A good place to start is to ask what credentials the financial advisor or team holds. But beware, some credentials are high quality and require significant effort and testing to obtain. Other credentials, however, may sound impressive but not require much to earn. For example, some advisor credentials simply require a person to attend a short class (often online) then pass a short multiple-choice exam.
High quality credentials require intensive study, exams and often include an experience requirement. These quality credentials include:
· CERTIFIED FINANCIAL PLANNER™ (CFP®)
· Chartered Financial Consultant™ (ChFC®)
· Chartered Financial Analyst ™ or CFA ®
· Certified Public Accountant™ or CPA®
· Chartered Life Underwriter™ (CLU®)
Your financial advisor will likely be helping direct your investments as well as providing other critical advice. Education helps, but hands-on experience is what really matters. You need to work with a person or team who has significant experience helping people with similar needs. So always ask about specific experience.
Be careful, too, to ask even more direct questions. “I’ve been in finance for 15 years” could mean someone has been working in the finance department of a car dealership for 14 years and only 1 year helping people with financial advice and retirement planning. That’s quite different than someone who has been personally responsible for financial planning and investments for 15 years.
You don’t want your money to be part of anyone’s learning curve, so it’s best to look for an advisor and firm that has been around for at least 20 years or more. That helps assure they have helped clients navigate all types of market conditions and economic landscapes successfully.
The financial industry is large and you’ll find firms with all types of specialties. What’s important is that you select a firm that offers a comprehensive scope of services. If you don’t, you may find yourself having to juggle multiple professionals, which may not be as convenient.
That’s why many people prefer to have most of their financial professionals in one place. Similarly, you probably don’t want a firm you’ll outgrow quickly. So ask the prospective advisor what services they provide:
· Financial planning
· Insurance planning and purchase
· Estate planning
· General financial help—buying a car, refinancing, helping adult children, etc.
Also, finding a full-service financial advisor can help you avoid having to synchronize other professionals, such as an insurance agent. Especially if you’re a business owner, the additional planning services offered by your financial advisor can be a big time save.
When your money is invested and managed by others, it’s critical that you clearly understand their approach and philosophy. Otherwise, it can mean sleepless nights when the market gets volatile. This is especially important with retirement planning since you will be relying on advice that will need to take you through a few decades of retired life. So ask about the firm’s approach and make sure it makes sense to you.
Also, it’s important that you find a firm that also helps you protect your money. When you’re building your net worth, you probably don’t want to be taking big risks or be blindsided by an event you’re not prepared for. So ask what the firm can do to help protect your money and help you maintain financial security if the unexpected happens.
There are two standards for financial advice. The stricter one is where the firm serves as your fiduciary, meaning they are legally obligated to put your interests first. The less strict standard is the suitability standard, where the firm must recommend something suitable for you. This standard may expose you to more conflicts of interest.
It’s safest to only choose to work with those that will agree to act as your fiduciary. Be sure to get this in writing, too, for your own protection.
Financial advisors and financial planners may charge fees (fee-only advice), or commissions (broker-dealer), or both (fee-based advice). What’s important is
that you clearly understand how you’ll be charged and that the fees will be disclosed to you prior to work starting.
Firms should be straightforward and transparent on their fees, as well, so be sure you understand the responses you get.
When you work with a financial advisor, your goal should not just be to get advice, it should be to use the service to achieve your long term financial goals. To do that, most people need ongoing support. This can help you stay accountable to your own goals and keep you motivated. Also, this can help you save time and effort when you have questions about your financial situation.
So ask the advisor, are they available to help you on day to day issues such as a car purchase or real estate questions and is this help included in the fees you’re paying? Also, will they help you with questions on accounts they may not be involved with, such as your 401(k) or a Roth RIA? If it is an extra fee, that may dissuade you from using the firm’s services as much as you’d like.
Some firms are organized where the advisor you meet prior to becoming a client is not the person you deal with on an ongoing basis. This often occurs at larger firms. Most people will feel most comfortable dealing with the financial experts themselves than interacting with a more general “relationship manager”, for example. Regardless, you should ask about the experience and credentials of anyone who will be handling your accounts.
Before you hire an advisor, always check their regulatory record. You can find it at https://brokercheck.finra.org/. With your money on the line, it’s important to check this and only consider advisors who have a clean record with no disciplinary actions or client complaints.
