08 Jul Should I hire a financial planner to handle my investments?

Q. I’ve been working with a financial planner who I pay by the hour. I take her advice and make my own investments and we check in and I make changes, if needed, every six months. My savings haven’t been doing very well, though. I know some financial people, not mine, though, will manage your money for you for a fee. How can I decide what’s best for me?
— Investor

A. Yours is a great question.

It’s essential to research your options when choosing a financial planner.

Knowing which services you require and then understanding an advisor’s fee structure and potential conflicts of interest provides important information that will help you make the best choice, said Howard Milove, a wealth advisor with Access Wealth in East Hanover.

“There is no right or wrong answer,” he said. “The best option for you depends on what services you are looking for and how much support you desire.”

For starters, he said, you should learn about the different types of advisors.

Some, like the one you are working with, strictly provide hourly financial advice and leave the implementation and monitoring up to you. Assets Under Management (AUM) advisors offer advice and manage the entire portfolio for a fee, he said.

“Financial planners can bill differently, but where they differ from investment managers and brokers is they begin by preparing financial and investment plans that advise on your overall financial health,” Milove said. “This can give you a broader picture of your long-term success.”

Next, you need to understand the different fee structures, which is pretty straightforward.

An hourly financial planner bills for their time, whether it’s a conversation or time spent preparing, updating and presenting financial and investment plans, Milove said. For example, if it takes a financial planner seven hours to complete the work, billing at a rate of $300 per hour, your fee will be $2,100.

The Assets Under Management (AUM) planner will charge you a fee based on a percentage of the assets they manage, he said. For example, if they manage $250,000 and charge 1%, your annual fee will be $2,500. These planners may or may not include a written financial plan as a service offering, he said.

Finally, you should look at potential conflicts of interest, Milove said. There are pros and cons to each advisor.

“An hourly financial planner is generally considered free from most major conflicts of interest. If they maintain a fiduciary responsibility, their advice should always be in their client’s best interest, and you should not be worried that the planner has an ulterior motive,” he said. “However, if you have a question for your planner and know the clock will start ticking as soon as they pick up the phone, are you more hesitant to call? Will it bother you if your planner engages in “chit chat” and bills you for it?”

An AUM planner should also always put their client’s best interest first, Milove said.

“If the planner charges based on the assets they manage, their fee is reduced when your portfolio shrinks,” he said. “So, if you need to decide whether to use money in your brokerage account or leave it, will you feel confident that you are getting unbiased advice?”

For example, if an AUM planner were advising you on whether to pay off your mortgage and the money would come from your brokerage account — which they manage — they would have a conflict of interest, Milove said. However, it’s important to understand that just because a planner has a conflict of interest doesn’t mean you are not getting the proper advice. It’s simply important that you be aware of the potential, he said.

“On the other hand, the AUM planner does have a vested interest in how your portfolio performs,” he said. “If the portfolio increases in value, they will get a raise. If the portfolio decreases in value, they will take a pay cut, so it stands to reason that your AUM planner will try their best to pick suitable investments for you.”

Milove said no one is truly free of conflicts, and there is no right or wrong answer to the type of advisor you choose.

“Decide which services you require, determine how often you wish to speak with your planner, do your research and understand the potential conflicts of interest,” he said.

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This story was originally published on July 8, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.