[As a friendly reminder of my disclosure policy, this post is not to be taken investment advice. Instead, it is meant to be educational so that you can better understand the world of finance. I hope you find value in it!]
Align your goals with the advisors
Often, people nearing retirement decide that they need to meet with a financial advisor to see if they are ready to cross the finish line. However, doing such is usually ill-advised if you don’t do your homework first. Why? Because your goals may not align with the advisor’s goals.
Wait for a second, isn’t an advisor’s job to help people plan for retirement and other financial pursuits? The answer may surprise you, but that entirely depends on what type of advisor you choose.
You see, advisors are in the financial planning industry make money by selling solutions. Heck, they likely feel fulfilled doing so and get compensated for doing what they like, which is rational. However, the keyword in the first sentence is selling, and they can sell you investment, insurance, money management, or planning solutions.
Thus, failing to select the type of advisor for the solution you need will only cause misalignment of goals, which is never a good idea.
Important note: There is nothing wrong with advisors selling solutions. After all, the solution may work for you, and they deserve compensation for their time. But it is essential to thoroughly analyze any proposal to make sure that it is suitable for you.
For example, do you need an advisor who will bill you for a financial plan or one that will create a plan and manage your money from now on?
Ask for what you need
Before meeting with an advisor, ask them directly if their business model can align with your needs.
For example, if you are not searching for someone to manage your money, convey that before the meeting and tell them you are looking for a financial checkup. If the advisor’s business model cannot accommodate that by billing you solely for their time, that is not the right advisor for you.
However, if you are looking for a turnkey retirement plan that includes having someone manage your investments, ensure that they do that.
Always align an advisor’s business model with the type of help you need, period. And, be sure to know what your needs are. Failing to do so is the equivalent of going to a dealership without knowing what type of vehicle you are looking to purchase.
Types of advisors
Most advisors work under the AUM model, which stands for assets under management. While there is nothing wrong with this model, choosing an AUM advisor will often cost you significantly more than an hourly advisor. Why? Because they charge you a percentage of your portfolio annually. And for every dollar they bill, that is one less dollar that will compound towards your goals.
On the other hand, some advisors make money exclusively by selling products, such as insurance policies, loaded mutual funds, or annuities. And as a friendly reminder, you should avoid loaded mutual funds like the plague, likely only buy term life insurance, and only consider annuities if you are risk-averse.
Lastly, some advisors charge an annual retainer fee to manage your money or an hourly rate/fixed cost for financial planning. Advisors who work by retainer likely only make sense for wealthier individuals since the retainers can be as high as $10,000 a year, while hourly/flat rate advisors can be great for those who are more hands-on with managing their own money.
Notably, advisors may mix and match the above models depending upon their business. However, only pay for the business model you need as a solution.
Important note: When searching for an advisor, ensure that they are a fiduciary, which means that they must put your goals ahead of theirs. All CFPs (Certified Financial Planners) are fiduciaries, and many non-CFP advisors are fiduciaries. All it takes is an inquiry, so do not hesitate to ask them!
Do you work with an advisor, have you in the past, or do you plan to in the future? If so, what is your reasoning, and how was your experience? Let me know in the comments below, and as always, have a great day!
Mile High Finance Guy
finance demystified, one mountain at a time