Choosing a financial advisor is an important step, for most people, to creating more wealth and financial security. Whether you’re a minor investor who just wants to keep your assets safe or have several thousand dollars to invest so that you can watch them grow, a financial advisor can help you do these things. Remember, a financial advisor is not an insurance salesperson or a stock broker, but is rather a person who will help you create an overall financial plan for your current needs and where you want to go with your finances.
Also Read: 7 Reasons to be Your Own Financial Advisor
Before you choose a financial advisor, read through these ten tips, which will make it easier:
1. Avoid those who charge commissions
Financial advisors who charge a commission are more likely to push you to purchase certain products. They may care less about what’s good for you and more about their own bottom line. If you see that a financial advisor gets even part of his or her income from commissions, look elsewhere for a better advisor.
2. Look for CFP certification
Always go with financial advisors who have a current CFP – Certified Financial Planner – certification. This is the highest-quality certification that can only be earned by pasting the Certified Financial Planner Board of Standards. Plus, to keep the CFP current, financial planners must engage in continuing education, which keeps them up-to-date on the latest developments so that they can help their clients more effectively.
3. Ask for recommendations
As with most things, it’s a good idea to choose a financial planner based at least partially on recommendations. At the very least, getting recommendations can give you a place to start. Your best bet is to ask for recommendations from people who are in a similar life situation to yours, as different financial planners will have different specialties. Start with colleagues at work or friends who have a similar lifestyle to yours.
4. Ask specifics about the pay structure
It’s not enough to know that you want to avoid those who earn money from commission, though this might seem a little cheaper to you up front. You really need to know exactly how the pay structure of a financial planner works. The most common are flat fee, hourly, and percentage-based. At first, it’s probably best to start with a flat fee or hourly rate. At some points, turning over 1% or so of your annual assets to your financial planner can be beneficial, but this may also lead to an advisor who makes decisions based on her own bottom line rather than on what’s best for you.
5. Find a fiduciary planner
A fiduciary financial planner has basically promised to always act in your best interests. Non-fiduciary financial planners usually hold to the sustainability standard, which means they can get you products that are good for you, but aren’t necessarily in your absolute best interest. If your financial planner isn’t going to always, 100% of the time advise you in a way that’s in your best interest, run the other direction.
6. Use a background check
Getting a background check on a potential financial planner is a great idea, particularly if you don’t have recommendations from other long-term customers you know and trust. Also, check to see if the CFP certification for that financial planner is current by finding out who administers the credentials and calling or emailing the administrator to see if the credentials are valid.
7. Avoid those who make too-good-to-be-true claims
If your financial advisor claims to be able to beat the market every time, they’re giving you a too-good-to-be-true promise and they probably aren’t telling the truth. A financial advisor may be able to show evidence of beating the market average often, but no one can guarantee you that this will happen all the time, so if you’re getting guarantees like these, find someone who is more reasonable.
8. Get details about experience
Just because a financial planner has a CFP or another credential doesn’t necessarily mean they have great experience – it just means they studied hard enough to pass the credential test. Before you decide to work with a financial planner, get as many details about that person’s experience – from the planner and from other clients – as possible. You don’t necessarily have to work with someone who has decades of experience (you might not be able to afford this person!) but you do want to leave your finances in the hands of someone who is reasonably experienced at giving sound financial advice.
9. Find a planner who agrees with your basic financial principles
Even if you’re just starting out, you probably have at least some basic financial principles in mind. For instance, you may be willing to take on a little bit of debt, or you might wish to live basically debt free. A financial planner who essentially agrees with the things that are important to you – or who can at least convince you otherwise using well-supported arguments – is your best bet.
Paying for a financial planner
If you can’t pay for a financial planner up front, Ashyia Hill from CreditDonkey says, you could always ask if they’ll take credit card payments. As long as you can charge flat fee or hourly payments to a low interest credit card and pay them off within a few months, you’re better off hiring a financial advisor now than waiting until you have cash in hand.
Whether you’re twenty-five or fifty-five, working with a financial planner can hugely benefit your financial life. This is because financial planners can help you make the best financial choices without your having to spend hours researching the latest developments in various markets.