What is the Difference Between Financial Therapy and Financial Planning?
You have the best of intentions, you want to contribute to your savings account each month or make a larger payment towards your credit card debt. However, you continue to find that you don’t have enough to fulfill the financial goals you have set for yourself.
It could be more than just your lifestyle that’s preventing you from achieving financial well-being. How you approach your finances and spending, in general, can have a big impact on how you’re able to achieve your personal monetary goals. If you find yourself with spending habits that keep you from living the life you’re wanting, financial therapy could offer solutions that might work for you.
Financial Therapy vs. Financial Advisement
According to the Financial Therapy Association, financial therapy "is a process informed by the therapeutic and financial competencies that helps people think, feel and behave differently with money to improve overall well-being through evidence-based practices and interventions."1 This differs from financial advising since it incorporates your behavior, thoughts and feelings about money into your financial planning rather than simply examining your assets.
Financial therapy explores your behavior concerning finances to develop a comprehensive financial plan that works for you so you can succeed in the long run. This can include identifying your stressors when it comes to money, how you may be using money as a reward and other behaviors that can put an extra strain on your personal finances.
Is Financial Therapy Right for You?
Generally thought to be a taboo subject, you may not have the opportunity to discuss money with family and friends very often. You may not know what healthy habits are concerning money or how your family or friends have approached finances in the past. And at times it can be difficult to determine what is appropriate in relation to saving and spending money. Financial therapy can be the answer for those who are looking to discuss ways to budget, save and spend in ways that support their needs and lifestyle.
Additionally, financial therapy can be helpful to those who have what could be considered extreme behavior when it comes to spending money. In the last few years, close to 96 percent of Americans have reported impulse shopping either in-store or online.2 If you find yourself as one of the many people who tend to over-shop to the point that you’re not able to achieve your monetary goals, financial therapists can work with you to determine where this impulse is coming from and how to address it.
On the opposite end, financial therapy can also be helpful for those who tend to hoard money to the point where they are foregoing addressing their basic needs. People who save and dismiss spending money on necessities like healthcare, fresh food, and other similar items can be operating from a fearful motivation of scarcity. Financial therapy can help individuals and couples to address where this fear comes from and how to spend in a healthy way.
Saving money and achieving financial well-being may be more possible for those that take a behavioral finance approach. If you find that you’re not able to meet your financial goals even after having a "financial plan", financial therapy may provide you with the help you need. When seeking out a financial therapist check to be sure that they are licensed specialists and can address the various financial barriers you may be facing.
5 Signs it’s Time to Hire an Advisor
If you want to avoid outliving your money, investing can be a great way to continue to grow your nest egg as you approach — and enter — your retirement years.
And while there may be many robo-advisors out there that will do the investing for you, the one-on-one, hands-on approach and personal advice and guidance you get when working with a real-life financial advisor often times will offer better insight and clarity into the investment process.
Getting Help
According to the CFP Board’s 2015 survey, financial advisors have become more important over the course of the past decade.1 An increasing lifespan could be one of the many reasons people are more interested in professional help when it comes to effectively managing their money.
The survey found that “consumer use of financial advisors has increased from 28 percent in 2010 to 40 percent in 2015,”1 signifying a potential shift in attitude toward financial professionals.
And while approximately 30 percent of U.S. households have a financial advisor,2 Cerulli Associates, a research firm that specializes in global asset management analytics, found that investors who are nearing retirement are more likely to hire one.2
According to their findings, about 40 percent of individuals in their 60s have a financial advisor.2
Questions to Ask
From your needs and objectives to your risk tolerance and timeframe, there are a variety of factors your investment advisor will consider when designing your customized investment strategy.
However, before you hire an investment advisor to help you grow your assets, it’s important to ask yourself these five key questions first.
1. How Complex Are My Finances?
While an investment advisor can be helpful in any situation, hiring one is usually more necessary when you have complex issues and questions to sort out.
Things like inherited stock, investing the assets of your small business, or retirement distribution strategies require more in-depth insight. Even if you’re simply looking for straightforward advice that you can apply on your own, many financial advisors offer fee-based planning advice that could save you some time and money in the long-run.
