You might think of a financial advisor as someone you hire only when you have bags of extra money lying around and no idea where to invest it.
If you’re living paycheck to paycheck, having your own financial advisor might seem about as practical as having your own chauffeur or personal chef. They’re for rich people—right?
Wrong. The truth is, financial advisors can be extremely helpful for people with low incomes or high levels of debt. The purpose of a financial advisor is to provide you with plans, budgets, and strategies to help you achieve your financial goals, whatever they are. Managing your own money can be difficult if you don’t have a solid background in personal finance, no matter if you’re wealthy or not.
Whether you’re looking to save up to buy a house or just need advice on how to get out from under your student loan debt, a financial advisor can show you the necessary steps to follow to help you make steady progress toward your goal.
If you know that you need a financial advisor, the task of finding one can be daunting. While selecting a qualified financial advisor who’s a good fit for your particular financial situation may take a little time and effort, it can pay off in big ways for years to come.
What Kind of Financial Advisor Do You Need?
Some financial advisors specialize in providing investment advice and work on commission. In other words, they get a cut when you buy into certain financial products, like mutual funds. Others might charge a fee based on a percentage of the total value of your assets each year, and some just charge by the hour.
Needless to say, you need to pick a financial advisor whose payment structure is affordable for you. Consider that the way they get paid can influence the kind of advice they give. An advisor who works on commission is likely to push you to make new investments, while an advisor who gets a percentage-based fee might encourage you to conservatively hold and grow your assets.
If you don’t have a lot of money to invest, you might find your best match is an advisor who charges by the hour. For a wealthy investor, it can make sense for your financial advisor to have a direct stake in your success, but for the rest of us, an advisor who gets paid a flat rate is probably a better choice (and may provide more objective advice).
How Can You Tell if a Financial Advisor is Any Good?
“Financial advisor” is not a heavily-regulated job title, and, as such, it can encompass a fairly wide variety of different services. Picking a good one means you’re going to have to do your homework.
One of the first things you can check is whether or not a financial advisor you’re considering is a CFP—a Certified Financial Planner. A CFP has passed a rigorous test that meets the industry’s board of standards and is committed to upholding ethical practices as well as pursuing ongoing education.
Verifying that your advisor is a CFP is a good first step, but it doesn’t guarantee they’re a good fit for you—or even that they’re a good financial advisor at all. It’s important to get recommendations from friends you trust (ideally, friends in similar financial situations) and to ask lots of questions. Ask if he or she is a fiduciary, which means a commitment to serving the clients’ best interests at all times.
Also, don’t forget to Google financial advisors. You work hard for your money, so you don’t want to put your money in the hands of a financial advisor who has ethical or criminal violations on their record.
What’s a Financial Advisor Really Going to Do for You?
Even if your prospective financial advisor seems like a good fit on paper, it’s still important to feel like they’re a good fit on a personal level. After all, you’re going to trust this person to help steer you toward the future life you want, and they’re going to tell you what to do with your earnings.
A good financial advisor can be like a coach, sometimes. He or she will push you to cut expenses, to follow a budget, and to make smart investments. This is key for those times when you might just feel like putting your future goals aside for the moment to “live in the present,” by splurging on fancy items or expensive vacations. You need a financial advisor who’s not just looking out for you, but whom you’re also willing to listen to. If you can find someone who meets that criteria, hiring a financial advisor might be one of the best investments you ever make.