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How to Find a Financial Advisor You Can Trust

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7 Facts That Will Free You From the Fear of Stock Market CrashesHow Wall Street Fools You Into Overpaying for UnderperformanceWhat Your 401(k) Provider Doesn’t Want You to KnowThe 6 Biggest Mistakes Ordinary Investors MakeHow to Find a Financial Advisor You Can TrustHere’s How to Become a 401(k) Millionaire

How to Find a Financial Advisor You Can Trust

How to Find a Financial Advisor You Can Trust

More and more people are using financial advisors to help them navigate the complex journey to financial freedom.

But although more Americans are seeking advice on matters of personal finance, they are also less sure that the advice they are getting is trustworthy.

Unfortunately, a growing amount of Americans see advisors as serving their companies’ best interests rather than their own best interests. According to a survey by The National Association of Retirement Plan Participants (NARPP), 60% of Americans now feel this way compared to just 25% of respondents in 2010.

Who Can Be Trusted?

Today’s infographic is from Tony Robbins, and it covers key points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.

The book dissects the investment advisor landscape to show the value of a relationship with an advisor, the legal distinctions between different advisor types, and how advisors are incentivized.

Ultimately, it helps give you the ammo you need to find an investment advisor that will provide you with better service than the rest.

The Value of the Right Advisor

The right financial advisor can help you make better decisions, address your cognitive biases, and use their expertise to save you massive amounts of money.

A recent Vanguard study helps quantify the value a good advisor can bring:

  • Lowering expense ratios: 0.45%
  • Rebalancing portfolio: 0.35%
  • Asset allocation: 0.75%
  • Withdrawing the right investments in retirement: 0.70%
  • Behavioral coaching: 1.50%

Total: 3.75% of added value!

That’s more than 3x what a sophisticated advisor might charge, and doesn’t include the benefits of reducing taxes or other areas.

Advisors vs. Brokers

There are roughly 310,000 people in the U.S. who call themselves financial advisors – but they actually fall under two different legal frameworks.

About 90% of this group are brokers, while 10% are registered investment advisors. Confusingly, there is also a significant portion who are dual-registered as both brokers and registered advisors, as well.

What’s the difference?

The two have different legal obligations, as well as differing ways of receiving compensation from clients:

Investment Advisor (RIA)

  • RIAs are registered with the SEC and with the state they are working in
  • Like doctors or lawyers, investment advisors have a fiduciary duty and legal obligation to their clients
  • In other words, they must serve your best interest at all times
  • They also must disclose any conflicts of interest
  • They don’t accept commission from third-parties for their products

How they get paid: They charge a % based on assets managed, or a flat fee for financial advice

Brokers

  • Brokers are usually employed by banks, brokerage houses, or insurance companies
  • The products they recommend have to pass a suitability standard, based on your personal circumstances
  • However, they do not have to necessarily recommend the best product for you

How they get paid: They get commissions for selling certain products to you. They may also charge based on assets under management, as well.

Picking the Right Advisor

Remember, the right advisor can add 3.75% of added value to a portfolio, and that’s before taxes and other areas! With the stakes so high, how can Americans pick the right advisor for them?

Here are the 7 questions Tony Robbins would ask a potential advisor to work with:

1. Are you a Registered Investment Advisor?
If the answer is yes, he or she is required by law to be a fiduciary.

2. Are you (or your firm) affiliated with a Broker-Dealer?
If yes, he or she can act as a broker and receive commissions for guiding you into specific investments.

3. Does your firm offer proprietary mutual funds or separately managed accounts?
These products will likely compensate them with additional revenues, at your expense.

4. Do you or your firm receive any third-party compensation for recommending particular investments?
This is the ultimate question you want answered. You want products to be recommended because they are right for you, not because they give the best kickbacks.

5. What’s your philosophy when it comes to investing?
This will help you understand whether your advisor believes he/she can beat the market.

6. What financial planning services do you offer beyond investment strategy and portfolio management?
Financial planning is much bigger than just investing – it also involves planning for your child’s education, handling vested stock options, estate planning, and tax advice. You want someone that can help you in all stages of your life.