Especially if you’re about to experience a transition — such as the birth of a child, a divorce, or retirement — teaming up with an investment advisor can help guide your decisions as you enter new financial territory.
2. How Much Can I Invest?
Before deciding to engage with an investment advisor it’s important to first consider how much money you have to invest. Some financial advisory firms require you to have a minimum amount of "assets under management" (also referred to as AUM) before they will take you on as a client.
However, if you find an advisor you really want to work with, it is always worth it to reach out and talk to them, for even if their firm is not a good fit for you, they can often recommend another advisor for you to work with.
In some cases, a robo-advisor may be a better fit, at least until you accumulate enough resources to work with an investment advisor who aligns with your values, needs and goals.
However, many financial advisory firms also now offer their own versions of robo-advisors, which are "digital investing platforms" for clients who are still accumulating assets and don't yet meet their AUM minimums. Again, it's worth it to contact the firm in question and find out what they recommend!
3. Do I Need Additional Financial Help?
When looking for someone who can help you invest your money, you can either hire someone who purely specializes in investment management, or you can find someone who offers comprehensive financial planning services.
Because comprehensive financial planning involves investing, some may argue that finding a professional who provides this comprehensive style will give you more value for your money.
However, if you’re more of a DIYer, it might be worthwhile to simply find someone who can manage your investments.
When in doubt, interview a few professionals to gain a better understanding of their services.
4. What Are My Goals?
This may seem like an obvious question, but some people overlook this critical question and end up in an undesirable situation.
For example, if you don't have that much to invest and you’re just looking to try out investing and have no concrete plans to continue doing it, then you may want to try a robo-advisor first to get a feel for the market before making a more serious commitment.
However, if you’re someone who is certain you want to invest for the long haul, then hiring an investment advisor can give you the accountability you need to achieve your investment objectives.
It's always a good idea to identify your expectations of the experience first before you get wrapped up in a long-term commitment.
5. How Much Am I Willing to Pay?
In addition to the potential of losing money in the stock market, you will also incur fees from your investment advisor. Some advisors charge a percentage of your assets under management (AUM), so it’s important to consider how much you’re willing to pay someone to professionally manage your investments.
For some people, they would rather save the money and do it themselves. However, an investment advisor is valuable in that they can educate you, as well as apply their knowledge, to help you make smarter investment decisions.
The Big Takeaway
At the end of the day, an investment advisor is an investment in itself, so you’ll want to think carefully about what you’re willing to pay for the value they can provide you.
2 https://www.guidevine.com/roundtable/new-data-shows-growing-financial-advisor-shortage/
Top 5 Things You Should Always Share With Your Financial Advisor
Your financial advisor is an integral part of your team to help you manage your wealth and grow your future. Unfortunately, you may not be sharing with them everything that you should be. Whether you are not communicating things because you feel they are unimportant or are a private person who wishes to keep certain information to themselves, not sharing what you need to with your financial advisor could result in problems with your financial future. Below are five things that you should always share with your advisor.
1. What Your Goals Are
You can have all types of goals in your life from charitable giving, to buying a vacation home, to planning for retirement. Whether these goals involve finances or not, it is important that your financial advisor knows them, so that they can provide you with the best advice on how to achieve these goals. You may be concerned about caring for a family member or protecting your family against possible interruptions in income. While these may fall outside of what is considered traditional goals, your advisor may find certain solutions that can help these goals be obtained as well.
2. Your Honest Feelings About Your Financial Situation
You may be under the impression that being confident and under control at all times is necessary to portray strength. But putting on a bravado that you feel everything is ok when you are panicking inside will not improve your situation, and could make it worse. If an investment makes you nervous, or you have a financial concern that has been worrying you, your financial advisor is there to help you work through it. They also can help explain occurrences in the market that can put your mind at ease. Remember it is their job to guide you through your wealth journey and handle any concerns that may arise.
