Selecting the right financial advisor can be a daunting task. With so many options, how do you know who to trust with your hard-earned money? This comprehensive guide will walk you through the key factors to consider when looking for a financial advisor. Follow these tips, and you’ll be well on your way to securing your financial future.
1. Understand the Different Types of Advisors
Financial advisors generally fall into two main categories:
These advisors charge a flat fee or hourly rate for their services. They do not earn commissions by selling investment products. Fee-only advisors often have a fiduciary duty to act in their client’s best interests.
These advisors earn money by selling investment products. They may receive commissions when clients purchase mutual funds, insurance, or other products. Commission-based advisors are not necessarily fiduciaries.
2. Consider Credentials and Qualifications
Look for advisors who hold respected designations like:
- Certified Financial Planner (CFP)
- Chartered Financial Analyst (CFA)
- Personal Financial Specialist (PFS)
These require rigorous exams on taxes, insurance, estate planning, and more—checks advisors’ backgrounds on sites like BrokerCheck and Investor.gov.
3. Interview Multiple Candidates
Schedule intro calls or meetings with at least three advisors. Come prepared with questions like:
- What is your investing philosophy?
- How are you paid for your services?
- What is your typical client profile?
Take notes and compare responses to find the best fit.
4. Request References
Ask prospective advisors for 2-3 client references. Speaking with current clients can provide insights into advisors’ skills and client service. Be sure to ask:
- How long have you been a client?
- Are you satisfied with your advisor’s services?
- Does your advisor communicate effectively?
5. Consider a Specialty
Some advisors specialize in specific areas like retirement planning or portfolio management. Pick an advisor whose expertise aligns with your needs.
Help with 401(k)s, IRAs, and income in retirement. Useful for those nearing retirement.
Focus on investment selection and asset allocation. Better for hands-off investors.
Take a broad approach to finances. May oversee tax planning, estate planning, insurance, and more. Helpful for high-net-worth individuals.
1. Review the Advisor’s Disciplinary History
Regulatory sites like FINRA’s BrokerCheck let you see if advisors have disclosures like customer disputes, bankruptcies, regulatory infractions, and more. While a single complaint does not disqualify an advisor, multiple issues could be a red flag.
2. Understand the Advisor’s Fiduciary Status
Ask point blank – “Will you act as a fiduciary on my account?” Fiduciaries are legally obligated to put clients’ interests first. Non-fiduciaries may recommend products that pay them commissions, even if cheaper options are available.
3. Compare Fees and Services
Advisors’ fees vary widely depending on the services provided. According to an RIA survey, average prices are:
- Ongoing Asset Management: 1% of Assets Under Management (AUM)
- Ongoing Comprehensive Planning: $300-$500/month
- Hourly Planning Sessions: $150-$400/hour
Compare fees and determine what services are included before selecting an advisor.
4. Review Tax Planning Credentials
If tax planning is one of your priorities, look for advisors with specific tax expertise like Enrolled Agent (EA) or Certified Public Accountant (CPA) designations. This demonstrates advanced tax training.
5. Check for a Written Agreement
Before contracting an advisor, ensure you receive a written services agreement detailing the relationship terms, fee structure, and scope of services. Never enter undefined verbal contracts.
6. Communicate Your Expectations
Be very clear about what you want from the relationship. Do you want simple portfolio management or comprehensive financial planning? Let the advisor know upfront so you get the services you need.
7. Trust Your Gut
This is a long-term relationship built on trust. Make sure your advisor’s personality and communication style work for you. Never ignore red flags just because an advisor looks good on paper.
8. Start Small
Only hand over some of your assets on day one. Begin with a smaller account to evaluate the advisor’s services before expanding the relationship.
9. Review Progress Regularly
Schedule check-ins every 6 or 12 months to review your plan. Make sure the advisor is delivering services efficiently, and your needs are being met. Feel free to move on if the relationship isn’t working.
Finding the ideal financial advisor takes research and diligence. Taking the time upfront to vet candidates thoroughly will give you confidence you’ve selected a skilled professional who is the right fit. With a trusted advisor guiding your financial life, you’ll be empowered to achieve your monetary goals and secure your financial future.
Q: How much do financial advisors typically charge?
A: Fees vary widely but average around 1% of assets under management for portfolio management, $300-$500/month for comprehensive planning, or $150-$400 per hour for individual sessions.
Q: What questions should I ask during an initial meeting?
A: Key questions include the advisor’s expertise, pay structure, investing approach, typical clients, and fiduciary status. Also, ask for references to contact.
Q: What disciplinary issues should I look for?
A: Watch for disclosures related to customer disputes, bankruptcies, regulatory infractions, fines, employment terminations, and criminal charges. Multiple issues are concerning.
Q: How often should I meet with my advisor after hiring one?
A: Aim for check-ins at least every 6-12 months. Review your plan and progress regularly to ensure your needs are met over time.
Q: What credentials should I look for?
A: Respected designations include CFP, CFA, PFS, CPA, and EA. These require extensive training and continuing education on financial topics.