When Is It Time To Hire A Financial Advisor?
While nearly everyone could benefit from working with a professional financial planner, some are worried about the cost.
There comes a time however, when paying for financial advice becomes a solid investment in your future.
How do you know when it's time to hire a financial advisor?
If your finances have suddenly grown more complicated, perhaps as a result of an addition to the family, or (more sadly) an inheritance.
If you have an opportunity - perhaps a new job which is paying you enough money to start to save and invest properly.
If you realise that you procrastinate or put things off - and want a guide to give personalised advice to help increase your savings or pay down debt.
When is it time to hire a financial adviser?
In a perfect world, everyone would have financial advisors with whom we could check in once a month or call before making a big purchase or investment decision.
Realistically, however, advisors have to charge a certain amount to make a living doing what they do. As a result, the decision to hire a financial advisor requires some cost/benefit analysis.
So, how much do financial advisors cost?
There are four main ways you pay for financial advice:
Upfront Sales Commission
Annual Retainer
Percentage of Invested Assets
Hourly Rate
Paying an adviser upfront commission from product sales means they are motivated to motivate you - but it has some inherent problems - especially that the adviser isn’t paid to look after your long term needs, only to get more sales - from other customers.
Paying an annual retainer is easy and transparent (SCI Wealth options from P2,500 per year). The only downside to this is that it doesn’t motivate the adviser to grow your portfolio assets.
Percentage of Invested Assets is the most popular option (SCI Wealth fees start from 1% per year and can drop as low as 0.5% depending on size and complexity of the portfolio). Your adviser is motivated to grow your savings and investment over the long term, meaning their goals are aligned with yours.
Hourly Rate is the most cost effective option (from P800 per hour) but many clients then delay, procrastinate, and avoid getting the advice they need, in order to avoid a relatively inexpensive meeting.
Always ask how your advisor is compensated
When you meet a financial adviser, ask how they are paid. SCI Wealth advisers are paid salaries, so their livelihood is not dependent on making sales.
Some financial advisors earn commissions for product sales. So although they offer “free” advice – which may very well be tempting – these advisors usually earn commissions from the investments they sell you. Over time, being in the wrong investments may actually cost you more than paying a fee-only advisor.
We’re not saying that advisors who work on commission are going to give bad advice, but a good advisor should be transparent.
What benefits can you expect from hiring a personal financial advisor?
There are three main reasons to hire a personal financial adviser:
You feel “lost” in planning for your financial future and you need a road-map.
You don’t want to deal it it. When it comes to money, you’re not the DIY type, and you just want a professional to take care of it.
You like managing your money, but realise your financial plan would benefit from an impartial and unemotional third-party opinion.
1. You need help with planning your financial future
This is true for most of us when we’re starting out.
There are so many goals competing for our limited financial resources: Paying off loans, funding a retirement account, saving an emergency fund, buying a house, taking a vacation, getting married, having fun NOW. It’s no wonder we find money issues overwhelming!
If you have a comfortable emergency fund and are starting to save for your future, a financial planner is a good investment. In fact, the planner’s fee may pay for itself in a few years if he or she helps you make better financial decisions in the meantime.
2. You just don’t want to deal with money
Some people hate managing their money. And that’s cool; what’s important is that you recognise it and get someone to do it for you. In this case, hiring a financial advisor is a no-brainer.
Usually, what you’ll need is enough “investable assets” for an advisor to take you on.
At SCI, if you have over $100,000, or P1,000,000 in liquid assets, then you automatically qualify to be a client.
However, most don’t start off with us at that level. That’s why we make a plan to get you there, by saving monthly. For example, saving just $300 per month (P3,300) gets you to $50,000 in ten years time - and at current rates of Pula depreciation that’s more than P1,000,000.
3. You want an impartial third-party opinion on your money
There are a lot of do-it-yourself investors who don’t work with a financial advisor.
Their thinking is: I like doing this myself and I’m fairly savvy, why would I pay someone 0.5% to 1% of my money every year and reduce my returns?
But here’s the thing: No matter how much you learn about investing, you’ll never be on an even playing field with the professionals.
And no matter how much you learn about investing, you’ll always be human and, therefore, susceptible to making irrational decisions.
If paying a financial advisor saves you from one bad decision a year—or spots an opportunity that you overlooked—he or she will be worth the fee.