3. Changes in Your Job or Other Income
Whether it is a big change such as losing a job or switching careers, or even small changes, such as adjustments to your benefits, you should alert your financial advisor right away. You might need to adjust your retirement allotment to account for other possible expenses, or need additional insurance coverages to fill in the gaps for lowered benefits. If you embark on a side job, you should also consult with them to determine the best ways for tax planning, and possible investment opportunities for any surplus of income.
4. Major Changes to Your Personal Life
There are some aspects of your personal life that are prudent to share with your advisor. Such things as separations or impending divorces can greatly affect your finances as well as deciding to get married or having children. Your advisor can help you plan for the loss of assets in your divorce, help you invest properly to plan for children's college education or advise you on changes to your life insurance and other assets to protect your family.
5. Data or Identity Breaches
In the event your personal information has been comprised, or you suspect your identity has been used by someone else, you should alert your financial advisor immediately, even if it is as simple as you have lost a credit card. Your financial advisor will have the ability to place additional restrictions on your account and provide added security to protect your financial information and wealth. Your advisor can also provide you with advice on how to protect yourself from future breaches.
You and your financial advisor will both have the same goal in mind, which is making you more money, growing your wealth, and protecting it. Remember to treat your advisor as part of your team and trust them with all the changes in your life can affect your financial future.
What is the Fiduciary Rule and Why You Should Care
When you’re deciding on a financial advisor to guide you on decisions regarding retirement, investments, life insurance, estate planning and the like, you should have a lot of questions prepared. One of the most important questions to ask is whether the advisor is a fiduciary. You might assume that a financial advisor always has the best interests of the client at heart. That, unfortunately, is not always true, and it is at the heart of the fiduciary rule.
What is a Fiduciary?
When a person or organization acts as a fiduciary, they are ethically bound to act in the best interests of the party whose assets they are managing. Such assets are managed to benefit their owner, not for the profit of the manager. There should also be no conflict of interest between the fiduciary and the owner of the managed assets. Fee-based investment advisors are regulated either by the state or the Securities and Exchange Commission (SEC). A fiduciary has the duty of “loyalty and care,” which is another way of stating that the client’s interests are always put above their own.
Broker-dealers, on the other hand, operate differently. They are sales representatives, and while they must make “suitable” recommendations to clients, their primary loyalty is to the brokerage for which they work, not necessarily the client. They are also paid by commission, rather than the flat fee charged by fiduciaries. While there are plenty of honest broker-dealers in the business, there are also those who will steer clients toward high commission offerings rather than those charging a low or no commission. For example, a broker-dealer could sell a client a load mutual fund, which charges a commission, while a similar no-load mutual fund may have an even better track record. An advisor acting as a fiduciary cannot do that. The Council of Economic Advisors estimated $17 billion annually is lost by investors overpaying for such investment products.
What is the Fiduciary Rule?
A fiduciary rule regarding full transparency has long been a practice of many financial planners and advisors, and in 2015 the Obama administration wanted to initiate investor reform via such a regulation. As proposed, the fiduciary rule would require all financial firms to act as fiduciaries when dealing with clients’ retirement accounts. Firms that failed to so could face class-action lawsuits.
The U.S. Department of Labor (DOL) was supposed to begin phasing in the rule as of April 2017, but the Trump administration had issued a memorandum in February 2017 which delayed the rule’s implementation by six months. In June 2018, the U.S. Fifth Circuit Court of Appeals upheld an earlier decision to strike down the DOL’s fiduciary rule. The court’s majority found that the DOL exceeded its authority when promulgating the rule.
While the fiduciary rule is dead on the federal level for now, that does not mean it isn’t vitally important for consumers. You do not want to settle for less when searching for a financial advisor.
Fiduciary vs. Salesperson
Many people think their financial advisors are fiduciaries, but that’s often not the case. As noted, some financial advisors are essentially salespeople, not fiduciaries, and are more interested in selling a product than necessarily looking out for the client’s best interest. It’s one thing if a client understands a particular advisor is basically a salesperson, but if they don’t, the financial planner can take advantage of them. The fiduciary rule would have forced salespeople to act as fiduciaries, and that was not a popular stance in the profession.
