Financial Advisors, Do You Need One?
March 26th, 2007 by Remon
You’re saving money every month, maybe putting money in stocks or mutual funds and you’re maxing out your 401(k). Do you need a financial advisor? I don’t know.
What I do know is when you do need a financial advisor.
When googling for what is a financial advisor you get this definition:
a consultant to an issuer of municipal securities who provides the issuer with advice with respect to the timing, terms, structure, or other similar matters concerning a new issue of securities.
What the definition doesn’t say is that most financial advisors get paid a commission for every product they sell you but we’ll get to that later.
When you need a financial advisor
You need a financial advisor when your money management is getting too complex to handle by yourself or when you know you can save money (ie. on taxes) but don’t know how. It’s that simple.
Putting some money in mutual funds or a savings account is pretty basic stuff and you probably don’t need a financial advisor for that, especially not if you can spend a few hours reading about finance.
Choosing a financial advisor
When choosing a financial advisor it’s best to get a recommendation from someone you trust. But trust is not enough!
Remember, financial advisors need to make money too, and most of them get paid commissions for products they can sell to you. I would use a financial advisor who is paid by the hour but doesn’t earn commissions. Why? Because he doesn’t try to sell me products, he’s giving me genuine advice.
The paid-per-hour financial advisors are usually a bit more expensive, but a good financial advisor should earn his money back for you, just like a good accountant should.
I’m not saying that the commission earning financial advisors, or their products, are bad, I’m just saying you should be aware of it. I don’t have a good feeling about receiving advice if there’s a financial advantage for the advisor but you may feel differently about it.