How To Choose a Financial Advisor

If the pandemic taught us anything, it should have highlighted the importance of having our financial affairs in order. It doesn’t matter how old you are; if you’re earning an income, it’s a good idea to have the plan to secure your financial future. One way of doing that is enlisting the help of a financial advisor.

What Is a Financial Advisor?

A financial advisor is an expert in financial management. Financial advisors help people manage their money and reach their financial goals in various ways. Services can range from budgeting to financial advice, investment advice, and management to estate planning. Some experts may also use varying names, like investment advisors, financial coaches, certified financial planners, portfolio managers, brokers, etc.

Determine if You Need an Advisor

Not everyone may need a financial advisor, but here are some instances of people who could benefit from having one:

Someone who has been trying to save with little success
Someone who brings in a good income but has nothing to show.
Someone who has financial goals but has no idea how to achieve them
Someone who wants to invest but does not know where to start
Someone with a family who wants to secure financial security for themselves and their children’s future

If you see yourself in any of these scenarios, you need not only a financial advisor but also know how to choose the right one.

Decide the Types of Services You Need an Advisor For

Not everyone’s financial needs are the same; that’s good because not all financial advisors provide the same type of service. So, before picking a financial advisor, you need to know how you want them to help you. Financial advisors have various specialty areas; the advisor you choose must offer a product or service you need.

For instance, as a former insurance agent, I could offer life insurance to anyone looking for this type of protection for themselves or their family. But, if they wanted to start investing, I was not the right person to help. While many insurance agents can provide investment advice and offer investment products, not all have the proper licenses. Here’s another example, some financial advisors are tax experts who help small businesses strategize ways to maximize their tax returns. This may not be the financial advisor you want to turn to for retirement planning.

Knowing the type of service you need is easy when you’ve taken the time to set financial goals. Once you have the goals you want in place, finding the advisor you need will not be hard.

Here are some of the services financial advisors offer:

Advice on investing
Planning for debt management or paying off debt
Crafting budgets to meet your financial goals
Getting you proper insurance coverage
Planning for your taxes
Planning for retirement
Estate planning
Planning for college
Wealth management

Questions To Ask a Financial Advisor

Once you’ve determined the service you need, you’ll need to ask the right questions to find the financial advisor to meet that need. Choosing the right advisor can involve asking a myriad of questions. Here is a short list of the types of questions that are good to start with when interviewing a financial advisor:

What type of financial services do you offer?
Are you a fiduciary?
What are your qualifications?
How do you charge your clients?
What is the income bracket of the clients you usually work with?
How will you know if we’re a good fit for one another?
What type of documentation do you need to see from me?
How often will we need to meet?
Will you need to collaborate with other advisors to help reach my goals?
Do you have a website?

Know the Limitations and Expectations That Come With Titles

You already know that the specializations of financial advisors vary. You should also know that not all financial advisors will have a credential behind their names. For instance, financial coaches don’t have to have any credentials or certifications. They need the expertise to be able to help you meet your needs. However, any financial advisor that gives investment advice must be registered as an investment advisor with either the U.S. Securities and Exchange Commission (SEC) or their state. Also, life insurance agents must be registered with their state and have the proper license. Some life insurance agents are also licensed in various levels of securities to provide investment advice and sell investment products.

You should also know that some financial advisors have a fiduciary duty to their clients. This means they’re obligated and bound through the appropriate channels to always act in their client’s best interest and not their own. When the financial advisor you work with has a fiduciary duty, you know they’ll always have your best interest and are not trying to line their wallets.

Know How the Advisor Gets Paid

Knowing how the financial advisor you choose gets paid is always important. This is one of the main factors in deciding who your financial advisor will be.

Some advisors are fee-only advisors who charge you a fee for their services. These fees could be a percentage of the product they offer or assets they manage for you, an hourly or flat rate. Most fiduciaries are fee-only advisors.

Some advisors earn commissions from the products they sell you. This leaves some clients leery of how invested commissioned-based advisors are in their well-being because the more expensive the product they sell you, the more money they make. It’s unlikely that commission-only advisors are fiduciaries, but that doesn’t mean they don’t have their client’s best interests at heart. The best way to know is to vet them and thoroughly ask them the right questions.

Know What You Can Afford

Once you know if your financial advisor is commission-based or fee-based, you can determine how costly it will be to work with them. If a service is commissioned-based, then that means that the advisor will not be paid directly from your pocket. Not all services will render a commission, so the service or financial product you need may only be fee-based. Today’s going rate for a financial advisor at an hourly rate can cost about $200 an hour. Regardless of how the advisor charges — percentage, hourly, flat rate, or fees — know that you can afford it before you sign the dotted line. Don’t commit to paying something that negatively impacts your finances when your whole purpose is to improve them.

Vet Appropriately

Make sure to check the credentials of any financial advisor you’re considering working with (if they have credentials). While not all financial advisors have credentials, knowing how they’re qualified to work with you and how they’ve helped people in the past is essential. Get referrals, if possible. If they have a website, visit it to learn more about them and check their BBB rating if they’re an independent business.

Get referrals from friends and family when trying to find a financial advisor. Refer to The National Association of Personal Financial Advisors (NAPFA) for a list of fee-only, fiduciary financial planners. You can also view actions and complaints filed against financial advisors using the Financial Industry Regulatory Authority’s (FINRA) Broker Check.

The Bottom Line

Everyone doesn’t need a financial advisor, but if your financial goals could be better realized with the help of a financial advisor, using these tips will get you that much closer to finding the right advisor for you.