Asking the Fiduciary Question
When interviewing a financial advisor, inquiring whether they are a fiduciary should prove one of the initial questions. If the advisor responds affirmatively, ask them to put it in writing. You should also ask how they are paid since the answer will tell you whether or not they are a fiduciary. In many cases, you are entrusting your life savings to this advisor. You must ensure they are always acting in your best interest.
What is Financial Therapy and How Does it Differ from Financial Advisement?
You have the best of intentions, you want to contribute to your savings account each month or make a larger payment towards your credit card debt. However, you continue to find that you don’t have enough to fulfill the financial goals you have set for yourself.
It could be more than just your lifestyle that’s preventing you from achieving financial well-being. How you approach your finances and spending, in general, can have a big impact on how you’re able to achieve your personal monetary goals. If you find yourself with spending habits that keep you from living the life you’re wanting, financial therapy could offer solutions that might work for you.
Financial Therapy vs. Financial Advisement
According to the Financial Therapy Association, financial therapy "is a process informed by the therapeutic and financial competencies that helps people think, feel and behave differently with money to improve overall well-being through evidence-based practices and interventions."1 This differs from financial advising since it incorporates your behavior, thoughts and feelings about money into your financial planning rather than simply examining your assets.
Financial therapy explores your behavior concerning finances to develop a comprehensive financial plan that works for you so you can succeed in the long run. This can include identifying your stressors when it comes to money, how you may be using money as a reward and other behaviors that can put an extra strain on your personal finances.
Is Financial Therapy Right for You?
Generally thought to be a taboo subject, you may not have the opportunity to discuss money with family and friends very often. You may not know what healthy habits are concerning money or how your family or friends have approached finances in the past. And at times it can be difficult to determine what is appropriate in relation to saving and spending money. Financial therapy can be the answer for those who are looking to discuss ways to budget, save and spend in ways that support their needs and lifestyle.
Additionally, financial therapy can be helpful to those who have what could be considered extreme behavior when it comes to spending money. In the last few years, close to 96 percent of Americans have reported impulse shopping either in-store or online.2 If you find yourself as one of the many people who tend to over-shop to the point that you’re not able to achieve your monetary goals, financial therapists can work with you to determine where this impulse is coming from and how to address it.
On the opposite end, financial therapy can also be helpful for those who tend to hoard money to the point where they are foregoing addressing their basic needs. People who save and dismiss spending money on necessities like healthcare, fresh food, and other similar items can be operating from a fearful motivation of scarcity. Financial therapy can help individuals and couples to address where this fear comes from and how to spend in a healthy way.
Saving money and achieving financial well-being may be more possible for those that take a behavioral finance approach. If you find that you’re not able to meet your financial goals even after having a "financial plan", financial therapy may provide you with the help you need. When seeking out a financial therapist check to be sure that they are licensed specialists and can address the various financial barriers you may be facing.
Top 5 Things You Should Always Share With Your Financial Advisor
Your financial advisor is an integral part of your team to help you manage your wealth and grow your future. Unfortunately, you may not be sharing with them everything that you should be.
Whether you are not communicating things because you feel they are unimportant or are a private person who wishes to keep certain information to themselves, not sharing what you need to with your financial advisor could result in problems with your financial future.
Below are five things that you should always share with your advisor.
1. What Your Goals Are
You can have all types of goals in your life from charitable giving, to buying a vacation home, to planning for retirement. Whether these goals involve finances or not, it is important that your financial advisor knows them, so that they can provide you with the best advice on how to achieve these goals. You may be concerned about caring for a family member or protecting your family against possible interruptions in income. While these may fall outside of what is considered traditional goals, your advisor may find certain solutions that can help these goals be obtained as well.
2. Your Honest Feelings About Your Financial Situation
You may be under the impression that being confident and under control at all times is necessary to portray strength. But putting on a bravado that you feel everything is ok when you are panicking inside will not improve your situation, and could make it worse. If an investment makes you nervous, or you have a financial concern that has been worrying you, your financial advisor is there to help you work through it. They also can help explain occurrences in the market that can put your mind at ease. Remember it is their job to guide you through your wealth journey and handle any concerns that may arise.
