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If you're looking for help with managing your finances, you're not alone. Many Americans could benefit from financial guidance. According to the National Financial Educators Council, the average person loses around $1,500 annually due to a lack of financial knowledge.
Working with a financial advisor can help avoid these costs and focus on your goals. Financial advisors aren’t just for high-income individuals; they can be helpful for anyone aiming to organize their finances and set long-term goals. Here are six key steps to finding the right financial advisor for your needs.
Step 1: Determine Which Areas of Your Finances Need Assistance
Before meeting with a financial advisor, identify which parts of your financial life require guidance. Financial advisors do more than offer investment advice. They can help with a wide range of needs such as retirement planning, debt management, insurance options, and estate planning.
Some people may only need advice on specific areas, such as retirement, especially if they have simple financial situations.
Step 2: Understand the Different Types of Financial Advisors
There are no federal regulations on who can call themselves a financial advisor, so it's essential to carefully evaluate them. Understanding how they are compensated will give insight into whether their recommendations are in your best interest or theirs.
- Fee-Only Advisors: These advisors are paid by their clients through fees, which can be a percentage of assets, an hourly rate, or a flat fee. Most fee-only advisors are fiduciaries, meaning they are required to act in your best interest.
- Commission-Based Advisors: These advisors earn income by selling financial products, like insurance or investments. While some advertise themselves as "free," they make money through third-party commissions. Be cautious, as commission-based advisors are not fiduciaries, and their advice may be influenced by what earns them commissions.
For example, purchasing life insurance through a commission-based advisor is common, but it's crucial to know when they are acting in your best interest. Understanding when a fee-based advisor is fulfilling their fiduciary duty is also key when purchasing financial products.
