When it comes to money management, working with a professional can be helpful in achieving one’s financial goals. Understanding the fine print of investments and other money ventures is crucial to starting strong and sustaining success over time. Financial advisors can help guide you in the right direction but it’s important to find someone you trust and feel comfortable with.
Many people latch on to the first referral from a friend or colleague1. Be mindful that what works for one person may not work for another. And in this case, the personality, experience and fee structure of one advisor may not work for every client. Including yourself.
Here are some things to keep in mind when looking for a financial advisor:
Honesty and proficiency
Transparency is very important in a client/advisor relationship. Before your introductory meeting, draft up a list of questions that matter most to you today and possibly in the future. This is your opportunity to see how compatible you are with the advisor based on their responses and interaction with you.
Some typical questions to ask include:
- What is your educational background?
- How long have you been an advisor?
- What are your main areas of expertise?
- Do you have experience with clients whose goals are similar to mine?
- Can I speak to a current client about your services?
- Will you be the only person working with me?
There are over 100 different titles and certifications that a financial planner can claim. From CFPs to CFAs, it’s important to know the differences of each so you can narrow down a list of the most suitable candidates. Here are three of the top financial credentials2 that require rigid examinations and standards of practice:
- Certified Financial Planner (CFP) - CFPs are often viewed as the most knowledgeable in their field and must meet requirements in four categories: education, CFP exams, work experience and ethics3. If the advisor claims to be a CFP, you can easily search their name or company name on the CFP Board’s website.
- Personal Finance Specialist (PFS) - This title can be earned by a Certified Public Accountant (CPA) who specializes in certain areas of financial planning. For example, if you want to focus your portfolio on estate planning, you can seek a PFS who specializes in that field.
- Chartered Financial Analyst (CFA) - The CFA designation is considered by many to be an indicator of strong suit in the investment management field4. Candidates must pass three levels of exams on topics such as economics, ethics and security analysis. CFAs are also required to adhere to strict guidelines for proper conduct and transparency.
To research the credentials of a financial advisor you are considering, visit BrokerCheck. It is provided by the Financial Industry Regulatory Authority (FINRA) which is an independent, not-for-profit organization authorized by Congress to ensure the financial industry operates fairly and honestly5.
Clear payment structure
Clear payment structure If you are unclear about the advisor’s fee structure in any way, be sure to ask questions. For example, some advisors may charge a consultation fee for simply interviewing them to be your advisor. Other upfront charges could include an initial planning fee or account registration fee. You should feel free to request a full list of charges you might incur so there are no surprises or discrepancies.
Aside from fees, the major point to clarify is how the advisor will be paid. Advisors can be compensated in two ways: fee-only and commission. Fee-only advisors get paid a flat fee, hourly rate or a percentage of the assets managed. Commission-based advisors are compensated through sales commissions, fees based on the assets under management or a combination of the two. Any professional advisor should offer a detailed explanation of their payment structure if a prospective client wishes to know.
A firm handshake
Choosing the right advisor takes confidence and a certain level of comfortability. The more effort you put into selecting worthy candidates, the better your odds at finding success. Once you feel you’ve found the best advisor for your needs, a firm handshake should seal the deal and start the beginning of your relationship as investor and advisor.