Getting educated about your retirement and wealth-management options is a necessary part of planning for your financial future.  Having a foundation of knowledge and getting started is important, but let’s be honest. You don’t have the time to be a financial expert. You don’t want to be a financial expert. You would rather have an easy plan you can execute without having to constantly worry about changes in legislation or investments. Enter the financial advisor.A financial advisor and their client pointing at documents.

What Is a Financial Advisor?

Financial advisors or financial planners are certified professionals who help their clients tackle some of the tough questions of personal finance. They can put together a retirement savings plan with a timeline or simply answer a question about life insurance. While the field is largely unregulated—anyone can hang out a sign advertising financial advice or planning, no license required—there are those who have certain industry credentials, known as Certified Financial Planners.

A Certified Financial Planner is often not only knowledgeable about investment accounts, but other things that could impact your finances, from taxes to insurance. Achieving the CFP designation requires 3 full-time years of qualifying work experience, hundreds of hours of training and studying, and passing a comprehensive test. Here’s a snapshot of a few things a CFP can handle for you:

  • meet with you to assess your current financial situation and goals
  • develop a comprehensive plan that addresses major areas of concern (retirement, college planning, insurance, avoiding estate tax, and so on)
  • coach you as difficult financial issues appear in your life
  • help you avoid major mistakes that will derail your plans

Risks of Managing Alone

Still, with all of the information available to you in books, print media and the multitude of websites dedicated to personal finance, do you really need a financial advisor?

Well, how much free time do you have right now? Simply mustering up the time to compare Roth IRA providers and filling out the necessary information to open a Roth IRA probably took you several weeks. Now that you have opened the account you need to stay on top of a wide range of information:

  • changes in legislation that could affect your retirement planning
  • changes in mutual fund options at your brokerage firm (perhaps one of your funds closes and you need to decide where to put the money)
  • changes in the amount of money you can contribute each year to a retirement account

Not to mention that you also need to develop a long-term financial plan that includes considerations for retirement, paying off your house, funding the kids’ college education, estate planning and a timeline for when you can actually retire. Going it alone is a possibility, but to do it right you’ll need to spend a lot of time keeping up to date on all the changes in the investing, insurance and risk areas of life. Still up for it?

How a Financial Advisor Can Help

Financial advisors can be great when you are confused, emotional or simply ignorant of various money-management topics. Add in the fact that a majority of people can’t see far enough into the future to see retirement, much less plan for it, professional advice can be very handy. A qualified advisor will ask you a lot of questions—some of them uncomfortable!—in order to get the full picture of where you want to take your life.

Once all of the details are in hand, he or she can put together a plan and offer you advice on investments, estate planning, tax liability and your kids’ college education. The breadth of the advisor’s knowledge can make a lot of your difficult decisions easier.

How a Financial Advisor Can Hurt

As great as a good financial advisor can be, they’re not all good. An incompetent (or, worse, dishonest) advisor can cost you a lot of money. Here’s a snapshot of how:

  • Churning your investments: getting you to buy and sell more than necessary in order to generate higher commissions for themselves.
  • Expensive investments: Pointing you to mutual funds with high expense ratios when a similar low-cost index fund or an Exchange Traded Fund (ETF) would be a better choice.
  • Bad planning: A well-intentioned advisor who puts together a sketchy or holes-ridden financial plan is not helping you at all. Of course, plans do need to be flexible, given changes in the economy, interest rates, etc. But you need to start out with a detailed blueprint and clear course of action.
  • Not responding: Even an unbiased advisor is useless if he or she never returns your calls/emails or is MIA when your need arises. Timing can be of the essence with many financial and investment scenarios, and you must feel confident your advisor willrespond to you promptly.

Always Get a Fiduciary

First make sure your advisor has a fiduciary duty to you. Fiduciary duty means your advisor has to put your needs above his/her own and always act in your best interests, offering you an unbiased view and opinion. In a financial planning context, that means he or she can’t steer you toward investments that are expensive for you (through expense ratios and sales charges) just because they’re profitable for your advisor (thanks to commissions).

The Price of Using a Financial Planner

Getting unbiased and quality advice isn’t free. Going to a professional financial planner will cost you money. Some planners charge by the hour and some make commissions from the investment products you buy. Some do a little of both.

Some consumers may balk at the idea of paying $500 for a financial plan, but think of it as an investment: The money can buy you a quality plan that can be put together in a few hours and last you 20 years, with only a minimal need for a financial checkup with the planner. Isn’t a successful retirement worth a few hundred bucks?

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