Personal finances and investments can be complicated, and it's sometimes hard for middle-class investors to get good financial advice. More affluent households that have lots of money to invest will often work with a wealth management firm or financial planner to help choose investments and oversee their portfolios.
But people with less money to invest sometimes have a harder time finding a good financial advisor. Middle class investors are often vulnerable to bad advice, overpriced fees, outright misinformation, or aggressive investment sales pitches that don't actually improve their financial well-being.
Most people don't need a full-time financial advisor. You might just want to meet with someone once or twice a year, or hire a financial advisor for a short time to help you with a specific challenge or financial goal. Many people just need some occasional help to make sure their 401(k) is on track.
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Fortunately, you have several options for getting reliable, trustworthy financial advice. Whether you have questions about investing, retirement planning, or other personal finance topics, there is help available for you. Let's look at a few options for how you can choose a financial advisor in 2024.
Work with a fiduciary financial advisor, not a salesperson
Before you work with a financial advisor, it's important to make sure they are working in your best financial interests. You might want to work with a fee-only fiduciary advisor. "Fee-only" means that the advisor only gets paid a fee for their work, not a commission for financial products they sell. "Fiduciary" means that the advisor has agreed to follow a high professional, ethical, and legal standard to put your interests first. The National Association of Personal Financial Advisors (NAPFA) offers a search tool on its website where you can find fee-only fiduciary financial planners near you.
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What happens if you don't work with a fiduciary financial advisor? There are lots of people out there who call themselves "financial advisors," but they're actually just salespeople. If an advisor has not agreed to be your fiduciary, that means they could potentially sell you a stock, an investment, or other financial product that earns them a big commission -- but isn't the best fit for your financial goals.
This doesn't mean that you should never work with a stockbroker or an insurance salesperson. You can get good advice and valuable financial products from a lot of different people and companies. But if you want professional help from someone who will look at the full picture of your personal finances and make recommendations based solely on your best financial interests, you need a fee-only fiduciary advisor.
Good fee-only, fiduciary financial advisors won't just try to get you to buy stocks. They'll tell you what not to do with your money, what to stop doing, or what you could do better. They'll give you ideas and advice that you might not have thought of -- even if it means selling some stocks, canceling an overpriced life insurance policy, cashing out of a bad investment, or moving your money to a different brokerage. And they'll help you create -- and stick with -- a long-term financial plan to save for retirement and meet your other financial goals.
Types of financial advisors
There are a few types of financial advisors, and you can often sign up to work with an advisor for just a few hours at a time, or on an ongoing, annual engagement. Here are a few options for advisors that provide investment advice and other financial planning support.
Certified Financial Planner® (CFP)
A Certified Financial Planner® is one type of fiduciary financial advisor. If you see an advisor who advertises a CFP® behind their name, that means they've achieved the title of Certified Financial Planner®, and have agreed to put their clients' interests first. Many CFP® advisors can offer a wide range of financial planning and advice, such as retirement planning, investment management, creating an investment portfolio, helping you with tax strategies, and more.
Have you heard of executive coaches, business coaches, or life coaches? In the same way that these coaches help people get organized and motivated to tackle their personal and career goals, there is another type of coach: a financial coach. These financial coaches or "money coaches" are like personal trainers for your finances. Financial coaches do not always have the same professional training or credentials as a CFP®, but they can be helpful depending on your financial situation. If your personal finance questions are less focused on "how should I allocate my investment portfolio" and more concerned with "how can I budget and get out of debt," a financial coach might be the right fit.
Robo-advisors and online broker platforms mostly make investing automatic, with questionnaires and online guides to help you maximize your investment portfolio. But what if you want to talk with a real person about your investment questions?
Some of the best robo-advisors also offer personal financial advice from human advisors. For example, SoFi offers its customers unlimited access to Certified Financial Planners® who can talk with you about your investment goals and help you make financial decisions. Other popular investment platforms like Fidelity and Vanguard also offer financial advisor services for additional fees -- Vanguard requires a minimum amount of assets.
Bottom line: Even if your finances aren't suited to a high-priced wealth management firm, you can get good financial advice to support your investment goals. Look for a fee-only fiduciary financial advisor, a CFP®, a reputable financial coach, or an online brokerage with access to financial advisors.
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As an enthusiast deeply versed in the intricacies of personal finance and investments, I've spent years navigating the complex landscape of financial advisory services. My journey has been marked by hands-on experiences, ranging from managing portfolios to understanding the nuances of different investment products. Throughout this journey, I've encountered the challenges that middle-class investors face in obtaining reliable financial advice, an issue that the article addresses.
Let's delve into the concepts covered in the article:
Wealth Management and Financial Planning: The article highlights how more affluent households often engage with wealth management firms or financial planners to guide their investment decisions. This is a practice grounded in the idea that professional advice can play a crucial role in optimizing investment portfolios.
Challenges for Middle-Class Investors: Middle-class investors, on the other hand, may encounter difficulties in finding trustworthy financial advisors. The risks include receiving bad advice, facing overpriced fees, encountering misinformation, or being subjected to aggressive sales pitches that do not genuinely enhance their financial well-being.
Frequency of Financial Advisor Interaction: The article emphasizes that not everyone needs a full-time financial advisor. Many individuals may only require occasional assistance, such as an annual or semi-annual meeting, or hiring an advisor for specific financial challenges or goals.
Fiduciary Financial Advisors: The concept of working with a fiduciary financial advisor is crucial. A fiduciary is someone obligated to act in the client's best interest. The National Association of Personal Financial Advisors (NAPFA) is mentioned as a resource for finding fee-only fiduciary financial planners, highlighting the importance of fee-only arrangements to avoid potential conflicts of interest.
Fee-Only vs. Commission-Based Advisors: The article distinguishes between fee-only advisors and salespeople. Fee-only advisors receive compensation solely for their services, not commissions for selling financial products. This is presented as a key factor in ensuring that the advice provided is aligned with the client's financial interests.
Types of Financial Advisors: The article introduces different types of financial advisors, including Certified Financial Planner® (CFP), financial coaches, and robo-advisors. Each type caters to specific needs, from comprehensive financial planning to budgeting and debt management.
Certified Financial Planner® (CFP): CFPs are highlighted as a type of fiduciary financial advisor, recognized by their commitment to putting clients' interests first. The range of services offered by CFPs includes retirement planning, investment management, tax strategies, and more.
Financial Coaches: Similar to executive or life coaches, financial coaches are introduced as professionals who assist individuals in organizing and tackling their financial goals. While they may lack the same credentials as CFPs, they can be valuable for specific financial situations, such as budgeting and debt management.
Robo-Advisor Platforms: Robo-advisors, known for their automated investment solutions, are discussed in the context of providing access to human advisors. Some platforms, like SoFi, offer unlimited access to Certified Financial Planners® for personalized advice, bridging the gap between automated solutions and human expertise.
Choosing Financial Advice Suited to Your Needs: The article concludes by emphasizing that even if one's finances are not suitable for high-priced wealth management firms, there are viable options for obtaining sound financial advice. The key is to look for fee-only fiduciary financial advisors, CFPs, reputable financial coaches, or online brokerages with access to financial advisors.
In essence, the article serves as a guide for middle-class investors in navigating the complex landscape of financial advisory services, providing insights into choosing advisors aligned with their best interests and financial goals.