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How to Know When It’s Time To Hire a Financial Adviser

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young couple worried at home in stress accounting bank payments

Hiring a financial adviser might even seem counterintuitive to someone struggling to make ends meet as it is. How can you possibly afford to hire an expert when you already feel financially strained? And how can you be sure that the cost of hiring a professional will be worth it in the long run?

Finding the right adviser for your needs can be the most difficult part of all. A May 2016 survey by financial advisory firm McAdam found that one-third of Americans don’t even know what a financial adviser does.

The good news is that financial advisers aren’t necessarily only available to the uber-wealthy. Many firms today allow their clients to choose services a la carte and pay flat fees or an hourly rate, making professional financial advice more attainable than ever.

Read on to find out what a financial adviser is and the pros and cons of hiring one for your financial needs.

What is a financial adviser and why might you need one?

A financial adviser is a blanket description for a professional who offers advice on how a person should manage his or her money. (Unlike a certified financial planner, a financial adviser does not need to be licensed to provide financial advice.) An adviser can help you establish financial goals and educate you on how to meet them. Financial advisers guide clients through a number of topics, including helping people make career choices based on how it will impact their finances, retirement planning, tax planning, and insurance needs. First and foremost, a solid financial adviser will also help you manage debt and create a budget that will help you meet your future goals.

A financial adviser can be helpful for anyone who is facing a major financial crossroad, such as getting married, having a child, starting a job, sending their child to college, or retiring.

“You don’t even need to have money set aside to invest,” says Gerri Detweiler, co-author of Invest in Your-SELF: Six Secrets to a Rich Life. “An adviser can help you find a way to start putting money aside, or provide that motivation [to save] or encourage you to start a side gig to save for future goals.”

Types of Financial Advisers

Working woman worried stressed

You’ve probably seen the titles of financial advisers, financial planners, stockbrokers, and insurance agents all used interchangeably. It’s important to know the differences between each to ensure you’re working with the right professional for your needs.

Planners: A financial planner is a kind of financial adviser who helps people set and meet their financial goals. Certified financial planners (CFPs) are licensed and regulated individuals who are required to stay up-to-date on financial planning through regular classes. They have a fiduciary responsibility to their clients, meaning they have to work in the client’s best interests. Along with investments, CFPs handle retirement, tax, insurance, and estate planning, and help clients to maintain and enhance personal cash flow.

Important note: New fiduciary rules issued by the Department of Labor will go into effect in April 2017 and will require that any adviser who provides retirement investment advice to 401(k) and IRA account holders abide by a fiduciary standard. That means they will have to put their clients’ best interests ahead of their own profits.

Stockbrokers: Stockbrokers only give advice on — you guessed it — stock investments. They can sell financial products to clients, and they do not have a fiduciary duty to them. Instead, stockbrokers operate under a “suitability standard,” which means they are only required to know enough about a client’s financial situation to recommend or sell investments that are “suitable” for that person. Stockbrokers also earn a commission for each product that they sell.

Insurance agents: Some insurance agents are also licensed to sell securities or investments, and they might call themselves financial planners. However, their investment options on offer may be limited, and they are not fiduciaries. Insurance agents either get paid by commission or through their insurance firm. Insurance agents sell different types of insurance to clients, which tends to make up part of a financial plan. They can represent one or multiple insurance agents.

How Financial Advisers Are Paid

Another thing to consider before entering into an agreement is the adviser’s pay structure.

Below are some of the different ways a financial adviser can be paid:

Fee-only: A fee-only adviser charges an hourly or flat rate for services. Fees vary by location, the experience of the adviser, and the complexity of the client’s needs. For example, Julie Ford, a fee-only financial planner based in New York City, offers several packages to her clients. Her lowest-cost package costs $450 and includes basic offerings like two 60-minute meetings to discuss financial goals, ask questions, and start a customized action plan.

For clients looking for more in-depth financial planning expertise, Ford offers an Ongoing Financial Planning package, which costs $500-$1,500 along with a monthly subscription fee of $80-$350.

Fee-only advisers have a fiduciary responsibility to their clients to act in their best interest. You should always ask an adviser how they are paid and whether they are a fiduciary upfront, Detweiler says. To find a fee-only financial planner in your area, check out NAPFA or a planning network like XY Planning Network or Garrett Planning Network.

