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Did a relative die and leave you money you hadn’t expected? Did you just win a lottery prize or get a really big tax refund? This is where a professional financial advisor could help you determine what would be your best investment and savings strategies. For example, your best option might be to pay off your debt or put the money in an emergency fund or invest it in an indexed fund. A financial advisor will be able to help you determine how best to use that windfall.
Your aging parents need help
As your parents age they may need expensive financial care, assisted living or costly in-home care. A financial advisor will be able to help you overcome the challenges of caring for your parents. For example, he or she should be able to help you decide where to move your parents once they can no longer care for themselves and determine how best to pay for the care they will require.
You've hit $250,000
Some financial experts say that once you’ve squirreled away a quarter of a million dollars you should talk with a financial advisor. This is considered to be a sort of a benchmark where you might want to engage the services of a financial advisor on an ongoing basis. In other words, once you reach a quarter of a million dollars, things start to become more complicated. You will have more investment options, some of which may involve more risk than others. A financial advisor would help you sort things out and decide where and how much to invest given your financial goals and tolerance for risk.
You just got your first job
How exciting! You’ve gotten your first job. Believe it or not, you don’t need for that job to have a six-figure salary to talk with a financial advisor. While some of them do require you to have a certain amount of money there are also ones that are fee-based – where you’d pay an hourly fee for a one-time planning session -- that would ensure you get off on the right foot and begin contributing to a retirement fund. In addition, you’re bound to have questions about things like your company’s 401(k) and whether you need a traditional IRA or Roth IRA and a financial advisor will be able to answer them.
You’ve determined a financial goal you want to achieve
Do you have a financial goal such as retiring early and traveling the world or funding your children’s’ college education? A financial advisor could help you achieve your goal no matter what it might be. One that specializes in “holistic” financial planning could be an especially good choice as they focus on helping clients achieve financial goals through very careful financial planning.
Choosing a financial advisor
If you’ve gotten a windfall or your first job or run into any of the other instances you’ve just read and would like to talk with a financial advisor the next question is how to choose one.
According to the Wall Street Journal you need to find one that’s a Certified Financial Planner (CFP). This is because CFPs are regulated and licensed. Plus, they are required to take classes on different areas of financial planning to make sure they’re up-to-date on security laws and new investment vehicles.
Second, it’s best to choose one whose services are fee-based and not commission-based. Financial advisors that charge by the hour can be more objective as they have no incentive to steer you to some specific financial product.
Finally, be sure to read the code of ethics that the advisor must adhere to. It’s important to find the word “fiduciary” and other language in the code that means he or she must, first and foremost, look out for your best interests.
Beyond these tips, here's a video from Barron's and the Wall Street Journal with the three questions you must ask a financial advisor.
Frequently Asked Questions about financial advisors
Q. Who can be a financial advisor?
A. Sadly enough just about anyone can be a financial advisor. All that’s about necessary to be a be one is to rent an office, hang out a sign and then find clients. Of course, good financial advisors have experience, a background in finance and belong to a well-respected organization such as the National Association of Personal Financial Advisors.
Q. Who pays a financial advisor?
A. Some financial advisors work on a commission only basis. This means they’re paid based on the financial services they sell such as insurance products, investments, real estate or loans. Examples of this are financial advisors associated with companies like State Farm, American Family, and Edward Jones. Others are fee based or are compensated based on a combination of commissions and fees.
Q. What is a financial advisor job description?
A. According to Edward Jones the job of a financial advisor is to deliver to their clients personalized investment solutions and to help them achieve their long-term financial goals. In addition, again according to Edward Jones, the job of a financial advisor is to develop relationships with their clients.
Q. Where to find a financial advisor?
A. The easiest way to find a financial advisor is by asking friends that use them as they are in the best position to help you choose one. You could also go online to such sites as www.napfa.org where you will find links you could click to locate a financial advisor near you.
Q, What are financial advisor fees?
A. Financial advisor fees vary greatly. If you choose a fee-only advisor, you will likely be charged anywhere from $150 to $250 an hour depending on where you live and the scope of your project. Financial advisors that are asset based usually charge around about 1% of the assets they’re managing.
Q. Who should use a financial advisor?
A. You probably don’t need to have a financial advisor on a regular basis – unless you’ve hit the quarter million mark as described above. If not, you may need to talk with a financial advisor only at certain times as explained above – a major change in your life, a windfall, because your aging parents need help and so forth.