Planning for your future financial goals is important, but many people don’t know where to start, or need coaching along the way to keep them on track. Whether you’re starting a family, building a business, beginning to invest or getting divorced, trying to find a financial advisor can be challenging. Read on to learn about financial advisors and how to find one.
When considering hiring a financial advisor, ask if the advisor is a fiduciary for all of your interactions. Being a ‘fiduciary’ means the advisor must always act in your best interest — including identifying conflicts of interest the advisor might have. You might think that all advisors should do that, but they don’t. Instead, some advisors are only required to adhere to a suitability standard, which means as long as the product is suitable for the client, the advisor can sell it and not disclose any conflicts of interest.
Clarify that the advisor is bound by the suitability standard for all your accounts, because under regulations that went into effect in 2017, some advisors are fiduciaries when it comes to your qualified retirement plans, but not any of your other accounts.
How to Hire a Financial Advisor
You’re looking for someone to manage your nest egg, so do your due diligence. Research the credentials of all your candidates and speak to them in person to determine the best fit:
- Check your prospective advisor’s credentials and experience. You can use sites like FINRA’s BrokerCheck and the CFP Board’s database to verify advisors’ credentials and make sure they don’t have a history checkered with complaints.
- Meet with the advisor to make sure you feel comfortable interacting with him. You need an advisor who will listen to your concerns and be able to answer your questions, but also one you feel comfortable sharing all of your financial details with.
- Ask whether the advisor simply manages investments or provides a comprehensive plan. A 2014 study found that comprehensive planning provided a significant boost to retirement savings, and just using a financial planner or advisor had a negligible effect on retirement savings.
- Discuss the advisor’s expertise and experience to make sure it’s relevant to you. For example, an advisor might regularly work with high-net-worth married couples who have a high tolerance for risk, but if you’re a recently divorced single parent, that experience might not help the advisor serve you better.
- Discuss each financial advisor’s investment philosophy and how that would affect your experience. Though advisors can certainly tailor plans to each client, if your advisor recommends risky investments — but you’re very conservative and have no stomach for the ups and downs of volatile investments — it might not be a good match.
- Ask how the advisor is compensated. Though it can be awkward to ask, an advisor who has your best interests at heart will be upfront with the answer.
- Pick one financial advisor to hire. Though you might be tempted to spread your money over several advisors, this can cost you extra in fees as well as create additional complexity in your overall financial plan. Imagine if a company had three different CEOs trying to direct the company. Is that how you want your finances to be run?
How Financial Advisors Are Compensated
Some advisors are paid on commission, which means a third party is paying them each time they convince you to purchase a certain product. A fee-only financial planner, on the other hand, charges you a fee for the advice rather than taking commissions, which helps minimize conflicts of interest.
For example, the fee could be set at an hourly rate for the time the advisor spends working with you. Or, it could be a percentage of the assets that the planner manages for you. “Most advisors charge a fee based on their percentage of assets under management,” said Joshua D. Duvall, CFP and financial advisor for Cordasco Financial Network in Philadelphia.
“You really shouldn’t pay more than 1.5 percent per year, and that should include more than just money management. It should include financial planning and advice as well. Other advisors use a retainer model based on an annual fee, a percentage calculation or some other factor like the client’s AGI or net worth. Whatever the mode, make sure you, as the client, understand it and are OK paying the fees going forward.”
If you are moving to a new financial advisor, you can simply authorize the new advisor to move the funds to her control and let her inform the old advisor you’ve moved on. If you’re not using a new advisor, you need to have at least some interaction with the old firm to provide directions on where they should move your investments. Beware of termination fees, proprietary products and investments that have surrender charges to cash out.