Every day, we here at nicolelapin.com provide you with tons of helpful advice and resources for making the right financial decisions for you. However, I realize that many people prefer to talk to a real, live person who will look after their money rather than do this online. Just know that you’re going to pay for that. Advisors charge in a number of ways, but the two main ways are these:
- Commissions, which can run hundreds of dollars per transaction.
- Management fees, typically in the 1% to 2% range.
I’ve said it before and I’ll say it again: watch out for fees. It can get super expensive to pay for an advisor on top of the fees that already exist for investment funds (i.e., if your advisor charges 1% and a mutual fund charges 1%, you are on the hook for 2%). I’m not saying you shouldn’t use an advisor; I am saying that if you’re going to pay for one, you should get your money’s worth. So here’s what to look for:
- A good rapport. Don’t underestimate this. You want to feel comfortable talking to this person and confident that she’ll take your call. Accessibility is one of the most important things you’re paying for.
- Good questions. Does she ask you a lot of questions, and the right questions? You’ll learn a lot from the questions your new advisor asks. She should ask about your long-term goals, your lifestyle desires, your current financial situation, your career and its prospects, your family, etc. Did she ask you about insurance and other important noninvest-y aspects of your financial life? Because a good advisor will. Good ones get a lot more touchy-feely/borderline psychologist-y than you’d think. After all, your marriage problems cause you money problems, and if there’s something major brewing behind closed doors, your advisor is going to want to/need to know.
- A holistic approach. Good advisors learn your desires and risk tolerances and devise a plan that meets your needs. They are like a singer’s manager. The manager brings on a literary agent if the performer is going to write a book, an entertainment lawyer if the performer has a deal that needs to be signed, a makeup artist for appearances. Why? Because the manager can’t do all those things alone but knows how to find people who can. In my little analogy, you are the performer and the advisor is the manager. All the experts report to the advisor. All the bills go to . . . you.
If you like someone running the show and coming up with your own little financial planning team, excellent. Sometimes you gotta spend money to make money.
And PS —What doesn’t matter:
The advisor’s knowledge and skill at investing in specific stocks and bonds. Why? Well, because being able to pick a stock is not the role of a financial advisor. The most important thing an advisor does is develop a financial plan for you. Today, many advisors farm out their picks on stocks, bonds and the like to people who do only that.