Should I hire a financial adviser?

A question from Askville:

I met with an “Ameriprise” financial adviser and am thinking of hiring him. It’s not that expensive and I defiantly am not great managing my finances but I’m wondering if it’s overkill for me. I make a low six figure income, have a little credit card debt, a 401k, stock options, and I own a home. To date this hasn’t really been very complex but I’m not sure if I’m making the right decisions for the long term. Any advice about the benefits of a financial adviser would be greatly appreciated.

There are three kinds of advisers, fee-only, commission-only, and fee-and-commission.  Fee-only advisers are paid only by their clients such as yourself.  Commission-only advisers earn commissions on sales of insurance policies, mutual funds, annuities, and other products they sell.  Fee-and-commission advisers attempt to earn both ways.  It’s easy to see that an adviser earning commissions would be sorely tempted to push products that pay higher commissions, regardless of how appropriate they are for a particular client.  In fact, many products sold by commissioned advisers are downright overpriced (with a good chunk of that overpricing going straight to the adviser).  So in my opinion, you should stay clear of commission-only and fee-and-commission advisers; even if they resist the lure of higher commissions on bad products today, there is no guarantee they would continue to do so in the future.

In your situation, I would say that you need a financial planner more than a full-service adviser.  You would meet with the planner initially and discuss your financial situation (income, expenses, family situation, retirement expectations, etc.)  Based on that situation, the planner would draw up a written long-term financial plan, including strategic asset allocation (how much money you should commit to stocks vs. bonds over the long haul), tactical asset allocation (how much money you should commit to stocks vs. bonds over the next year or so), and recommendations on changes to be made to your existing portfolio.  From then on, you would meet with the planner about once a year, review your progress, and adjust your financial plan if necessary.  Depending on where you live and how complex your financial situation is, the initial consultation (including preparation of your financial plan) may cost you anywhere between a few hundred and a few thousand dollars, an annual update, significantly less…

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