You have decided to hire an investment advisor or financial planner, and now you want to know which type of advisor is best for you. First and foremost, congratulations on taking a step toward true financial independence by deciding to delegate some responsibility to a hired financial professional. Now, the hard part is finding an advisor who has the knowledge and will keep your best interest at heart.
How Are Investment Advisors and Financial Planners Paid?
The most expensive type of advice is free advice. Although this statement is often delivered as a joke, there is a lot of truth in it: like everyone else, professional advisors and financial planners need to pay the bills and put food on the table at home. Therefore, even if the fees don’t come directly from your pocket, and even if you can’t clearly see how they are being paid, advisors do get compensated from you in some way. Here are the basic ways advisors are paid:
Types of Investment Advisors and Financial Planners
There are many types of advisors with various titles, classifications, and certifications, but here are the people you need to know:
What is the Best Type of Investment Advisor for You?
To determine the best advisor, you should start by defining the amount and type of services you need. If you just need guidance on investing and some basic advice and your needs are not complex, you might benefit from using a brokerage firm like Edward Jones. They charge commissions, but those are typically reasonable.
However, you should know that brokers are only required to comply with what is called the suitability standard, which means they are required to recommend and sell investment types that are suitable for the client and the client’s goals. However, it should be noted that brokers are not legally obligated to find the best or cheapest types of investments for the client. Also, brokers like these are often recommended to client with load mutual funds or funds with higher expense ratios than necessary to achieve the client’s goals.
If you want ongoing investment advice and financial planning, your best bet may be a registered investment advisor. Registered investment advisors are compensated only by the client (you) and only use investments (like low-load mutual funds, index funds, and ETFs) that best serve the client’s needs.
Registered investment advisors must adhere to a fiduciary standard, which is more comprehensive than the suitability standard for brokers. In other words, a registered investment advisor must put the client’s interests ahead of their own. You will pay ongoing fees, but the fees will come from you, and a good registered investment advisor can save you expenses with low-cost mutual funds, which often perform better.
In my opinion, based on the personal and professional experience of a humble mutual fund expert, insurance and banks are not the best places to get investment advice. Although some are capable, generally speaking, it is better to get insurance products from insurance companies and banking products and services from banks. On a lighter note, you wouldn’t buy a hamburger from a pizza shop, would you?
In conclusion, no matter the advisor or planner you use, it is wise to use someone with credentials like CFP (see above) or similar. It is also wise to ask friends or coworkers for references and to ask the advisor for references before hiring them.
Disclaimer: The information on this site is provided for discussion purposes only and should not be construed as investment advice. In no way does this information constitute a recommendation to buy or sell securities.
Source:
https://www.thebalancemoney.com/how-to-choose-the-best-type-of-investment-advisor-2466508
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