Congratulations! You’ve decided to take control of your finances. You want to get your bank account in check by paying off your debts, making wise investments, and ensuring that you and your family have enough money now and for the future.
Right now, you’re a bit of an outlier, because many people don’t have enough of a financial education to succeed in today’s dog-eat-dog world. According to one poll, two-thirds of Americans said they would struggle to scrape together $1,000 cash if they had an emergency. Many people surveyed claimed they made more than $100,000 per year and were still in this financially dire situation.
In another study, it was revealed that 77 million Americans, or 35% of adults with credit files, have debt. Their debt averages $5,178 per person. The scary statistics continue: only 46% of Americans said they have a rainy–day fund, and almost one-third of Americans pay just the minimum amount due on their credit cards every month.
If you don’t want to get caught in a bad financial situation, or you’re trying to break free from one you’re currently in, you’re in luck. The best way to do it is to find a financial advisor who can help. But what exactly is a financial advisor, and how can they assist you in achieving your financial dreams?
The Definition of a Financial Advisor
A financial advisor is a human or computer that offers you personalized financial management solutions.
If you’re talking about a human financial advisor, she will help you with tasks like getting out of debt, paying off loans, saving up money, planning for retirement, and investing. You will meet with her and talk about your finances now and where you hope to be in the future. She will help you create a plan of action so you can meet your goals. For instance, if you go to her and say you’re $50,000 in debt, she may recommend doing the snowball method – focusing on the smallest debts first and paying the minimums on the others – while increasing your income by getting a second job. If you go to her asking for retirement planning advice, she may advise that you invest in a long-term mutual fund.
A computer-based financial advisor, also known as a robo-advisor, is typically a lower-cost option than a real-life financial advisor. Using algorithms, a robo-advisor will look at your finances and provide automated solutions. For example, you may fill out a survey and include your income, debts, investments, and goals, and a robo-advisor will calculate these and give you automated suggestions on what to do and where to invest.
Sometimes, companies will offer a mix of robo-advisor and real-life financial advisor options. Maybe the robo-advisor gets you interested in a financial company, sets up your accounts and trades, but there is a human financial advisor on hand at all times to answer any of your personalized questions.
Before you hire a financial advisor, make sure he or she follows fiduciary responsibility. This is critical to your success with your financial advisor.
What Is Fiduciary Responsibility?
A fiduciary is someone who is legally obligated to act in another party’s best interest. They have a charge to put their clients’ best interests first, seek out the best terms and prices, steer clear of conflicts of interest, act in good faith, make sure they are giving accurate advice and information, and not use a client’s assets to make money for themselves. When dealing with the overseeing of financial situations and assets, people will only hire those who uphold fiduciary responsibility. This is to protect themselves and their assets. If a financial advisor who claims to maintain fiduciary responsibility steers you wrong, you have the right to take legal action.
For instance, let’s say you wanted to invest $10,000 into the stock market, so you go to a financial advisor. This advisor must ask you where you want to invest and what your investment approach is (long-term vs. short-term or high-risk vs. low-risk), do his research, find investments that are performing well, look for the lowest prices to buy-in, and advise you to put your money into them.
When a financial advisor does not uphold fiduciary responsibility, the results can be catastrophic. Take, for instance, Bernie Madoff, whose clients were buying into a Ponzi scheme. Only Madoff was making money. Some clients discovered that their life’s savings were completely depleted. Madoff went to prison for ruining many people’s lives.
While you may want to hire a financial advisor simply based off good online reviews, you need to do more research.
Finding a Trusted Financial Advisor
You can find a financial advisor by contacting a well-established company like Edward Jones or Merill Lynch, or go with one who is independent and local to your area (just make sure you check their Better Business Bureau listing and Yelp reviews beforehand). Some robo-advisors out there include Robinhood and Wealthfront. Whoever you hire or whichever financial advisor service you use, make sure you check their fees for making trades, opening accounts, etc.
You also need to make sure your financial advisor is dedicated to fiduciary responsibility, since not all financial advisors abide by it. There are Madoff types out there, like the pump-and-dump scam artists, who came to be real financial advisors but in fact, are not following any rules or regulations, and are simply looking to rip off hardworking people. Or, there are simply some financial advisors that do not follow the established fiduciary responsibility guidelines, so you have no protection in case anything happens.
According to a survey by Personal Capital, almost half of Americans think that all financial advisors are legally required to act in their clients’ best interests 100% of the time. This is extremely detrimental, since nearly half of Americans may hire a financial advisor who puts her best interests before their own. In terms of a real–life example, she may charge you unnecessary fees, advise you to invest in a stock that is not performing well, and she will buy stock when the price is too pricey, which means you don’t profit.
When looking for a financial advisor, ask your candidates first and foremost if they follow fiduciary responsibilities. If they say yes, get it in writing. Then, see if they are fee-only advisors or work based off commissions. Usually, fiduciary advisors will be fee-only.
You can also do your research on the SEC’s Investment Adviser Public Disclosure website which lets you put in the name of the individual/firm and view their employment history, professional conduct history, and “disclosures about certain disciplinary events involving the individual,” according to the site.
Also, make sure you look into testimonials from other clients. You may want to find a financial advisor based off a trusted family member or friend’s recommendation. You should also find out the financial advisor’s track record. What kind of advice did he give to clients in the past? Did it pay off for them? Does he make risky or safe investments? Did he predict any major financial crises, and shield his clients before they hit?
You also need to ask general questions to protect yourself, like how often you’re going to meet, how he will protect your personal data, how often he will rebalance your account, and what fees are associated with his services.
Getting Started with Your New Financial Future
You’re dedicated to making a solid financial future for yourself. By finding a financial advisor who upholds fiduciary responsibility, you’re setting yourself up for success.
Along with having a financial advisor, you should continue educating yourself on the current markets and finding your own ways to make money. After all, your financial advisor is busy and can’t provide the individual attention to your portfolio that you can.
If you want to further your success, make sure you subscribe to Nova-X Report, a reliable and trusted financial newsletter that is your key to making big money in tech investments. You’ll receive up-to-date information right to your inbox that you can take to your financial advisor or use on your own to grow your portfolio.
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