Percentage-based: A percentage-based adviser charges a percentage of the amount of money being managed. You’ll most likely run into this fee if you are hiring a financial adviser who will help you manage your investment portfolio. This fee is charged in addition to any fees associated with the client’s underlying investments. Most investment adviser fees range from 1% to 2%.

Commission-based: A commission-based adviser earns money by buying and selling securities like stocks, bonds, and exchange traded funds (ETFs) or by selling clients insurance and annuities. Commission-based advisers might steer clients toward investments that would also benefit themselves because of how they are compensated.

Flat rate: A flat-rate adviser is a good option if you are looking for an adviser who can help you to complete a single task related to your finances, like setting up a retirement account. The adviser will help you establish a plan for that one aspect of your finances for a set amount of money that is not tied to the value of investment or insurance products that he or she may sell. Always ask an adviser for the flat rate upfront and confirm whether or not questions or follow-up meetings are included. A flat-rate adviser charges a single fee regardless of the time and amount of assets one owns.

Hybrid fee structures: Some advisers may offer a variety of services and have different payment structures. They often go by the term “fee-based” and they do sell financial products. Fee-based advisers make their money through compensation from fees paid by clients and fees or discounts from the products that they sell. They are not required to provide their clients with details on how they are paid.

Not Quite Ready to Call in a Pro?

Source: Mint.com
Source: Mint.com

You may not need a professional adviser to help you with basic financial tasks like creating a budget or paying down debt. There’s a bevy of free resources out there that can help track your daily spending, like Mint.com or Learnvest.

There are plenty of free resources online as well aimed at helping low-income people tackle debt and improve their finances.

Several renowned universities offer free money management courses. Coursera is another great source for free online courses in personal finance. Currently, the University of Florida is offering a free course on personal finance and family financial planning that begins Sept. 26. You might find free or low-cost financial planning seminars and workshops in your community.

Also, check your employer’s 401(k) plan perks. Some employees might be able to find financial counseling as a perk of a 401(k) plan.

Below are some pros and cons of hiring a financial adviser.

Pros:

  • They will hold you accountable. Once you come up with your financial plan, your adviser will make sure you stay on track.
  • They will steer you away from making rash decisions with your finances and help you properly diversify your investments.
  • They are there to protect you when the worst happens. They’ll make sure you’re saving enough for an emergency fund and that you have set up important documents like a will, a power of attorney, and other estate planning needs.

Cons:

  • There’s a potential for a conflict of interest on your financial adviser’s part, depending on their fiduciary status and fee structure. A simple way to avoid this is to ask if your adviser is held to a fiduciary standard and know upfront how they are paid.
  • Hiring a financial adviser is expensive and usually costs upward of $1,000, according to AdvisoryHQ, a news media organization for the investment and financial adviser industries. Consider the cost versus the benefit of hiring a professional to manage your money for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Amy Kraft
Amy Kraft |

Amy Kraft is a writer at MagnifyMoney. You can email Amy here

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When Having a Baby Leaves Parents Mired in Medical Debt

Medical Debt

As soon as my sister Melissa returned home from after giving birth to her son via cesarean section, the medical bills started pouring in. Even with her employer-provided health insurance, she was still on the hook for thousands of dollars. Like a growing share of American workers, her policy came with a hefty deductible. She had to pay $3,000 out of pocket before her insurance even kicked in. Once she hit her deductible, she was still on the hook for 20% of her remaining fees. When all was said and done, she owed $8,800.

When she was ready to have her second child two years later, Melissa thought she was ready. She planned for a C-section and braced herself for her first post-delivery hospital bill. But even using the same insurer, she was stuck with an even larger bill than her first delivery. Her total out-of-pocket costs after insurance: $12,700.

This time around, she requested an itemized bill. When she opened it, she found charges for everything from $80 for one dose of ibuprofen to $1,800 to cover an out-of-network nurse practitioner who assisted with the delivery.

“I could have brought my own ibuprofen to the hospital if I knew it was going to cost that much,” she said. “And I never even saw the out-of-network nurse who assisted with my delivery or gave my consent to use her.”