3. Changes in Your Job or Other Income
Whether it is a big change such as losing a job or switching careers, or even small changes, such as adjustments to your benefits, you should alert your financial advisor right away. You might need to adjust your retirement allotment to account for other possible expenses, or need additional insurance coverages to fill in the gaps for lowered benefits. If you embark on a side job, you should also consult with them to determine the best ways for tax planning, and possible investment opportunities for any surplus of income.
4. Major Changes to Your Personal Life
There are some aspects of your personal life that are prudent to share with your advisor. Such things as separations or impending divorces can greatly affect your finances as well as deciding to get married or having children. Your advisor can help you plan for the loss of assets in your divorce, help you invest properly to plan for children's college education or advise you on changes to your life insurance and other assets to protect your family.
5. Data or Identity Breaches
In the event your personal information has been comprised, or you suspect your identity has been used by someone else, you should alert your financial advisor immediately, even if it is as simple as you have lost a credit card. Your financial advisor will have the ability to place additional restrictions on your account and provide added security to protect your financial information and wealth. Your advisor can also provide you with advice on how to protect yourself from future breaches.
You and your financial advisor will both have the same goal in mind, which is making you more money, growing your wealth, and protecting it. Remember to treat your advisor as part of your team and trust them with all the changes in your life can affect your financial future.
20 Myths About Working With a Financial Advisor
Myths about working with a financial advisor abound, maybe you've even heard a few; "I don't need one," "they're for the wealthy," "there are lots of hidden fees."
The truth is that financial education around saving and investing money is for everyone.
And even though everyone has different perceptions and expectations about a financial advisor’s purpose, the goal remains the same: getting your money to work for you.
Common Myths
The sooner you start, the better. Developing good financial habits now, helps to prevent major catastrophes later.
- Wealthy is a high bank balance. At the end of 2013, American 401(k) balances averaged over $100,000. The median contributions during the same time were slightly more than $30,000.1
- I can’t afford a financial advisor. Reality is you can’t afford to be without one. An advisor helps manage your finances, including student loans, credit cards, retirement savings or real estate investments.
- An advisor guarantees returns. They don’t. They put you in a better position for making good financial decisions for short- and long-term planning.
- They provide short-cuts to making money. Not true, although market predictions exist, no one knows for sure. Advisors can get you closer to your goal, but you need to understand the risks and measurements of time required.
- Hidden fees. Ask for complete details on all-in fees for each consultation or transaction. This is your money, your future — don’t be shy about it. Choose wisely and ask questions about the forms of payment.
- You could do it yourself cheaper. Everyone at some point needs professional help. There’s more to financial planning than making a deposit. It’s about knowing how to manage the funds for growth.
- Advisors are self-motivated. Not always true, a successful advisor succeeds when you reach your goal. Their goal is to educate you on the market choices and how to avoid a financial crisis.
- Only interested in bank balances. This is far from the truth, since most Americans hold assets that continue to outperform the stock market. Your home’s equity, retirement or savings combined may exceed the average bank balance.
- Expensive for basic principles and advice. Individual planning is unique to your lifestyle and your situation could have complications. Good advice is not free.
- Wealth happens overnight. Working with a long-term financial advisor assures a financially planned future.
- You can always start later. It’s never too late to manage finances, but it helps to start early.
- You’ll go broke when the market swings. Not necessarily. Focus on the things you can control and keep an eye on the long-term strategy.
- Chasing the next big investment. Developing a financial portfolio is about building a comfortable long-term financial plan. It involves a realistic investment goal.
- Limited budgets need not apply. Talk with an advisor and be honest about the budget. There may be a plan to get you started.
- You got the advisor – now you can kick back. Wrong. The key to building a secure future includes budgeting and learning. It involves using money tools like insurance policies, and estate planning.
- 401 contributions are enough. Without financial planning social security and 401(k) balances may not keep up with the cost of living.
- No such thing as future security. It’s a scary, but this is about managing circumstances and preparing for life’s transition.
- You don’t need to know what’s happening. If your advisor doesn’t keep you in the loop always it’s time to change. You need to understand the whole picture, complete with details of what works or why it doesn’t.