7. Where will my money be held?
Having your money held by a trusted third-party custodian will mean your money is in a secure environment.

Like most financial endeavors, picking an advisor is an area lined with potential pitfalls.

But choosing the right investment advisor can be a difference maker – it can even possibly even set you up with many years of extra retirement savings.

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Mapped: The Salary Needed to Buy a Home in 50 U.S. Metro Areas

The annual salary needed to buy a home in the U.S. ranges from $38k to $255k, depending on the metropolitan area you are looking in.

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The Salary Needed to Buy a Home in 50 U.S. Metro Areas

Over the last year, home prices have risen in 49 of the biggest 50 metro areas in the United States.

At the same time, mortgage rates have hit seven-year highs, making things more expensive for any prospective home buyer.

With this context in mind, today’s map comes from HowMuch.net, and it shows the salary needed to buy a home in the 50 largest U.S. metro areas.

The Least and Most Expensive Metro Areas

As a reference point, the median home in the United States costs about $257,600, according to the National Association of Realtors.

 Median Home PriceMontly Payment (PITI)Salary Needed
National$257,600$1,433.91$61,453.51

With a 20% down payment and a 4.90% mortgage rate, and taking into account what’s needed to pay principal, interest, taxes, and insurance (PITI) on the home, it would mean a prospective buyer would need to have $61,453.51 in salary to afford such a purchase.

However, based on your frame of reference, this national estimate may seem extremely low or quite high. That’s because the salary required to buy in different major cities in the U.S. can fall anywhere between $37,659 to $254,835.

The 10 Cheapest Metro Areas

Here are the cheapest metro areas in the U.S., based on data and calculations from HSH.com:

RankMetro AreaMedian Home PriceMonthly Payment (PITI)Salary Needed
#1Pittsburgh$141,625$878.73$37,659.86
#2Cleveland$150,100$943.55$40,437.72
#3Oklahoma City$161,000$964.49$41,335.41
#4Memphis$174,000$966.02$41,400.93
#5Indianapolis$185,200$986.74$42,288.92
#6Louisville$180,100$987.54$42,323.15
#7Cincinnati$169,400$1,013.37$43,429.97
#8St. Louis$174,100$1,031.70$44,215.56
#9Birmingham$202,300$1,040.51$44,593.35
#10Buffalo$154,200$1,066.29$45,698.05

After the dust settles, Pittsburgh ranks as the cheapest metro area in the U.S. to buy a home. According to these calculations, buying a median home in Pittsburgh – which includes the surrounding metro area – requires an annual income of less than $40,000 to buy.

Just missing the list was Detroit, where a salary of $48,002.89 is needed.

The 10 Most Expensive Metro Areas

Now, here are the priciest markets in the country, also based on data from HSH.com:

RankMetro AreaMedian Home PriceMonthly Payment (PITI)Salary Needed
#1San Jose$1,250,000$5,946.17$254,835.73
#2San Francisco$952,200$4,642.82$198,978.01
#3San Diego$626,000$3,071.62$131,640.79
#4Los Angeles$576,100$2,873.64$123,156.01
#5Boston$460,300$2,491.76$106,789.93
#6New York City$403,900$2,465.97$105,684.33
#7Seattle$489,600$2,458.58$105,367.89
#8Washington, D.C.$417,400$2,202.87$94,408.70
#9Denver$438,300$2,139.02$91,672.45
#10Portland$389,000$1,987.37$85,173.08

Topping the list of the most expensive metro areas are San Jose and San Francisco, which are both cities fueled by the economic boom in Silicon Valley. Meanwhile, two other major metro areas in California, Los Angeles and San Diego, are not far behind.

New York City only ranks in sixth here, though it is worth noting that the NYC metro area extends well beyond the five boroughs. It includes Newark, Jersey City, and many nearby counties as well.

As a final point, it’s worth mentioning that all cities here (with the exception of Denver) are in coastal states.

Notes on Calculations

Data on median home prices comes from the National Association of Realtors and is based on 2018 Q4 information, while national mortgage rate data is derived from weekly surveys by Freddie Mac and the Mortgage Bankers Association of America for 30-year fixed rate mortgages.

