5 Common Questions About Financial Advisors (Answered)
1. What is the normal fee for a financial advisor?
2. Is it worth paying for a financial advisor?
3. Can you get free advice from a financial advisor?
4. What is the difference between a financial planner and a financial advisor?
5. Do banks have free financial advisors?
What is the normal fee for a financial advisor?
Fees and fee models for financial advisors can vary greatly. Depending on what kind of advisor you are working with will determine how they are paid. Three common models are fee-only, fee-based, and commissioned advisors.
Fee-Only: The CFP® Board describes a fee-only CFP® Professional as someone who receives no sales-related compensation. So how are they paid? Fee-Only advisors may charge an asset under management fee (AUM) ranging from 0.25% - 2.0% of assets managed, they could charge a flat planning fee typically around $2500 - $5000 per plan or they may charge an hourly rate like that of a law firm. Depending on the firm you are working with will determine their fee structure and what services are included in that fee. You can request their Investment Advisor Public Disclosure, also known as Form ADV for more details.
Fee-Based: A fee-based financial advisor will generally charge a fee for investment management, as well as receive sales-related compensation. Sales compensation could be in the form of selling life insurance, annuities, and certain mutual funds. As an example, the advisor may sell a mutual fund and receive an up-front sales charge and an ongoing trail fee.
Commissioned: Financial Advisor has become a generic term that can cover a wide range of professionals. A commissioned financial advisor would earn money strictly through selling products such as stocks, bonds, mutual funds, life insurance, or annuities and not through providing advice and services.
Is it worth paying for a financial advisor?
A financial advisor should provide value up and above any cost incurred. Sometimes value is in the eye of the beholder. For instance, peace of mind is a difficult thing to put a price tag on. Other value could come from investment growth that would not have occurred without someone managing your investments, savings through tax strategies, implementing efficient ways to pay down debt and donate to a charity, or implementing distribution tactics in retirement and active rebalancing of a portfolio.
Regularly, people opt to hire a financial advisor when they are ready for or nearing retirement. The stakes are a bit higher at this stage in life and many people have amassed considered assets. The prospect of making a mistake with their retirement savings is daunting and they want to sleep well knowing it is in the hands of a professional.
Can you get free advice from a financial advisor?
Generally, like most things in life, you get what you pay for. If you believe you are receiving something for free, it is worth getting a second opinion. You may be paying high internal expense fees, upfront sales charges, or signing up for something that is difficult to get out of.
At Fortress Financial Group, we are Fee-Only Fiduciaries. We are only paid by an asset under management fee. Up until the point we are managing your assets, our services are free. There is hope that we are providing enough value through the planning process that you will choose to develop a relationship with us and work together for years to come.
What is the difference between a financial advisor and a financial planner?
The job title financial advisor has taken on many forms. A financial advisor could provide financial planning services, investment management, and insurance consultations, they could be a broker for a firm, sell annuities, or a wide variety of other things.
Generally, a financial advisor in the investment industry is regulated by the Financial Industry Regulatory Authority (FINRA) as a salesperson or through the Securities Exchange Commission (SEC) as an advisor working for a registered firm. Some advisors are dual registered and can wear the hat of a salesperson and be in the business of giving advice.
A financial planner, as the name implies, is generally focused on creating and implementing financial plans for their clients. Where it gets a bit confusing is financial advisors often provide financial planning services identical to that of which a financial planner is providing.
Try not to get too caught up in the title of a financial services professional. Financial Advisor, Financial Planner, Wealth Advisor, Investment Advisor, (the list goes on) can all be synonymous with each other. Focus on the specific services they provide and how they are paid. Once you’ve narrowed your search, check Financial Industry Regulatory Authority (FINRA) broker check, and/or SEC advisor info, request their Form ADV, read reviews, and ask for references.
Do banks have free financial advisors?
A banker is generally a salaried employee of a bank who earns bonuses for bank products sold. Bankers may provide budgeting tips or different ways their products may fit your needs (i.e., credit cards for making purchases, savings accounts for emergency funds, etc.).
Generally, bankers are not licensed to provide investment advice as a financial advisor can. If they are, specific advice is typically reserved for a Financial Advisor employed by the investment division of the bank.
DISCLOSURE
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.