- I have no disposable cash. You can learn to spend less and smarter to accomplish your future goal. Regular meetings are review points for adjusting the plan.
- They organize my future not me. You must take part in managing your current finances and planning your future.
Long-term planning and good financial decisions with the help of a professional advisor is a managed future. Understanding the basics of the financial advice will help to avoid overwhelming mistakes brought on by these myths.
Is it Time for an Investment Advisor? Ask Yourself These 5 Questions First
If you want to avoid outliving your money, investing can be a great way to continue to grow your nest egg as you approach — and enter — your retirement years. And while there may be many robo-advisors out there that will do the investing for you, the one-on-one, hands-on approach and personal advice and guidance you get when working with a real-life financial advisor often times will offer better insight and clarity into the investment process.
According to the CFP Board’s 2015 survey, financial advisors have become more important over the course of the past decade.1 An increasing lifespan could be one of the many reasons people are more interested in professional help when it comes to effectively managing their money. The survey found that “consumer use of financial advisors has increased from 28 percent in 2010 to 40 percent in 2015,”1 signifying a potential shift in attitude toward financial professionals. And while approximately 30 percent of U.S. households have a financial advisor,2 Cerulli Associates, a research firm that specializes in global asset management analytics, found that investors who are nearing retirement are more likely to hire one.2 According to their findings, about 40 percent of individuals in their 60s have a financial advisor.2
From your needs and objectives to your risk tolerance and timeframe, there are a variety of factors your investment advisor will consider when designing your customized investment strategy. However, before you hire an investment advisor to help you grow your assets, it’s important to ask yourself these five key questions first.
1. How Complex Are My Finances?
While an investment advisor can be helpful in any situation, hiring one is usually more necessary when you have complex issues and questions to sort out. Things like inherited stock, investing the assets of your small business, or retirement distribution strategies require more in-depth insight. Even if you’re simply looking for straightforward advice that you can apply on your own, many financial advisors offer hourly planning advice that could save you some time and money in the long-run. Especially if you’re about to experience a transition — such as the birth of a child, a divorce, or retirement — teaming up with an investment advisor can help guide your decisions as you enter new financial territory.
2. How Much Can I Invest?
Before deciding to engage with an investment advisor it’s important to first consider how much money you have to invest. Some financial advisory firms require you to have a minimum amount of "assets under management" (also referred to as AUM) before they will take you on as a client. However, if you find an advisor you really want to work with, it is always worth it to reach out and talk to them, for even if their firm is not a good fit for you, they can often recommend another advisor for you to work with.
In some cases, a robo-advisor may be a better fit, at least until you accumulate enough resources to work with an investment advisor who aligns with your values, needs and goals. However, many financial advisory firms also now offer their own versions of robo-advisors, which are "digital investing platforms" for clients who are still accumulating assets and don't yet meet their AUM minimums. Again, it's worth it to contact the firm in question and find out what they recommend!
3. Do I Need Additional Financial Help?
When looking for someone who can help you invest your money, you can either hire someone who purely specializes in investment management, or you can find someone who offers comprehensive financial planning services. Because comprehensive financial planning involves investing, some may argue that finding a professional who provides this comprehensive style will give you more value for your money. However, if you’re more of a DIYer, it might be worthwhile to simply find someone who can manage your investments. When in doubt, interview a few professionals to gain a better understanding of their services.
4. What Are My Goals?
This may seem like an obvious question, but some people overlook this critical question and end up in an undesirable situation. For example, if you don't have that much to invest and you’re just looking to try out investing and have no concrete plans to continue doing it, then you may want to try a robo-advisor first to get a feel for the market before making a more serious commitment. However, if you’re someone who is certain you want to invest for the long haul, then hiring an investment advisor can give you the accountability you need to achieve your investment objectives. It's always a good idea to identify your expectations of the experience first before you get wrapped up in a long-term commitment.
