offers you the best deal.
We live in a busy world, and most of us don't have time to learn the ins and outs of investing, retirement planning, and taxes. So why not enlist the help of someone who does understand all of this? Yes, it'll cost you a little bit, but it could help you grow your money more quickly and it will almost certainly improve your peace of mind.