Are Financial Advisors Worth It? | NerdWallet #Finance

today we’re diving into a question that a lot of people have when it comes to managing their money is hiring a financial adviser actually worth it whether you’re just starting out or looking to optimize your Investments we’re going to break it all down for

you so let’s get into it hey everybody if you’re new here I’m Marco from nerdwallet’s editorial team first and foremost we need to understand who financial advisors are and what they do so financial advisors help you manage your money and guide your financial decisions

they’ll work with you to create a financial plan tailored to your goal so for example they can help you figure out how much money you need for retirement or setting up a college fund uh so your kids can graduate Deb free hopefully uh think of them as a financial coach or a financial guide

helping you navigate your Finances from a macro point of view so what an advisor does can vary based on their expertise or certification so for example a cfp or a certified

financial planner they usually provide broad Financial advice helping with things like Debt payoff plans emergency Savings life Insurance and retirement Investments but on the other hand a financial adviser with a CFA a chartered

financial analyst they may actually focus more on investment advice so they could pick stocks mutual funds analyze the Stock Market things like that so the type of financial advisor you choose depends on what you need help with it can also influence how much you’ll pay

whether it’s 1% of Assets under management which we’ll get into later in the CashNews.co uh more or actually less so you may also find out you just need answers to a few questions to help s you on the right path in which our ask a nerd feature of nerd wallet plus might

actually just be what you need it’s very simple and you can save from potential High financial advisor fees but we’ll dig into that uh a little bit later in the CashNews.co so in order to figure out if financial advisors are right for you we need to understand how they get compensated

there are a few different models so let’s start with Assets under management or AUM so the industry standard has traditionally been Au usually this is a fee uh it’s a percentage of the total value of Assets that the advisor manages is for you so while

fees can vary 1% has typically been the standard so if an adviser is managing $1 million of your money their fee will be somewhere in the neighborhood of $10,000 per year so often the percentage decreases as your Assets grow so an adviser who charges 1% a year for managing $100,000

might only charge 8% for example for handling several million dollar so keep in mind though that some advisers won’t take on clients with less than $500,000 or million do an hour Assets this is changing though uh but for reasons that I won’t get into this CashNews.co

right now the thing to know is is that you usually won’t be charged on Assets that the adviser doesn’t manage directly so things like your home or your 401k the fee often includes the cost of creating a financial plan but not always so keep in mind if they’re

managing the Assets for you this will typically fall under their fee structure but everyone is different so next we have fee only so fee only advisors get paid solely by their clients and they don’t take commissions from financial institutions which we’ll get to here in

a little bit so on the other hand fee based advisers also charge their clients but can earn commissions from selling products like stocks uh mutual funds life Insurance this could also lead to a conflict of interest so the key thing or the key takeaway here is to ask whether the

adviser is a fiduciary so a fiduciary is required to act in your best interest not theirs so according to the investment advisor Act of 1940 uh fee only advisors are always fiduciaries while fee based advisers might not be depending on the situation and then finally we have commissions so

commission-based advisers make money solely from the commissions that they earn on the products that they sell so this could be like stocks mutual funds annuities and Insurance uh they’re more like Brokers than true financial planners and there are fewer and

fewer of them these days the commissions that they get can vary a lot depending on what they sell often over 1% and sometimes as high as 8% for things like fixed index annuities I would personally stay away from these types of advisors because you never know if they’re a fiduciary with your

best interest in mind or just a salesperson trying to put you into products that earn them a higher commission before I wrap up with the fees and get into whether or not a financial advisor is worth it I want to dig deeper into NerdWallet plus to help clarify all your options one of the cool

features of NerdWallet plus is you get access to our nerds uh the our nerds are typically Financial writers they’re not financial advisers but you can ask your questions about Budgeting uh Credit scores Debt Pay down and

Savings so you can develop a plan to reach your goals quickly membership is just $49 a year and aside from being able to ask us nerds your questions you can earn cash rewards and exclusive Savings so keep this option in mind while I’m breaking down whether or

not an adviser makes sense for your specific situation so are financial advisors worth it so obviously everyone’s personal financial situation and the complexity of that situation is going to vary since we can’t address every scenario in this CashNews.co let’s try and put some

perspective to this question so here are some pros and cons of working with a financial adviser so let’s start with the pros uh Pro number one is they are able to identify Financial roadblocks you’re facing and help overcome them through tailored planning next they can check in

throughout the year to make sure the plan is still being followed and goals are being met third they can talk you off the ledge when it comes to panicking or making impulse decisions with your money um I know a lot of financial advisers were doing a lot of hard work during 2020 uh during the crash

um I’ve actually myself uh helped friends and family kind of talked them off the ledge and then we had Markets at all-time highs just a few months later so that one’s very

important it’s like almost having a mentor to or a shoulder to lean on and then finally they provide peace of mind that you’re doing everything your power to achieve your financial goals so they’re making sure all your te’s are crossed and all your eyes are dotted and every

box is checked to know that you’re doing the right things at the right time so now let’s talk about some of the obvious cons the first one being fees right they need to be compensated for their time and effort and expertise so fees can end up eating into your overall Net

Worth over the duration of the relationship with the adviser so here’s a tweet from personal Finance expert RIT safy showing the impact of fees so the scenario

that he’s describing is that you’re 30 years old and you invest $50,000 and contribute another $1,000 a month in 35 years with a low 0.2% management fee and assuming a 7% return you’d have over $2.1 million but if you pay a financial advisor 1% you’d only have $1.7 million

that’s more than $380,000 going into your advisor’s pockets and fees number two is finding the right one so this is almost like interviewing someone to work for your small business with your business being your personal uh

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finances and your family’s Finances you need to make sure that the adviser not only knows

what they’re doing but they’re also compatible fit for you and your personality and investment style and number three is watch out for salespeople a lot of advisers are just glorified Insurance salespeople with no Advanced knowledge of investing you need to be able to

distinguish between a legitimate advisor and an Insurance salesman who just calls himself an adviser there’s a lot of those out there uh I may or may not have had an internship one summer in college with one of these companies which will remain unnamed so ultimately choosing

to hire a financial adviser is a personal decision so you need to take an honest look at your Finances think about your goals and decide how or if a financial adviser fits

into those plans and if you need answers to your Credit score Savings Budgeting and Debt questions uh we talked about before you may want to try nerd wallet plus so you can use our ask a nerd feature uh click the link in the the

description to sign up and use the promo code YouTube to score 20% off that $49 membership fee please send this CashNews.co to family member or to a friend who’s considering hiring a financial advisor