5. How Much Am I Willing to Pay?
In addition to the potential of losing money in the stock market, you will also incur fees from your investment advisor. Some advisors charge a percentage of your assets under management (AUM), so it’s important to consider how much you’re willing to pay someone to professionally manage your investments. For some people, they would rather save the money and do it themselves. However, an investment advisor is valuable in that they can educate you, as well as apply their knowledge, to help you make smarter investment decisions. At the end of the day, an investment advisor is an investment in itself, so you’ll want to think carefully about what you’re willing to pay for the value they can provide you.
2 https://www.guidevine.com/roundtable/new-data-shows-growing-financial-advisor-shortage/
Franklin Madison Advisors, Inc. (“FMA”), is a registered investment adviser firm with its registration and principal place of business in the Commonwealth of Pennsylvania. Registration of an investment adviser does not imply a certain level of skill or training. FMA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which FMA maintains clients.
This commentary and forecasts are limited to the dissemination of general information pertaining to Franklin Madison Advisors’ investment advisory services and general economic and market conditions and are subject to change without notice. The information contained herein is not intended to be personal, legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. For additional information about FMA, including fees and services, please contact FMA or refer to the Investment Adviser Public disclosures.
FMA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by FMA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about FMA, including fees and services, please contact FMA or refer to the Investment Adviser Public disclosures. Please read the disclosure statement carefully before you invest or send money.
Questions to Ask Your Financial Advisor Before Getting Started
When you hire a financial advisor, you are entering a long-term relationship with a person who will know almost everything about your financial life. It is nearly impossible to know who to trust with your money especially when some financial advisors are only looking to line their pockets rather than offer the best investment advice. Hence the importance to carefully vet potential candidates. To protect yourself and your money, here are some essential questions to ask your financial advisor before making your next move.
What is Your Investment Approach and Philosophy?
There is not one accepted approach or philosophy when it comes to investment. Different professionals follow different approaches and philosophies. Ask the financial advisor to describe their approach and philosophy in simple terms that you can easily understand. An investment philosophy can be described as a set of guiding principles underlying the process of choosing an investment in a given situation. While they might not disclose their personal information, they might be willing to share the strategies they use to succeed, and they might use the same approach for your portfolio.
Are You Fiduciary?
Their answer to this question helps you know whether the potential financial advisor has your best interest at heart or not. A fiduciary financial advisor places the interest of their client before theirs. If they are fiduciary, they freely disclose their fees and how they are compensated. They also disclose potential conflicts of interest that might influence a client’s decision to use their services. A non-fiduciary financial advisor, on the other hand, might receive a commission for selling an investment that is not in your best interest and they will not disclose it to you. If they do not give a straight yes or no answer to this question, take it as a sign something is not right.
How Much Do You Charge for Your Services?
It is important to know your costs upfront because it can greatly influence your decision. Some financial advisors get paid a commission for selling a product, others get paid a fee while others charge a percentage of the assets under management. The answer to this question not only helps you know how much the service will cost you, but it will also help you determine if they have a hidden incentive to sell you a product. Most people prefer an advisor receiving a fee rather than a commission because they are likely to act in the client’s best interest rather than a salesperson.
What Services Do You Offer?
Every person has different needs, what might work for another person might not work for you. The answer to this question will help you make sure that the advisor aligns with your needs. Some financial advisors are just investment advisors, and they will only offer you advice on your investments. Therefore, they would not be the right fit for you if you are looking for comprehensive financial planning around tax planning, insurance, retirement and estate planning. Go with a professional who offers services that suit your unique needs.
How Do You Measure Success?
A financial advisor should be in a position to measure their success based on how the plan is progressing compared to goals that their clients set up. They should share how your portfolio is performing against a benchmark that depends on the client's risk tolerance and their timeline. If the performance of your portfolio is slightly off track, they should be willing to work with you to come up with a strategy that will get it back on track.
By hiring a financial advisor, you are entrusting them with your money and the future represented by that money. Asking the above questions at the beginning of your relationship will help you decide if the potential advisor is one you want to work with.
Franklin Madison Advisors, Inc. (“FMA”), is a registered investment adviser firm with its registration and principal place of business in the Commonwealth of Pennsylvania. Registration of an investment adviser does not imply a certain level of skill or training. FMA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which FMA maintains clients.
