Should you DIY?
The April issue of Money magazine included an article addressing when it is appropriate to DIY (do it yourself) certain financial tasks. Two of the tasks included were "Managing a Portfolio" and "Creating a Retirement Income Plan." Money did not distinguish between the types of personal financial support available, implying that two different professionals may be required to perform these two services.
If you are interested in personal finances and are willing to invest the time required in learning how to manage personal finances, DIY may be appropriate. Financial Abundance Guide was written as an aid for these individuals, helping them identify strategies to effectively manage their financial resources. Unfortunately, I have found that most people have the same amount of interest in learning how to manage their finances as I have in learning how to re-tile my roof. None!
If you are not interested in learning to DIY personal finances, here are some ways to identify the financial advisors that can meet your requirements.
The first area to consider is the type of advisor who fits your needs. There are basically three types of financial advisors:
1. Commissioned based financial advisers typically present their services as "free." These advisors sell commissioned financial products such as mutual funds and deferred annuities. Sometimes, it is difficult to identify the commissions being paid to the advisor, such as mutual funds with12b-1 fees or products which must be held for several years to avoid a reduction in payout.
2. Fee based advisors usually work for a broker/dealer. These advisors charge a fee that is often based on a percentage of the assets in your brokerage account(s). When an advisor is "fee based," part of their compensation also comes from commissions for selling mutual funds and proprietary products.
3. Fee only advisors receive compensation either on an hourly basis or based on a percentage of the assets they are managing. These advisors receive no commissions. They are only compensated by fees paid by their clients.
The second area to consider when choosing a financial advisor is the scope of personal financial services they offer. These services also fall into three categories:
1. Investment management firms provide services related to managing your investments. While they may be compensated in any of the three methods described above, their financial services are often limited to helping clients manage their assets.
2. Wealth management firms primarily focus on helping their clients effectively manage their assets. However, a wealth management company typically provides other personal financial services such as creating retirement income plans, retirement planning and risk management (insurance) assessments.
3. Financial Planning firms provide asset management services as a component of a comprehensive financial planning process. While most financial planning firms provide an a la carte selection of services, they will have at least one CFP® who is capable of providing comprehensive financial planning for their clients.
If the only financial support you require is investment management, virtually all financial advisory firms can provide these services. If investment management is your only financial concern, you need only to decide whether you wish to pay for this service through commissions, fees or a combination of the two.
If more than investment management support is required, you must determine if the advisory firm is capable of providing the required services. A Certified Financial Planner (CFP®), offering comprehensive financial planning services, will typically be capable of supporting your planning requirements. A CFP® will also have completed extensive financial planning educational training and will have met both the experience and ethics requirements of the CFP® Board of Standards.
Whether you need only investment advice or require a complete financial analysis and plan, be certain that your adviser listens to and understands your tolerance for risk. If you find an investment adviser or financial planner who treats your financial future as well as they treat their own, you should be well on your way to a prosperous financial future.
Wayne Farlow is the founder of Financial Abundance, LLC, a Registered Investment Advisor, providing fee-only financial planning, asset management and retirement planning services. He is the author of "Financial Abundance Guide," available free at www.finabguide.com . He can be reached by email at firstname.lastname@example.org or at 303-554-0309.