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Which financial advisor fee model should I choose?
If you’re interested in hiring a financial advisor, whether it is for retirement planning, mortgage help, insurance consultation, or investment options, you may be wondering which financial advisor fee model you should choose. There are two types of financial advisors. Fee-only financial advisors receive payment through hourly pay as well as through a certain percentage of the assets with which they are entrusted to invest or plan for. That percentage is usually relatively small, between one and one and a half percent is frequently the most common, and if your planner is doing the best job he can your portfolio will be raising in value. This means that the planner’s pay will come out of your profits and not out of the original value of your assets.
Fee-only planners are wonderful for shorter term investments but you may want to try the other type of financial advisor for longer term investments. With shorter term investments you will likely be directed toward very secure gains such as CDs. CDs are certificates of deposit and they’re backed both by your bank and the United States government through the FDIC. Should your bank foreclose during the time in which you have a CD with a bank you will receive your funds from the United States instead. CDs run in terms and the shorter the term the less the interest rates generally so if you don’t think you will need the money for a while it is usually better to go for a longer term. CDs provide higher interest rates than regular savings and checking accounts but if you try to withdrawal your money before the term is up you will usually incur a penalty or lose all of your interest. On the other hand if you’re looking for longer term investment options you may want to hire a fee-based financial planner. These planners receive the regular percentage of your assets as well as the hourly fees but they also receive commissions and sometimes bonuses or referrals. The reason you’ll want a fee-based financial advisor for longer term investment is because a fee-based financial advisor has more reason to search through every possible option for you and him since he can find better commissions in this way. You have to be careful though because sometimes fee-based advisors will trade your assets and money more than is needed to generate commissions and though this is usually a punishable offense if provable no one wants to go to court to retrieve the money that is rightfully theirs.
Usually your best bet is to look up local advisors online. After you find local financial advisors online you can type in the names of the closest advisors with the word review after. This will generally come up with reviews from previous customers and you can make sure you’re dealing with the best possible planner for your money. Do a little research and decide upon the best financial advisor fee model for you.