This commentary and forecasts are limited to the dissemination of general information pertaining to Franklin Madison Advisors’ investment advisory services and general economic and market conditions and are subject to change without notice. The information contained herein is not intended to be personal, legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. For additional information about FMA, including fees and services, please contact FMA or refer to the Investment Adviser Public disclosures.
FMA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by FMA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about FMA, including fees and services, please contact FMA or refer to the Investment Adviser Public disclosures. Please read the disclosure statement carefully before you invest or send money.
3 Things to Look For When Hiring a Digital Financial Advisor
Before you start looking around for a digital financial advisor, you need to ask yourself this question: What type of financial help are you looking for? If you’re looking for a full array of services—investment advice, retirement planning, etc.—you’re probably after a qualified human with financial planning credentials.
On the other hand, if you may only need help in getting started and staying on track. In that case your needs could be met through computer-based services. Those services typically carry low fees — or are free with some online banking services like Bank of America or USAA. Your options for those online digital advisors include so-called robo-advisors or a hybrid combination of humans standing by to assist when the automated advisors leave you with unanswered questions.
The Difference Between a Robo-advisor and a Digital Financial Advisor
A robo-advisor is online and uses computer algorithms to model portfolios.1 The client provides the input of personal data, investment goals and risk tolerance, etc. Don’t look for lots of human interaction with a robo-advisor, which mainly focuses on the allocation of your investments, rather than financial planning.
A digital advisor is a combination of a robo-advisor backed up by a qualified financial planner.2 The digital advisor adds the human element to the convenience of immediate access to your financial information.
Which one you should choose depends on a full understanding of the services each offers. Robo-advisors come with low-fee investment planning. Digital advisors offer a combination of computerized financial services with the ability to talk to a qualified human.
So, for the purposes of this discussion, let’s consider that you are seeking a digital financial advisor, who provides online advice and assistance as well as automated features for a more do-it-yourself approach to financial planning.
3 Questions You Need to Ask a Digital Financial Advisor
1. When I have set up your accounts online, can I access all of them from one online platform?
That access should include customization through the use of interactive spending reports as well as budget assistance. If you are a seasoned investor, you will want to see the total value of your investors at any given time. As an independent do-it-yourself type, you might want to conduct your own trading and investment activity with the digital financial advisor looking over your shoulder and steering you clear of tax or regulatory pitfalls.
2. Is your financial tracking technology easy to use and intuitive?
This could be a struggle point at times when working with some digital financial advisors. It’s all about integrating user-friendly software with the end-user experience. The ideal solution is for your digital financial advisor to have a single sign-in platform with all the tools and accounts, investments, etc. in one place. If you have to leave the platform to manage a piece of your investment elsewhere, you are buying into a potentially difficult user interface.
3. Do you have the technology that brings your financial situation under a single umbrella?
As your financial life becomes more complex, your digital financial service must be able to gather all your data and bring it together in a way that helps you manage your finances. For example, what should you do when your 401(k) is maxed out? What are the tax consequences of investing in an annuity?
Above all, your data must be secure and presented to you in a format that you use and understand immediately.
As your financial life gets more complicated, digital financial services providers can tell you, “There’s an app for that!” The trick is to find the ideal solution that integrates everything you need and a digital financial advisor who can integrate all that automation in a way that is best suited for you now and in your financial future.
Franklin Madison Advisors, Inc. (“FMA”), is a registered investment adviser firm with its registration and principal place of business in the Commonwealth of Pennsylvania. Registration of an investment adviser does not imply a certain level of skill or training. FMA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which FMA maintains clients.
This commentary and forecasts are limited to the dissemination of general information pertaining to Franklin Madison Advisors’ investment advisory services and general economic and market conditions and are subject to change without notice. The information contained herein is not intended to be personal, legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. For additional information about FMA, including fees and services, please contact FMA or refer to the Investment Adviser Public disclosures.
FMA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by FMA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about FMA, including fees and services, please contact FMA or refer to the Investment Adviser Public disclosures. Please read the disclosure statement carefully before you invest or send money.