Choosing the right investment advisor is an important decision, and there are many things you need to know before you sign on the dotted line. You should also keep in mind that some advisors may hold accounts that are not disclosed. This can throw your asset allocation out of whack. Also, an advisor will also help you determine your risk tolerance, which refers to how much risk you can tolerate in the market and how long you have before you need the money.
Fee-Only Financial Advisors
Fee-only financial advisors offer a more unbiased perspective than traditional investment advisors. They can be hired on an hourly or fixed-project basis and provide various services, ranging from an investment portfolio review to a full-blown financial plan. In some cases, Cassandra Toroian observed that fee-only financial advisors may be more cost-effective than commission-based advisors.
Fee-only financial advisors can charge different rates for services. Some charge an annual retainer or a percentage of assets under management, while others charge a flat fee per service. For instance, a flat-fee financial advisor might charge $2,000 for a comprehensive financial plan. However, there are other fees associated with fee-only advisors.
Commission-Based Advisors
If you’re looking to hire a financial advisor, you may wonder whether you should work with a commission-based or fee-only adviser. Both options are legitimate, and both have their advantages.
One of the most important factors is whether a commission-based investment advisor puts your best interests first. Unfortunately, those who earn commissions are unlikely to be held to the highest standard of care and are not obligated to put their client’s interests above their own.
Kickbacks
In today’s financial advice industry, less than 3 percent of advisors are fee-only. However, this does not mean they are free from conflicts of interest. They must act as fiduciaries and avoid taking kickbacks from investment product providers. Some advisors charge an hourly fee, while others charge a flat fee.
Investment products often pay commissions to investment advisors as a percentage of the sale price. These arrangements are often based on the financial advisor’s relationship with the production company and can create a conflict of interest. Insurance products also offer large incentives. Some advisors will receive as much as 70 percent of a first-year premium. A further three to five percent of the premium is typically paid annually, generating an additional commission for the advisor.
Social Security Benefits
A financial adviser can help you make the best decision for your Social Security benefits. This government-sponsored program provides retirement benefits to individuals who have paid into it during their careers. Social Security is a great way to supplement your income once you retire. An advisor can help you maximize your benefits and minimize taxes.
Social Security benefits are calculated based on the number of credits you have earned throughout your lifetime. Each credit represents a certain dollar amount. For example, you earn one credit for every $1,410 during your working years. You can earn up to four credits each year. You must meet certain requirements to qualify for benefits, and an advisor can help you determine eligibility.
