If you are thinking about hiring a financial advisor, it’s important to do your research and take the time to find the right person or firm for your unique situation. The process may take a little more time than simply doing a quick internet search, but the investment of time will be well worth it in terms of your peace of mind knowing you made the right hire.
You will most likely be working with the financial advisor or planner for many years and they will help shape your financial success. When you are ready to start your search for a financial advisor, there are a few key steps you should take—here are six steps to help you find the best financial advisor for you.
Retirement planning and financial advisement is not a one-size-fits-all deal. People have different financial situations, backgrounds and goals and need to search for a financial advisor with their custom needs in mind. For example, some advisors offer financial planning services but not investment and portfolio management, while others manage investments and don’t focus on financial and retirement planning. Also, advisors focus on different strategies and demographics:
Consider what type of financial advice you need and know which services a potential advisor provides. Here’s a summary of the three main types:
Credentials are tricky. Some organizations offer easy-to-get credentials for a fee and sometimes a small course so that salespeople can pay the fee to get the “credential” and appear to be an expert. You want to find someone with reputable credentials to manage your finances, not someone who has a title with little to no experience or proper financial designation. You also want to find someone qualified to help with your specific financial situation and there are financial professionals with varying backgrounds.
The most important credential to look for is the Certified Financial Planner (CFP®) designation, which requires completion of college-level coursework in financial planning, passing an exam and meeting experience requirements. There are also specialized credentials specific to certain areas of financial planning like retirement income planning or estate planning.
If you’re looking for someone to help you with your finances, it’s important to find someone who is qualified and has the experience you need. There are a few different credentials that can indicate that someone is qualified to help you with your finances. To find financial advisors or planners with reputable credentials, look for someone with some of the following qualifications:
If you’re near retirement, find someone with specialized training in retirement planning, like a Retirement Management Analyst (RMA) or a Retirement Income Certified Professional (RICP). Keep in mind that credentials are obtained by passing an examination that measures proficiency on the subject matter. To maintain the designation, an advisor must adhere to an ethics policy and meet continuing education requirements.
To hire the right financial advisor for you, you’ll need to know all the ways a potential financial advisor may be compensated and decide which compensation method works best for you. Here are a few ways financial advisors and planners are compensated:
You’ll also want to understand the difference between:
The compensation method that works best for you depends on your unique situation. For example, if you are buying an investment that you plan on holding for a long time – and will not need ongoing advice – paying a commission may be the most cost-effective method. However, if you have the desire to have someone readily available to update your financial plan and address ongoing questions, a fee structure might be optimal. The key is that you understand what you’ll be charged for the services you’ll be receiving from the financial advisor.
You need to ask important questions before you hire someone to manage your finances. The right questions can help you weed out financial advisors whom you don’t communicate well with, or who don’t typically work with clients like you. Here are some essential questions to ask before hiring a financial advisor:
Read our article Top Questions to Ask a Financial Advisor to learn what types of questions can help you secure the ideal financial planner or advisor for your situation.
You can find out a lot about a financial advisor by simply doing an internet search. Find out whether the advisor has any testimonials or complaints by doing a little research online.
Also, simply ask the advisor these questions as transparency is important when it comes to a relationship with someone who will be handling your money:
To be sure someone is legitimate and has a good service record before you hire them you can verify a potential financial advisor’s credentials and complaint history by checking their records at FINRA, the SEC, the CFP® Board, or with other membership organizations the advisor is associated with through their business. Formal customer complaints stay on a financial advisor’s record for a long time so it’s usually easy for people who do a little digging to locate any potential issues.
If an advisor has passed all of the screening this far, ask for references of current clients whose goals and finances match yours and then contact those references for more particulars.
The best financial advisors understand that giving great service means maintaining constant communication with their clients. They should return your calls and emails promptly, provide easy-to-understand explanations of investment concepts, and be available to meet with you in person on a regular basis to review your account and discuss any changes to your financial situation or goals.
It’s important you know how to spot fraud. Identity theft and fraud are a lot more prevalent in the digital age so it’s crucial you know whether a potential financial advisor has had fraud issues. To avoid having custody of client funds most reputable financial advisors will use what is called a “third-party custodian” to hold your assets. This means your accounts will be opened at a large, well-known firm, such as Charles Schwab or Fidelity. While the advisor will be able to place trades and offer service on the account, only the custodian will report transactions to you, verifies signatures, and so on. This protects both parties.
It’s important to always be on the lookout for red flags and warning signs when working with financial advisors. Some of these might include:
The ownership structure and any related entities should be listed in the firm’s disclosure document called an ADV Part Two.
Fiduciary financial advisors are legally and ethically required to put your best interest before their own. In the financial marketplace, fiduciary advisors are the best kind of advisors because they typically have fewer conflicts of interest and have a relationship of trust with their clients.
There are several questions you can ask to determine if your financial advisor is a fiduciary.
If the answer to any of these questions is yes, then your financial advisor probably isn't a fiduciary. Fiduciary advisors are required by law to disclose all of their fees and conflicts of interest up front.
While you are researching advisors, simply ask whether the potential advisor and their firm adhere to the “fiduciary duty.” Choosing a fiduciary financial or investment advisor is an important step to make sure the advisor is someone who is obligated to act solely in your own best interest.
Savvy financial planning and taking measures to prevent financial mistakes will help you develop a financial portfolio you will not only be proud of, but will also greatly influence your quality of life and financial success. Choosing a financial advisor you can trust is one of the most important things you will do to help with your financial stability. Connect with a pre-screened and qualified financial advisor today.
With our trusted network of advisors, we’ll connect you with up to three established planners in your area.
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