Five Signs You DO Need a Financial Professional

Several years ago, I wrote an article called Five Signs That You Do NOT Need a Financial Professional. The interesting thing is that the financial landscape has changed quite a bit since then, largely due to the implementation of the Department of Labor’s Fiduciary Responsibility Rule. While the DOL Rule will not be fully implemented until January 1, 2019, many financial services firms are already gearing up.

The DOL Rule has not really changed how financial professionals operate. Today, there are still a few different ways that financial advisors are compensated…

  • Commission-Based: the advisor is paid a commission for financial products sold.
  • Fee-Only: the advisor charges a fee for service, such as billable hour or retainer.
  • Fee-Based: the advisor charges a fee for service, as well as a commission for financial products sold.
  • Assets Under Management: the advisor is paid a percentage of all financial assets under their control and management.

The new rule expands the definition of “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA). While this rule will have some impact on all financial professionals, it will impact commission-based advisors the most.

What does this mean for you?

Not much to be honest. It simply enforces higher legal and ethical standards for financial advisors who work with retirement plans or provide retirement planning advice.

While the higher standards and the additional paperwork could make financial advisors more expensive, it may not affect too many people. Why?

Well, in today’s world, financial advisors are only truly necessary for certain people in certain situations. Critics of the DOL Rule argue that the rule makes financial advice a lot less accessible for those who truly need it. However, those same critics suggest that everyone needs a financial advisor all the time. And this simply is not true.

Technology has put the financial services industry at our finger-tips. Decades ago, an ordinary person could not get their hands on investments or insurance without a financial advisor. These days, you are not required to go through a broker to get an investment, an insurance policy, or even financial advice. These days, you are not required to pay expensive commissions for financial products that you already know that you want.

Really, there are only five reasons that you would require the services of a financial advisor. Below are the five reasons, along with the type of advisor you may want to consider in parenthesis…

  • Advanced Estate-Planning: your estate-planning requires many trusts, a high amount of charitable giving, or anything beyond a simple Will (Fee-Only or Fee-Based).
  • Ultra-High Net-Worth: your net-worth is extremely high, your estate taxes are likely to be considerable, and you have many competing financial goals with your fortune (Fee-Only or Fee-Based).
  • Special Needs: you have a child or grand-child with special needs, which often requires some advanced financial planning and maneuvering (Fee Only or Fee-Based).
  • Business Executive: you are a business executive with many responsibilities, a large income, and not enough time to self-manage your investments (Assets Under Management).
  • Second Opinion: you simply want to hire a financial advisor for an annual check-up, for a tune-up, or for a second opinion on your financial health (any type of advisor as long as you trust them).

If you have a lot of debt, need help getting on a budget, or need help understanding how finances work…

A financial advisor will only get you so far. Financial advisors commonly help people acquire financial products and/or understand the financial solutions available to them. They are typically not equipped to help with basic financial education.

That is what websites like this one are for. That is why books are for. That is what online courses are for. That is what your employer’s financial wellness programs are for.

You do not go to a car salesperson because you simply want to learn more about cars. Why would you go to an investment salesperson because you want to learn about investments?

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