Financial advisors can cost you tens of thousands but provide more services than most people know. In this video, I’ll show you exactly what financial advisors can provide, how much they can cost and how you can create your own plan and save that money. Then I’ll reveal a few reasons you might actually want to hire a financial advisor.
Nation, the number one thing I’m trying to do here on the channel is make you a better investor. But I know sometimes you want a little more help and so one of the most frequent questions I get is should you hire a financial advisor.
So I wanted to do a special video to help you learn about advisors and financial planners. We’ll look at what financial advisors do, how much they can cost and how you can do the exact same thing on your own. We’ll even look at a few scenarios where maybe you want to go ahead and hire a financial advisor.
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What is a financial advisor?
Deciding whether you need a financial advisor or not means first understanding what a financial advisor does.
Now first, I’m going to be using the generic term financial advisor to mean any of the full-service advisors or planners. We’re not talking stock brokers or registered investment advisors here.
And I don’t want you to get the idea that I don’t trust financial planners or that I don’t think they are professionals. You’re going to see here, they do a LOT of work and can help simplify your goals…the question is, do you NEED a financial advisor or can you do it yourself.
So first, an advisor should sit down with you and listen to your goals, income, budget…everything that makes you tick financially. It’ll usually start with a questionnaire that covers your assets, things you own, your liabilities, things you owe, along with your income and expenses.
You should work through your retirement needs and other goals like kids’ education costs or leaving a legacy. Then you’ll look at your risk tolerance, i.e. how much you might freak out if a market crash hits your portfolio.
So an advisor should take all this and put together a plan for you. They’ll show you how much and what types of insurance you may need. Maybe help you see where you can save a little extra in your budget and the investments that will hopefully get you to your goals.
You should also get regular check-ups by the advisor to make sure you stay on track. Some might give you tax planning advice and they can help you change your plan when those big life events come around like kids or that big bingo price you just won.
How much does a financial advisor cost?
So if we know what an advisor does, how much do they typically cost for this?
Financial planners are professionals and they charge professional rates.
There are generally two ways financial advisors make money, fee-only or commission based. The fee-only advisors might charge a flat fee, usually between $2,000 to $7,500 a year or an hourly fee of a few hundred per hour and a required minimum number of hours.
The commission-based advisors charge a percentage of your account balance and it’s typically around 1% of what’s called Assets Under Management or AUM. So if you’ve got half a million for them to manage, they’re going to charge 1% of that or $5,000 a year and many of these will only accept you as a client if you have at least $250,000 so they know they’ll make at least $2,500 on the commission each year.
Understand too, and this is something you need to ask about or watch for, some advisors also make money on the investments they recommend. They might get a commission when you invest in certain mutual funds or other products, so always ask if they’re making money on this as well.
How You Can Be Your Own Financial Advisor
Next I’ll show you how you can be your own financial advisor but first I want to throw this out to the community. Do you think it’s worth it to pay for an advisor? Knowing what they do and how much an advisor costs, what do you think? So scroll down and let us know in the comments.
Now I want to show you how you can be your own financial advisor.
You can start by writing out your goals and this should be short-term and long-term goals. Where do you want your money to go for things like education, down-payment for a home and what does retirement look like to you?
Nation, this can be such an important step, not only for planning but for the motivation to keep saving. Besides writing these plans out, create that mental picture around your goals so when the budget gets tough, you can think back on that picture to motivate you to keep going.
Then you want to set out your budget and net worth. Your net worth is just all your assets, what you own, minus your debts. It’s a measure of where you’re starting from with your finances.
For your budget, if you’re having trouble saving, try taking the money you want to invest out immediately when you get paid. This is a trick I like to call, turning your budget upside down, because so many people wait until the bottom of their budget…after paying all the expenses, to see what’s left to invest.
Instead, by taking that money out first, at the top of your budget, you force yourself to cut some of the unnecessary spending like that daily mocha-cocoa-chino!
Next you probably want to make a plan for paying down debt, building an emergency fund and consider investing. One way to pay down debt is to start with your highest-rate loans and put as much money as you can to those each month. Try saving at least three months’ worth of expenses in an emergency fund after that, consider putting whatever money you can to work through investing!
The actual investing plan is something I think a lot of investors overcomplicate. Honestly, you don’t have to ‘beat the market’ to reach your financial goals. You don’t need to chase those hot stocks or investments.
A big step that too many people miss is considering health and life insurance. Now I like using a high-deductible health plan so I can put money away in a health-savings account but not everyone is going to want those higher deductibles on their insurance so make sure you know the tradeoffs and look into what plan best suits your unique needs.
Setting a reminder to check your plan over twice a year or even every three months can help you stay on track for your financial plan. Check your budget and savings to see if you’re hitting your goals and make sure your big picture goals haven’t changed.
Obviously these are general steps you’re going to take so you’ll need to do a little research to see what goes into each…but remember, taking steps like these, rather than hiring a financial advisor, could be saving you three or five-thousand a year, so probably worth your time.
Should you hire a financial advisor?
So now that you know how you can be your own financial advisor, are there some instances where you might still want to hire someone?
At a minimum, you’re looking at $2,000 for a legit advisor or probably more, so spending the time to do this yourself can be worth your time…but there could also be times when you might want to hire an advisor.
If you have no idea where to start with insurance, estate planning or even your retirement goals…and you just don’t have the time to learn right now, then it might be helpful to at least pay an advisor to just set up that initial plan for you.
Another scenario is, if you’re consistently losing money on your investments, even when the market is doing well and you can’t figure out why…it may actually save you money in the long-run to sit down with an advisor and see what you may be doing wrong.
Don’t forget, check out that link to the stashchallenge.com to get your $5 in stock for signing up and get some great tools that can make investing easy.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.