We pride ourselves on providing all clients with objective advice that’s actionable and easy to understand. Even so, we know that our services—and professional financial planning services in general—are right for some people, and not right for others.
To help you decide if financial planning fits your situation, we’ve put together some advice on two key questions that will help you decide whether financial planning makes sense for you.
1) Is financial planning worth the cost?
To answer this, you have to consider your likely results from three options:
a) Managing your money yourself, without outside help
b) Hiring a professional on a short-term, hourly basis
c) Partnering with a professional for the long-term
All else equal, options 1 and 2 will almost always result in lower total fees. If either of those options will give you returns equal to option 3—a long-term partnership with a professional—then your choice is clear.
But for many people, hiring a financial advisor on an ongoing basis will lead to the best results, even with the relatively higher fees. People in this situation may not have the expertise to manage their assets, or they may choose to spend their free time on other things, or they could simply be too busy to give their finances the attention they need. For them, the input of a professional would be a wise investment.
Even people with experience managing their finances can be well served by hiring an advisor. It’s often difficult to navigate changes in the market, especially when your own money is at stake. A financial advisor can be a critical source of guidance in challenging times, and can help maintain your overall investment and financial management strategy, particularly during the stress and confusion of market dips. And when you have an ongoing relationship with an advisor, you are more likely to ask for help before you hit serious trouble.
If you expect you’ll come out ahead with ongoing financial management, even after subtracting the fees, then you shouldn’t let the cost of the service deter you. To assess your own situation, download our Long-Term Returns Calculator, and find your expected returns under each of the scenarios mentioned above.
2) How do you find the right advisor for your needs?
First, make sure your advisor is working for you, and not for referral fees or other third-party compensation.
“Fee-only” advisors, such as Method Finance, operate under a fiduciary duty which requires them to act in the best interest of their clients. “Fee-based” advisors, on the other hand, can accept fees and other compensation from third-parties, based on the referral of a client or the client’s business.
The risk of fee-based advisors, of course, is that the third-party fees might sway your advisor’s judgement and compromise their ability to make the best choices for you. A recent study* found that only 24-percent of advisors described their compensation as “fee only,” and even some of those weren’t using the term accurately. So by choosing a true “fee only” advisor, you’ve already narrowed the field significantly.
The other key consideration is choosing an advisor whom you trust, and with whom you can forge a lasting partnership. At Method Finance, one of our central goals is building a relationship with every client so that we can make the best recommendations for them. This pays dividends for our clients, not only in the form of better advice, but also through their increased understanding of and trust in their financial strategy. So remember that your personal finances are personal, and look for an advisor who’s a true “fit” for you.
* ” ‘Fee-Only’ Financial Advisers Who Don’t Charge Fees Alone,” The Wall Street Journal, September 20, 2013