5 Myths About Hiring a Financial Advisor
In case, you think that handling your finances is a lot to do, hiring a financial advisor is one of the best decisions to make. A lot of individuals across Singapore prefer hiring these professionals so that people don’t end up making any issues in their accounts. However, a lot of people think that hiring a financial advisor isn’t a good decision. This is because they have various misconceptions about these professionals. Here are some of the common myths people have.
1. They are Same as Investment Advisors
Some financial planners are also investment advisors, but not always. An investment advisor helps you decide what to invest in. A financial advisor advises you on your entire financial picture with a holistic approach. A financial advisor can help you manage student loans or credit card debt, save for retirement, or determine how much house you can afford to buy. That can put you in a better position to make smarter long-term decisions to improve your investing strategy
2. They Must Have Clean Records
Financial advisors might lose their certification if they misbehave in certain ways, but there’s nothing stopping them from continuing to work as advisors in the future. They just won’t be able to use their previous title. And “financial planners” without any certification to protect can keep on working right up until the authorities drag them off to prison. The best way to avoid these repeat offenders is to stick with financial advisors who have one of the regulated titles and look them up on BrokerCheck to make sure they have clean records. It’s also helpful to check references from a prospective advisor’s former and existing clients.
3. Some Work for Free
There’s no such thing as a free lunch (or free financial advice). Sure, some financial advisors will meet with you and give you advice without charging a fee. But those advisors usually end up being the most expensive in the end. An advisor who isn’t charging you a fee is typically making money from commissions off of the products that he or she sells you. The problem is, a commission-based financial advisor has a built-in conflict of interest.
Financial advisors who work on commission have to decide whether to recommend the product that’s right for you or the product that will make them a fat commission. Sadly, many of these financial advisors will end up doing the latter. That’s why a fee-only financial advisor is by far the best choice. Fee-based financial planners will typically charge you a small percentage of your total balance per year to manage your investments for you. Because their fee goes up if your investments grow in value, these financial advisors are motivated to do well by you.
4. They are Only For Investments
While financial advisors do help people manage their investment accounts, they also do a whole lot more. Firstly, even when it comes to investing, a great advisor will do more than allocating assets and execute trades. They will make sure that you feel comfortable with your investment strategy and keep you in the loop about changes in the markets, how things are going, and most importantly, how you are doing. In other words, your advisor will keep the lines of communication open and help you stick with the long-term plan that’s right for you. But a good financial advisor can also help you with your everyday financial life.
Your advisor might advise you on issues related to income taxes, estate planning, retirement income planning, or even employee benefits and debt management. These broad services are a welcome relief for most people. After all, our financial lives are increasingly complicated. Not only can a financial advisor help bring this under control, but they will also help you to feel in control, giving you peace of mind that this important area of your life is being managed prudently for the long-term.
5. They are Trying to Sell Products
A lot of people distrust financial advice because they aren’t clear on how their advisor is getting paid and whether a particular recommendation presents a conflict of interest. Unfortunately, it also means that they end up not getting help or ignoring some really good advice. Instead of assuming things about the professional who’s willing to help you, engage in open dialogue about how the advisor gets compensated. You have a right to know, and a good advisor will be very open about sharing this information with you and making sure you’re comfortable with the arrangement.
You can also find many advisors who will charge a flat rate for reviewing your portfolio allocation, helping you develop a financial plan, or advising you in other financial matters. This removes the product from the equation entirely, as you are only charged in exchange for a specific service. On the other hand, you also won’t get the benefit of ongoing advice in the wake of a changing economy or market.
Now that you know the truth behind these myths, you can have a clear picture of hiring a financial advisor if you too had these doubts. Plus, you also know the benefits of hiring this professional, which means that you can make a better decision.