Calculations include tax and homeowners insurance costs to determine the annual salary it takes to afford the base cost of owning a home (principal, interest, property tax and homeowner’s insurance, or PITI) in the nation’s 50 largest metropolitan areas.

Standard 28% “front-end” debt ratios and a 20% down payments subtracted from the median-home-price data are used to arrive at these figures.

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Chart of the Week

The Best and Worst Performing Wealth Markets in the Last 10 Years

This telling chart shows how national wealth markets have changed over the past decade, highlighting the biggest winners and losers.

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The Best and Worst Performing Wealth Markets

A lot can change in a decade.

Ten years ago, the collapse of Lehman Brothers sent the world’s financial markets into a tailspin, a catalyst for years of economic uncertainty.

At the same time, China’s robust GDP growth was reaching a fever pitch. The country was turning into a wealth creation machine, creating millions of newly-minted millionaires who would end up having a huge impact on wealth markets around the world.

The Ups and Downs of Wealth Markets (2008-2018)

Today’s graphic, using data from the Global Wealth Migration Review, looks at national wealth markets, and how they’ve changed since 2008.

Each wealth market is calculated from the sum of individual assets within the jurisdiction, accounting for the value of cash, property, equity, and business interests owned by people in the country. Just like other kinds of markets, wealth can grow or shrink over time.

Here are a few countries and regions that stand out in the report:

Developing Asian Economies
In terms of sheer wealth growth, nothing comes close to countries like China and India. The size of these markets, combined with rapid economic growth, have resulted in triple-digit gains over the last 10 years.

For the world’s two most populous countries, it’s a trend that is expected to continue into the next decade, despite the fact that many millionaire residents are migrating to different jurisdictions.

Mediterranean Malaise
European nations saw very little growth over the past decade, but the Mediterranean region was particularly hard-hit. In fact, eight of the 20 worst performing wealth markets over the last decade are located along the Mediterranean coast:

Rank (Out of 90)Country% Growth (2008-2018)
89🇬🇷 Greece-37%
87🇨🇾 Cyprus-21%
86🇮🇹 Italy-14%
85🇪🇸 Spain-13%
84🇹🇷 Turkey-11%
82🇪🇬 Egypt-10%
80🇫🇷 France-7%
76🇭🇷 Croatia-6%

European Bright Spots
There were some bright spots in Europe during this same time period. Malta, Ireland, and Monaco all achieved positive wealth growth at rates higher than 30% over the last 10 years.

Australia
While it’s expected to see rapidly-growing economies as prolific producers of wealth, it is much more surprising when mature markets perform so strongly. Singapore and New Zealand fall under that category, as does Australia, which was already a large, mature wealth market.

Australia recently surpassed both Canada and France to become the seventh largest wealth market in the world, and last year alone, over 12,000 millionaires migrated there.

Venezuela
The long-term economic slide of Venezuela has been well documented, and it comes as no surprise that the country saw extreme contraction of wealth over the last decade. Since war-torn countries are not included in the report, Venezuela ranked 90th, which is dead-last on a global basis.

Short Term, Long Term

In 2018, global wealth actually slumped by 5%, dropping from $215 trillion to $204 trillion.

All 90 countries tracked by the report experienced negative growth in wealth, as global stock and property markets dipped. Here’s a look at the wealth markets that were the hardest hit over the past year:

Wealth MarketWealth growth (2017 -2018)
🇻🇪 Venezuela-25%
🇹🇷 Turkey-23%
🇦🇷 Argentina-20%
🇵🇰 Pakistan-15%
🇦🇴 Angola-15%
🇺🇦 Ukraine-13%
🇫🇷 France-12%
🇷🇺 Russia-12%
🇮🇷 Iran-12%
🇶🇦 Qatar-12%

The future outlook is rosier. Global wealth is expected to rise by 43% over the next decade, reaching $291 trillion by 2028. If current trends play out as expected, Vietnam could likely top this list a decade from now with a staggering 200% growth rate.

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