One of the biggest decisions you will ever make is choosing a financial advisor. Whether you are investing for the first time or you are a seasoned investor, this choice will affect your financial future.
If you are considering changing your investment strategy or planning to retire early, you need to hire a financial advisor to help guide you. In this article, we will walk through what you should consider before you choose a financial advisor and what you should look for when you meet with one.
The first thing you want to think about when you are choosing a financial advisor is who they work for. Does the person you are meeting with represent a large brokerage firm or an independent financial advisory firm? Is he or she recommended by someone you trust or do they have their own website?
Second, ask about their experience. Does the person you are meeting with have years of experience in the financial sector or are they just starting out? Are they willing to invest in your future or are they only interested in your money?
Know what financial services you need
If you're looking for a financial advisor, the first step is to figure out what kind of help you need.
Do you want help investing? If so, your options are pretty broad: You can find a financial advisor who has experience with individual stocks and bonds, or someone who specializes in mutual funds or exchange-traded funds (ETFs). If you'd rather leave it up to an expert, there are also robo-advisors that manage your investments for you automatically based on whatever parameters you set (i.e., risk tolerance).
Or do you need help with a budget? Again, if so, there are many options available: You can talk to a certified public accountant (CPA), hire an accountant at a larger firm like Deloitte or PwC who specializes in taxes and financial planning, or hire a tax preparer at H&R Block or Jackson Hewitt.
Whatever your situation is, make sure to do some research and find out what kinds of services are offered by the different types of advisors out there.
Learn which financial advisors have your back
When you're looking for a financial advisor, the first thing you need to ask yourself is: "Do they have my back?" Financial advisors are there to help you with your finances. But how do you know that they're going to look out for your best interests?
You want an advisor who is going to give you straight advice and not just what you want to hear. You also want someone who will take the time to understand your situation and goals before giving advice. This means that they should listen carefully when answering your questions, rather than just making assumptions about what might be best for you.
You also want an advisor who can help you manage any challenges or problems that come up along the way—someone who's willing to work with outside resources if needed, such as a lawyer or other financial professional. They should be willing to explain what's happening in plain language so that even non-financial experts can understand it.
Here are some things to look for when evaluating a financial advisor:
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Credentials and certifications
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Reputation and experience
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Licenses, registrations, and professional designations
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Professional affiliations and disciplinary history
Learn about financial advisor options
There are two types of financial advisors: those who work for financial institutions and those who operate independently. The latter is referred to as independent fiduciary. Independent fiduciaries cannot accept commissions or other payments from the companies whose products they sell, even if their compensation is based on the number of assets under management. They must act solely in your best interest, so make sure yours is one of them!
Some advisors offer both commissioned and non-commissioned services, but some more specialized advisors only do one or the other.
For example, a broker can only sell you investments that generate commissions for themselves and their employer; a fee-only advisor charges clients directly for their services instead of earning money through product sales (like commission).
A fee-based advisor might charge an hourly rate or by project (such as helping you create a comprehensive estate plan), while an asset-based advisor charges either based on what percentage of your assets they manage (for example 1% annually) or simply set up flat annual fees with no minimum balance required in order to keep things simple (for instance $1,000/year).
How much you can afford to pay an advisor
It's important to consider how much you can afford to pay an advisor. There are many different types of compensation that an advisor can receive, including a flat fee, hourly rate, or a percentage of assets under management. You may also pay your advisor a percentage of the money they save you (typically called fees for service).
The type of compensation is dependent on what type of financial situation you have and what kind of relationship you want with your advisor. For example, if you have a simple tax filing problem, then perhaps paying $75 per hour would be reasonable; but if it were something more complex like estate planning then paying $1,000+ per hour might be more appropriate since there’s greater complexity involved in getting it right.
Another factor affecting compensation is whether or not the firm has any conflicts of interest—if so then that could affect how much the firm charges for its services
Vet the financial advisor's background
The first thing you want to do when vetting a financial advisor is to check their background. Ask them for references and verify their education and experience. A good way to do this is by checking with regulatory agencies like the SEC or FINRA, or by searching online forums where people have shared their experiences with specific advisors.
You can also look at online review sites, such as Yelp or Google Reviews, which often include ratings and client feedback that can help you determine whether or not an investment professional may be right for you. Finally, if they have a website or social media presence (including LinkedIn), take some time looking through it—this will give you some insight into how they present themselves professionally.
Conclusion
With so many financial advisors to choose from, it’s important that you take the time to find one who fits your specific needs. When you take these steps, you can make an informed decision about which advisor will help you create a solid financial plan for the future.
FAQ
Is a financial planner the same as a financial advisor?
No! A financial planner is responsible for making recommendations that help you manage your finances so you can achieve your goals. A financial advisor helps you analyze your personal situation and develop a plan to meet your financial needs. They do not actually manage your investments for you.
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