Kamila Elliott, CFP, President & Partner & Deborah Adeyanju, CFA, Associate Financial Planner & Impact Strategist
Choosing a Financial Advisor can be a fraught decision because there’s a lot riding on it. Before they hire us, prospective clients almost always ask these questions: “What will my costs be?, “Do I have enough money to work with an Advisor?” and “What can we expect from working with you?”
Read on for our answers and other thoughts on making the decision to work with a Financial Advisor, how to choose the right one for you, and what to expect once you’ve hired someone.
1. How do I know if it makes sense for me to work with a Financial Advisor?
Since people’s circumstances are so varied, there’s no one-size fits all answer to that question. But there are signs when it might be time for you to consider hiring an advisor. Here are some examples.
People tend to look for a Financial Advisor to help them with: optimizing savings and investments so they can build long-term wealth; paying down education and other consumer debt; developing a long-term plan for managing finances and building college savings after the birth of a child; coming up with a strategy to afford a big-ticket goal like purchasing real estate; preparing financially for retirement; simply because they are too busy.
2. Do I have enough assets/income to need a Financial Advisor?
That depends on the kind of Advisor you choose. Some only work with clients who have assets (real estate and other property, investments, savings, etc) above a certain amount. Others work with a broader range of clients or focus on certain client types — whether that’s affluent professionals, high net worth individuals and families, business owners, or high-income Millennials. Before you assume you can’t afford an Advisor, it makes sense to explore your options.
3. Do I understand how they get paid?
There is a wide range of fees and fee structures from fee-only, assets under management (AUM), hourly, and flat rate (or a combination) planning models to subscription-based and commission-based pricing.
Before you choose an advisor, understand how they are paid and how that could impact the advice they give you. Advisors who are registered with the SEC must disclose their fees and other critical information about their business and practices on their Form ADV. No matter how they are paid, make sure you choose an advisor who is a fiduciary.
4. Can I afford to work with an Advisor?
We might be biased, but our response is usually “can you afford not to?” That’s because the best Financial Advisors deliver value on multiple levels. In fact, a Vanguard study found that good Financial Advisors can improve investment outcomes for their clients as well as enhancing their financial well-being.
For example, at GRID, we offer clients investment management that helps them build their long-term wealth. We’ve also guided clients on proactive planning strategies to reduce their tax burden, such as backdoor Roth conversions; and helped them diversify concentrated stock positions in a tax-efficient way￼.
Fees vary tremendously, but here’s what recent surveys from Bob Veres and Michael Kitces plus insight from NerdWallet revealed.
|Financial Plan Fee**||$2,500||$1,000-$3,000|
|Annual retainer/subscription fee**||$4,000||$2,000-$7,500|
*Larger accounts typically see lower AUM fees. **PER PERSON
5. What should I look for in a Financial Advisor?
There are “Financial Advisors” and then there are Financial Advisors. Before you sign an engagement contract with someone, make sure the person is actually a Financial Advisor. There are no regulatory restrictions on who can call themself a Financial Advisor. As a result, many people presenting themselves as financial advisors are actually investment or insurance salespeople in disguise.
A true Financial Advisor will offer you more than investment advice or product sales. S/he will consider your entire financial picture, including your current financial position, short and long-term goals, and also take into account your risk tolerance to come up with a comprehensive plan and strategies, including investments to help you get there.
6. Are they a fiduciary?
Adhering to a fiduciary standard just means acting in clients’ best interests and putting their interests ahead of yours. But not all advisors are fiduciaries. Advisors who aren’t fiduciaries have no obligation to put your needs above theirs, disclose conflicts of interest they might have, or make sure that any investments they recommend are truly a good fit for your goals, financial situation, and appetite for risk.
7. What credentials do they have?
The CERTIFIED FINANCIAL PLANNER™ certification issued by the Certified Financial Planner Board of Standards is the gold standard for Financial Advisors. Holders of the designation commit “to act as a fiduciary at all times when providing financial advice to a client.” That includes disclosing conflicts of interest and managing them.
While more specialized in investment analysis and portfolio management, Chartered Financial Analysts, CFAs, also must meet strict professional conduct and ethical standards. Both designations require years of study, the passage of specialized exams, and for CFPs, ongoing education requirements.
8. Do they have experience working with a diverse clientele?
Really effective advisors are often confidantes, financial quarterbacks, coaches, and sometimes even mediators for their clients. To be impactful, your advisor must also be someone you can relate to. Depending your circumstances, that could mean: understanding the additional financial strains even successful people of color often face — responsibility for supporting less fortunate family members and/or a lack of inherited wealth, for example — due to the racial wealth gap; knowing how to address women’s specific retirement planning needs; the gender pay gap means women earn less on average than men. We also spend less time in the workforce, and live longer than men do. Whatever your specific situation, it’s important that your advisor can meet you where you are, communicate with you clearly and in a way that resonates, and inspire your confidence.
GRID 202 Partners is a holistic financial planning firm specializing in fee-based, comprehensive financial and investment planning for individuals, couples, businesses and institutions. We serve successful, ambitious professionals and business owners ready to take the next step in developing a budget, reducing debt, and creating wealth for themselves and future generations.