Even people who have pursued additional financial education, such as online courses, need some help from time to time. If you finding yourself needing advice that goes beyond what you can find on the computer, it’s time to start thinking about hiring a financial advisor. These professionals can help with a number of processes, from fine-tuning a personal budget to establishing a strategy for reaching future financial goals.
Financial advisors help their clients develop a complete, systemic plan to maintain and expand their financial health. But as with any professional you hire, you need to do your due diligence first. Some of the most important aspects to consider before hiring a financial advisor include the following:
1. Costs and type of compensation
The fees financial advisors charge can vary widely, but it’s important to remember that a higher fee does not equal higher-quality work. Sometimes, professionals charge an initial planning fee in addition to other charges. Advisors may charge by the hour, by product, or by a percentage of the assets under their control. Before starting, you should have a very clear view of exactly how much you will need to pay, and you should find out if the advisor is incentivized to sell certain finance products. If they are, they may be more likely to recommend these options even if it is not in the best interest of clients.
On the other end of the spectrum, there are financial advisors who offer free services. These individuals are usually paid via sales commissions from securities.
2. Type and extent of training
The term financial advisor is a little misleading because it actually refers to a group of several different types of professionals. Commonly, advisors will have one of three designations: CFP, ChFC, and RIA.
A certified financial planner (CFP) must pass a comprehensive board exam for the title, which means these individuals have considerable knowledge about insurance, taxes, retirement, financial planning, and retirement.
A chartered financial consultant (ChFC) must go through more classwork than a CFP, but does not have to take a comprehensive exam to earn the title. A registered investment advisor (RIA) is not certified but is under the purview of the Securities and Exchange Commission and is held to a strict fiduciary standard.
Financial advisors may have one or more of these titles, among others. It is important to ask about education and certification to understand a professional’s particular perspective.
3. Trustworthiness and compatibility
Even if someone has a number of titles behind their name, it does not guarantee compatibility. Before hiring a financial advisor, it is important to meet with the candidate in person to judge compatibility and establish a baseline of trust. Ideally, the advisor will allow you to express your needs and show a true understanding of what you want out of the professional relationship.
At the same time, great advisors do not simply agree with whatever a client says, but instead speaks up when necessary. Since this person will handle your money, it is critically important that some sort of trust and rapport be developed prior to signing any agreements.
4. Professional reputation
Whether you choose to start your search through rating websites or vet candidates you have already identified, this step proves crucial. A number of different resources exist for people on the search for a financial advisor. For instance, the Financial Planning Association and the National Association of Personal Financial Advisors maintain websites that provide a complete background on their planners, including verification of education and certification, as well as peer ratings.
Another great place to find information is BrokerCheck, a service maintained by the securities regulator FINRA. BrokerCheck offers extensive information on individuals and firms, including a history of any disciplinary action taken against them. In addition, TD Ameritrade has an AdvisorDirect referral program that can help people identify potential financial advisors and get key information about them.
5. Professional and personal goals
Ideally, the goals of a financial advisor and a client align, but this is not always the case. As noted above, it is sometimes the case that professionals push a certain financial product to get a kickback. However, goals can become misaligned in less obvious ways. For example, perhaps a financial advisor always takes a conservative approach to investing.This individual would not prove a good match for a client willing to take risks for the chance of a big payoff.
Similarly, a professional who regularly oversees millions of dollars for clients may not offer the best advice and guidance for a client who is looking to invest cautiously. Even so, you shouldn’t be discouraged by the belief that only the wealthiest people need a financial advisor. Many advisors focus on the needs and goals of everyday people.