Beyond this, you should get a copy of the advisor’s ADV Part II which details fee schedules, etc. Often these are overstated on the fees compared to what the advisor actually charges.

Also, as to cost, the transition from commissions in the 1990s to ‘fee based’ after the tech collapse is a JOKE! Advisors went from getting $50 or $200 per trade to charging a percentage of assets held (for some it was a pay raise). I did this percent fee for a while, but then converted to an hourly rate. Think about it. What extra decisions/work goes into a $1 million portfolio versus a $100,000 portfolio? Not much. That’s why hourly is the way to go.

Also, there are far too many sources of financial planning online to go immediately to an advisor. Exhaust resources online first, then go to an advisor. You’ll have a more productive conversation and the expectations will be more realistic.

Sorry about the soap box, but there are so many that call themselves ‘financial advisors’, but very, very few of them conduct business as an advisor…most are just salespeople.

On the semantics of title, there is no universal definition of “financial adviser.” It’s like “healthcare provider.” There are lots of activities and titles that fall under both. I think we all agree that a financial advisor advises on more than just investment issues. However, while it is investment advice, I would characterize “Helping clients with asset allocation decisions” as being outside the scope of simply being an investment/asset/portfolio manager. Those decisions are often based on factors outside of the investment portfolio.

I think to round out your list of things a good financial advisor does, you’d need to include things such as: help navigating the landscape of tax laws, understanding risk and risk avoidance tactics, laying out a long-term view to reach your goals – a much more comprehensive point of view, in other words. Investing (choosing an allocation, etc.) is only a part of the picture. Discouraging speculative activities and education are also part and parcel of the financial advisor’s duties.

Thanks again for a thought-provoking post…
jb

Any advisor who also makes himself out to be a money manager/stock picker/fund picker/market timer is probably overconfident in his ability to do so successfully while managing all the client-related tasks.

However, my experience tells me that there is a huge difference between a money manager and a financial adviser. The money manager only deals with investments. A financial adviser helps clients navigate to reach financial goals. Investments are only a part of that in my opinion.

Dave: I’ve actually got that post included already in my roundup for tomorrow. It makes an important point.

Rob & Jermaine: Absolutely. Going to a financial advisor without having any background information whatsoever is very likely to result in poor advice and/or being sold a front-loaded portfolio of high cost funds. Always good to have a little knowledge before going to meet with any expert (whether financial advisor or car mechanic).

NC: I once had a “financial advisor” try to sell me whole life insurance before I was even out of college. I tried explaining that I had no fixed expenses and nobody at all relying upon me for income, so I didn’t see the need. He didn’t seem to understand.

People are intimidated by investing and they turn to advisors to buck up their confidence. But confidence can only come from inside. The average person does not need to be an expert on all aspects of investing. But he must be confident that he understands the fundamentals.

If you don’t possess confidence in your understanding of the fundamentals, I think that talking to an advisor may even be dangerous. The temptation is always there for the advisor to try to sell you something and the advisor knows the emotional hot buttons that need to be pushed for him to be successful doing so.

People really do need reassurance, though. I think that’s why many go to advisors.

Rob