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Do You Need a Financial Advisor?


When many people think of working with a financial advisor, they think of millionaires, inheritors, or lottery winners. But financial advisors aren't just for the very rich.

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When many people think of working with a financial advisor, they think of millionaires, inheritors, or lottery winners. But financial advisors aren’t just for the very rich, or, conversely, for those going through a bankruptcy. In fact, the right advisor can benefit just about any level of investor.

In a recent article on types of investors, I broke investors down into three very broad categories: solo artists, duos, and ensemble bands. Solo artists are comfortable managing their own accounts and are willing to take the risk of managing their own investments. Duos work with a partner—either a spouse, friend, parent, or an advisor—to bounce ideas off. Ensemble bands set the strategy and then let the other members do the work.

Duos and ensemble bands seem like obvious candidates to work with a financial advisor, and many do. But the truth is that no matter what type of investor you are, you can benefit from the experience and guidance of a professional. But, you might ask, couldn’t I use the money I’d give to an advisor toward my own portfolio?

Spend Money to Earn Money?

To answer the question above simply: Yes. While your retirement service provider may offer one free counseling session, for most, working with an advisor means paying a fee or commission. This is an investment like any other, but it’s potentially an investment in your future. Part of the reason is the simple fact that by hiring an advisor, you’re taking an important step forward in your future planning. This isn’t a Ronco oven that you’ll “set and forget.” This is your financial future. If you take it seriously and do your homework, you can significantly benefit in the long-term from an initial investment now.

Before working with an advisor, make certain you know exactly what and when you’ll be expected to pay. Ask whether the advisor works on a fee-only basis, a commission basis, or some combination of both. Knowing how the advisor’s compensation is structured will help you weigh whether the advice you’re getting is as unbiased as it should be.

Don’t automatically think that advisors who work on a commission basis only will artificially pump up the number of transactions they suggest to make more money from you. While some might engage in what is called “churning,” most reputable advisors steer clear of that and other unethical practices. There is nothing inherently unethical about commission-based fees. Just make sure you know how those fees are structured, and that you check the books as needed to make sure nothing unethical is going on.

Give Me Your Initials

Make sure you the advisor you choose has the qualifications and experience you’re looking for. CFP, CPA, ChFC…and many, many other certifications may follow the name of the advisor you’re considering. Make sure the credentials your advisor lists are legitimate, and find out what kind of oversight he or she is subject to. Also make sure that the advisor you’re considering works with other investors at your financial level and doesn’t have investing minimums you can’t meet.

Perhaps most importantly, make sure any potential advisor knows your financial goals. No financial advisor worth his or her salt will make recommendations to you before doing an in-depth analysis of your financial status and future goals.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice