Planning for your financial future can be overwhelming. If you’re looking for guidance, one route people often take is picking a financial advisor to seek for professional advice.
The types of financial advisors available vary, and choosing one who can provide good financial advice is important.
The individual you choose to work with can help you manage your money, set financial goals, and establish a plan to achieve them.
Plan to do sufficient research before getting started. Learn more about financial advisor services, how they can help, and five things to evaluate when selecting a financial advisor.
Why Do You Need a Financial Advisor to Achieve Financial Freedom?
Financial advisors offer a way to create a roadmap of how to realistically attain your short and long-term financial goals.
The strategy your financial advisor builds will take into consideration your unique circumstances and your current financial situation.
Traditional financial advisors (FA) can assist you with:
- Investment management
- Tax planning
- Tax preparation
- Creating a personalized budget
- Providing financial advice
- Finding ways to save money
The best financial advisors take the time to look into your situation and assess how they can help. It is important to remember, every financial advisors may not specialize in all areas of financial planning. Strive to find the right financial advisor who is a good fit for you and your particular financial situation. Get matched with a financial advisor, using our free advisor match tool.
Defining Your Financial Goals and Priorities
Everyone has financial goals they’d like to meet at different points in their lifetime, from the birth of a baby to retirement planning.
You might be saving to buy a house or even a car. Maybe you’re looking to pay off bills with debt management or do tax planning. Other life goals you want to achieve may relate to saving for your children’s college education, getting budgeting help, doing estate planning, or preparing for retirement.
Before finding a financial advisor, the first thing to do is assess your monetary goals.
Do you have a singular goal or do you need a bigger strategy to tick off several proverbial boxes? Do you need a one-time consultation or do you want ongoing advice with your wealth management plan?
For instance, if you receive an inheritance, you may simply need to get advice on how to invest it. Or, you may need a comprehensive plan, so you prefer to receive ongoing advice about your financial life.
Bottom line, whatever your financial goals and priorities are will help determine the level and complexity of the financial services necessary to help you reach your goals.
When choosing between financial advisors to work with, you’ll want to evaluate the following five factors.
1. Assessing Financial Advisor Qualifications, Credentials and Experience
The term “financial advisor” sounds sort of official, but the reality is there is no governing body regulating the term, so you’ll need to do research when going about picking financial advisors.
What are the advisor’s credentials?
One of the primary things to do is check into any potential advisor to see their credentials and experience. Before hiring anyone, ensure they are licensed, trustworthy, and capable of holistic financial planning.
- Does the financial advisor you’re considering have any credentials or are they a certified financial planner? Examples include:
- “CFP” (certified financial planner)
- “CPA” (certified public accountant)
- “CFA” (Chartered Financial Analyst)
- “RIA” (Registered Investment Advisor)
- Other specialists may work with divorce, retirement, or other financial planning areas
- Does the individual belong to any professional organization memberships?
- Has the individual had any regulatory issues or problems?
- What does the FA’s past performance record on investment management look like?
If any of the financial advisors you’re considering working with are part of a wealth management firm, how much does the company manage? Does their company have good credibility and trust? Reputation matters. You don’t want to invest with a company with a history of not doing right by its clients.
Factors to look at when choosing a financial advisor
Other factors you want to ask financial advisors about are the following:
- Available financial services
- How often they’ll talk or meet with you to discuss your financial plan
- Type of clients the financial advisor usually works with
- Other parties the financial planner might collaborate with about the money management of your funds
- Whether the FA and/or their firm require any account minimums before agreeing to manage your account
There are all types of financial planners, and not all are on the same page. Some even offer robo advisor services. If you want to ensure you work strictly with human financial advisors, be sure to go about choosing a financial advisor who understands this.
2. Evaluating Investment Philosophy and Risk Tolerance
Like many other different types of professionals, financial advisors have differing investment philosophies. One may be very conservative while another may prefer high-risk opportunities.
Essentially, how you prefer your money to be managed by an investment advisor and whether their approach correlates with your level of risk tolerance regarding available investment products.
When looking to choose a financial advisor, fine one who aligns with your philosophies pertaining to your financial life. Answer a few quick questions and use our free advisor match tool. Help us get to know your unique needs and goals. Then, let our cutting-edge algorithm find your perfect financial advisor.
Different Investment Philosophies
To determine if the financial advisors you’re evaluating are a good fit, evaluate their philosophy and how they would go about managing your money. For instance, how do they approach investment objectives?
- Ask the financial advisors to discuss their investment strategies
- Request to see a sample investment portfolio to see how they go about wealth management for their clients
- See if the financial planner tends to put funds in certain types of investments or if they prefer to establish diversified portfolios in asset allocation
- Have a detailed conversation about financial risk – the last thing you want is to get investment advice from someone who doesn’t align with your comfort levels regarding risk
Additionally, try to track the financial advisor’s record of past performances. See if they produce competitive results and achieve clients’ goals in their approach to comprehensive financial planning.
3. Understanding Fee Structures and Compensation
Most financial advisors are bound by fiduciary duty. This means, by law, they must work and make decisions with your financial best interests in mind.
Ask questions about fee structures/compensation
A very important factor to consider and evaluate when you decide to choose a financial advisor is to determine how they get paid and whether there will be any conflict of interest in what’s best for you and what’s best for them.
Not all investment advisors collect fees for the services they provide the same way. Common ways clients pay for financial planning services include:
- Commissions
- Flat fees
- Fee-only advisors (charge hourly fees)
- Assets under management (how much you invest with them)
There may be other fees involved as well:
- Advisory fees
- Transaction costs
- Management fees
- Miscellaneous charges relating to your financial plan
It’s OK to be straightforward and ask the advisor how they’ll be compensated for managing your personal finance goals. If their answer is vague, or they try to skirt the question, consider this to be a red flag. Most will be quite transparent and willing to discuss their fee structures.
Evaluate fees vs. value
Be sure to evaluate the fees you’ll be paying vs. the returns generated on investments (check past performance as well before selecting a financial advisor).
Don’t be shy about seeking competitive quotes – fees are definitely something you need to know. However, more importantly, once you obtain quotes, look at them carefully.
This way, you can evaluate whether the overall value and level of services you’ll receive in exchange is fair and acceptable based on your financial situation.
4. Choosing the Right Communication Style With Your Advisor
As you seek financial planning services, don’t just look at credentials and performance, you also want to make certain the person you select is the right financial advisor for you. Like many other professions, soft skills matter.
Traits of good financial advisors
A good FA can proactively glean enough information to understand the unique circumstances of your financial standing and how it correlates to your goals. Other good traits include:
- Listening to your thoughts
- Asking you lots of questions
- Communicating openly and transparently
- Making you feel comfortable when discussing creating and managing your profile
- Responding to calls, emails, or texts in a timely fashion to address concerns or answer questions
These advisors aren’t just being courteous, they’re actively learning how to best serve you with financial guidance to help you achieve your goals based on your specific financial situation.
Red flags of investment advisors
Communication is a key component, but not all financial planners are strong in this area. Look for more than intelligence, managing money, and providing investment advice.
The following flags are a signal the financial advisor may not be the right fit.
- Doesn’t actively listen to you regarding feelings on money matters or your financial standing
- Leans heavily on their track record and what they want to do with your money
- Actively focuses on the financial products they want to sell you
- You simply don’t “feel” a good connection
The economy is always in flux which can lead to uncertainties and worries throughout your investing cycle. Any financial professionals you work with should be comfortable to talk with.
5. Checking a Financial Advisor’s Background and Reputation
Beware, some individuals promote themselves as financial advisors since the term “financial advisor” is not legally restricted for use by credentialed individuals.
Unfortunately, some are essentially salespersons promoting financial products to benefit them, not you.
Not all are certified financial planners
Since anyone can use the phrase “financial advisor” when advertising their services, always obtain certifications and/or credentials – and then verify them.
- Look for a financial advisor with a good reputation
- Research backgrounds of any financial advisors under consideration
- Determine if complaints have been filed
- Look for a history of disciplinary actions
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory, non-governmental organization over FAs. You can check their searchable database to view any specific financial advisor’s history.
Making the Right Financial Advisor Decision is Essential
Working with a professional is a great option to help set your personal finance objectives and then go about putting them on track.
No investment is guaranteed, but having the experience and advice of a licensed professional or certified financial planner may help you better determine the type of investments you want to consider that will help you reach your financial goals.
While there is much ambiguity in the financial planning industry, you want to be careful as you weigh your options when selecting a good financial advisor for your wealth management.
Once you make the right match, you can feel better that your money is in good hands.
Find a Financial Advisor Today!
Are you not sure where to start or need help finding a good financial planner and advisor? If so, you aren’t alone. Many people feel overwhelmed when they start the process. The good news is, assistance is available.
Why not get started today? Use our free advisor match tool to help you identify potential candidates.
The less time you spend researching financial advisors, the faster you can get started on the path of planning for your financial future.