The financial blows kept coming. Melissa realized that her insurer had billed her differently this time. Rather than treating Melissa as an individual seeking care, they automatically added her daughter to the insurance plan and based their coverage off the plan’s much-higher family plan deductible. She knew the bill was incorrect and set out to challenge the charges.

“I spent a year fighting with them and writing them letters,” she said. “I spent every lunch break on the phone with them.”

When insurance isn’t enough

The cost of childbirth in the U.S. is notoriously difficult to predict. Prices can vary from state-to-state and even from hospital-to-hospital. A 2013 Truven Health Analytics report found that average total charges for women and newborns with employer-provided commercial health insurance was $32,093 for vaginal births and $51,125 for cesarean births.

The Affordable Care Act requires maternity care coverage for patients. But the new law does not state which services have to be covered. Individual states can decide what is actually covered and insurance plans tend to be vague about prices. Add that to the fact that deductibles and copays for employer-sponsored and individual plans have been increasing and you’ve got an expensive mess.

“It’s hardly a fair consumer market,” said Suzanne Delbanco, executive director of Catalyst for Payment Reform (CPR), a nonprofit corporation pushing for greater transparency in health care quality. “You would never go into a Best Buy and choose a TV without knowing the price first.”

In addition to the lack of transparency, Delbanco said that consumers often have to share a higher portion of the cost of medical services. Over a six-year period (2004-2010) the average out-of-pocket costs for vaginal and cesarean births nearly tripled, according to the Truven report.

Even if a family knows their policy by heart, some expenses are simply impossible to control in the middle of a delivery.

“One of the biggest pieces, which is not limited to pregnancy and delivery, is surprise medical bills when there are providers inside the hospital that are not in-network,” said Dania Palanker, a Senior Counsel for Health and Reproductive Rights at the National Women’s Law Center. This practice is called “balance billing” in industry speak.

My sister had no idea one of the nurses helping her was not covered by her insurance policy. Hospital staff don’t typically stop a woman mid-contraction to call the 800 number on the back of the insurance card. The consumer rarely finds out about the extra charges until they are at home and receive their bill in the mail.

Some states now have laws that protect consumers against some forms of balance billing and several others are currently working on passing such laws. Healthcare and women’s rights advocates agree that there is still work to be done.

Carol Sakala, director of childbirth connection programs at National Partnership for Women & Families, said the Affordable Care Act could have done more to protect women from exorbitant delivery costs. “Prenatal care is a plus. No cost preventive services is a plus,” Sakala said. “But we’re still not serving women during labor and delivery.

It took my sister one year to smooth out the errors on her hospital bill after her second delivery. Fortunately, she was not stuck with the $1800 bill for her out-of-network nurse. But she still owed a total of $10,000 in bills for both children. She negotiated a payment plan with the hospital’s billing department, paying $400 per month, but it would have taken three years for her to pay it off.

She decided to get rid of her debt and move on instead. Melissa negotiated a lump sum settlement — $7000 — and agreed to pay off her entire balance at once.

“[I wanted] to be done with it,” she said.

How you can avoid sticker shock

  1. Read your policy thoroughly. Do your best to be sure everyone working on your delivery is covered by your insurance plan. Review your policy carefully as well. Some insurance plans have a guarantee built into the contract so that even if an out-of-network nurse or doctor sneaks into the room, consumers won’t be stuck with the bill, Palanker said.
  2. Shop around if you can. If you and your doctors believe you might need a cesarean section, it is possible to find estimates of how much hospitals in your area charge for the procedure by going onto their website. Also, check your insurer’s policy. They may cover your C-section entirely.
  3. Don’t accept your bill if you think it’s wrong. Medical billing errors are increasingly common, with some advocacy groups estimating they are as high as 75 or 80 percent. If you receive a bill for services that you believe are not accurate, request an itemized bill. That way you know exactly what you are being charged for and you can contest any unwarranted charges.
  4. Don’t be afraid to negotiate. Regardless of what your bill says, negotiate. Some billing departments may be willing to settle your unpaid bill for a lower amount. Insurance companies negotiate costs with the hospital all the time. My sister saved $3,000 by negotiating her bill directly with the hospital.  “It’s worth it to negotiate costs,” Sakala said.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Amy Kraft
Amy Kraft |

Amy Kraft is a writer at MagnifyMoney. You can email Amy here