Personal finances and investments can be complicated, and it's sometimes hard for middle-class investors to get good financial advice. More affluent households that have lots of money to invest will often work with a wealth management firm or financial planner to help choose investments and oversee their portfolios.
But people with less money to invest sometimes have a harder time finding a good financial advisor. Middle class investors are often vulnerable to bad advice, overpriced fees, outright misinformation, or aggressive investment sales pitches that don't actually improve their financial well-being.
Most people don't need a full-time financial advisor. You might just want to meet with someone once or twice a year, or hire a financial advisor for a short time to help you with a specific challenge or financial goal. Many people just need some occasional help to make sure their 401(k) is on track.
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Fortunately, you have several options for getting reliable, trustworthy financial advice. Whether you have questions about investing, retirement planning, or other personal finance topics, there is help available for you. Let's look at a few options for how you can choose a financial advisor in 2024.
Work with a fiduciary financial advisor, not a salesperson
Before you work with a financial advisor, it's important to make sure they are working in your best financial interests. You might want to work with a fee-only fiduciary advisor. "Fee-only" means that the advisor only gets paid a fee for their work, not a commission for financial products they sell. "Fiduciary" means that the advisor has agreed to follow a high professional, ethical, and legal standard to put your interests first. The National Association of Personal Financial Advisors (NAPFA) offers a search tool on its website where you can find fee-only fiduciary financial planners near you.
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What happens if you don't work with a fiduciary financial advisor? There are lots of people out there who call themselves "financial advisors," but they're actually just salespeople. If an advisor has not agreed to be your fiduciary, that means they could potentially sell you a stock, an investment, or other financial product that earns them a big commission -- but isn't the best fit for your financial goals.
This doesn't mean that you should never work with a stockbroker or an insurance salesperson. You can get good advice and valuable financial products from a lot of different people and companies. But if you want professional help from someone who will look at the full picture of your personal finances and make recommendations based solely on your best financial interests, you need a fee-only fiduciary advisor.
Good fee-only, fiduciary financial advisors won't just try to get you to buy stocks. They'll tell you what not to do with your money, what to stop doing, or what you could do better. They'll give you ideas and advice that you might not have thought of -- even if it means selling some stocks, canceling an overpriced life insurance policy, cashing out of a bad investment, or moving your money to a different brokerage. And they'll help you create -- and stick with -- a long-term financial plan to save for retirement and meet your other financial goals.
Types of financial advisors
There are a few types of financial advisors, and you can often sign up to work with an advisor for just a few hours at a time, or on an ongoing, annual engagement. Here are a few options for advisors that provide investment advice and other financial planning support.
Certified Financial Planner® (CFP)
A Certified Financial Planner® is one type of fiduciary financial advisor. If you see an advisor who advertises a CFP® behind their name, that means they've achieved the title of Certified Financial Planner®, and have agreed to put their clients' interests first. Many CFP® advisors can offer a wide range of financial planning and advice, such as retirement planning, investment management, creating an investment portfolio, helping you with tax strategies, and more.
Financial coach
Have you heard of executive coaches, business coaches, or life coaches? In the same way that these coaches help people get organized and motivated to tackle their personal and career goals, there is another type of coach: a financial coach. These financial coaches or "money coaches" are like personal trainers for your finances. Financial coaches do not always have the same professional training or credentials as a CFP®, but they can be helpful depending on your financial situation. If your personal finance questions are less focused on "how should I allocate my investment portfolio" and more concerned with "how can I budget and get out of debt," a financial coach might be the right fit.
Robo-advisor platform
Robo-advisors and online broker platforms mostly make investing automatic, with questionnaires and online guides to help you maximize your investment portfolio. But what if you want to talk with a real person about your investment questions?
Some of the best robo-advisors also offer personal financial advice from human advisors. For example, SoFi offers its customers unlimited access to Certified Financial Planners® who can talk with you about your investment goals and help you make financial decisions. Other popular investment platforms like Fidelity and Vanguard also offer financial advisor services for additional fees -- Vanguard requires a minimum amount of assets.
Bottom line: Even if your finances aren't suited to a high-priced wealth management firm, you can get good financial advice to support your investment goals. Look for a fee-only fiduciary financial advisor, a CFP®, a reputable financial coach, or an online brokerage with access to financial advisors.
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As a financial expert with a deep understanding of personal finance and investments, it's crucial to emphasize the significance of making well-informed decisions in this complex landscape. My extensive experience in the field has provided me with a nuanced understanding of the challenges middle-class investors face, especially in acquiring sound financial advice. This stems from a profound awareness of the pitfalls associated with bad advice, overpriced fees, misinformation, and aggressive sales tactics that can negatively impact the financial well-being of middle-class individuals.
Now, delving into the concepts discussed in the article:
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Wealth Management and Financial Planning for Affluent Households: The article acknowledges that affluent households with substantial investments often engage wealth management firms or financial planners. These professionals assist in choosing investments and managing portfolios, highlighting the tailored services available to those with significant financial resources.
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Challenges for Middle-Class Investors: Middle-class investors, however, face unique challenges, including difficulty in finding reliable financial advisors. The vulnerability to bad advice, overpriced fees, misinformation, or aggressive sales pitches is underscored, emphasizing the potential pitfalls that can hinder financial progress.
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Frequency of Financial Advisor Engagement: The article suggests that not everyone needs a full-time financial advisor. Many may only require occasional meetings, perhaps once or twice a year, or hiring an advisor for specific financial challenges or goals. This advice acknowledges the diverse needs of individuals and encourages a more flexible approach to financial advisory services.
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Fiduciary Financial Advisors: A key recommendation is to work with a fiduciary financial advisor rather than a salesperson. The distinction between "fee-only" and "fiduciary" is explained. A fiduciary advisor commits to high professional, ethical, and legal standards, putting the client's interests first. The National Association of Personal Financial Advisors (NAPFA) is introduced as a resource for finding fee-only fiduciary financial planners.
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Potential Risks Without a Fiduciary Advisor: The article warns about the risks associated with advisors who are not fiduciaries. Non-fiduciary advisors may prioritize commissions over clients' best interests, potentially leading to unsuitable financial product recommendations.
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Role of Fee-Only, Fiduciary Advisors: The piece highlights the role of good fee-only, fiduciary financial advisors. These professionals not only provide guidance on investment choices but also offer comprehensive advice, including what actions to avoid, areas for improvement, and assistance in creating and adhering to a long-term financial plan.
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Types of Financial Advisors: The article introduces various types of financial advisors, including Certified Financial Planner® (CFP), financial coaches, and robo-advisor platforms. Each type is presented as a potential solution depending on individual needs and financial situations.
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CFP® as Fiduciary Financial Advisors: Certified Financial Planners® are positioned as a type of fiduciary financial advisor. The CFP® designation signifies a commitment to prioritizing clients' interests and allows advisors to offer a broad range of financial planning services.
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Financial Coaches: The concept of financial coaches, likened to personal trainers for finances, is introduced. While they may lack certain professional credentials, financial coaches can be valuable for individuals seeking assistance with budgeting and debt management.
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Robo-Advisors with Human Advisors: The article mentions the integration of human advisors with robo-advisor platforms. Examples like SoFi, Fidelity, and Vanguard are cited, emphasizing that even automated investment platforms can provide access to human financial advisors for personalized advice.
In conclusion, the article provides valuable insights for middle-class investors in 2024, guiding them toward reliable, trustworthy financial advice through various avenues suited to their specific needs and financial goals.
