Choosing A Financial Advisor
How To Choose A Financial Advisor
Considerations for Choosing the Right Financial Advisor:
Once you’ve made the decision to seek the services of a financial advisor, you may have many more questions: “Which professional is right for me?” “How do I choose a financial advisor?” Or better stated:
How do I choose the right financial advisor who can coordinate all aspects of my financial life?
Just as you select a doctor or attorney, you should base your decision for choosing a financial advisor on a number of factors: education, qualifications, experience, and reputation.
When selecting a financial advisor, choose one you can work with comfortably. You are paying this person to help you shape your financial future. It is your responsibility and right to fully investigate the advisor’s background, methods of practice, credentials, references, and other relevant information.
Call the financial advisor and ask for a short meeting. Use this opportunity to get a sense of compatibility and to discover exactly how the advisor will work with you. Ask questions about finances that will give you a basis for a comparison with other financial advisors you have contacted. In short, get all the information you need to feel confident that this person is right for you. To work effectively with a personal financial planner, you will need to reveal your personal financial information, so it’s important to find someone with whom you feel completely comfortable.
By asking the following questions, you should get the information you need to choose the right financial advisor to hire. As you think of others, add them to your list. Keep in mind how the answers fit your personal needs.
1. What relevant education and credentials does the financial advisor have in the financial planning field and/or the financial services industry? Education may be as important as experience and investment history. Typical financial advisor credentials include:
- CERTIFIED FINANCIAL PLANNER™ (CFP®)
- Chartered Financial Consultant® (ChFC®)
- Chartered Life Underwriter® (CLU®)
- Personal Financial Specialist (PFS)
- Certified Public Accountant (CPA)
- Master of Business Administration (MBA)
- Registered Financial Consultant (RFC)
2. How long has the financial advisor been working with clients in the comprehensive financial planning process?
3. What did the advisor do before becoming a personal financial planner? Most personal financial planners have come from fields related to financial services.
4. Ask to see a sample financial plan. Actual information is held in strictest confidence.
5. What are the financial advisor’s areas of expertise? Ideally, these should include investments, insurance and/or tax strategies.
6. Verify that the financial advisor has a close working relationship with accountants, attorneys, and other competent professionals. Most personal financial planners are generalists, but also may be specialists in certain areas. They frequently consult with other professionals from related fields for added expertise in specialty areas.
7. What type of clientele does the advisor serve? It is not uncommon for a financial advisor to work primarily with particular professional groups, income levels, or age groups.
8. Will the personal financial planner you meet be the person who will work directly with you, or will an associate handle your account? If you will be working with an associate, ask to meet that person and ask about their qualifications as well.
9. One of the financial advisor’s roles may be to suggest financial products to implement your plan. Will the advisor provide generic or specific investment advice? Will the personal financial planner do independent analysis on the products, or be dependent on another company’s research? Does the financial advisor have a vested interest in the products, such as being a general partner?
10. Find out how the advisor is compensated and whether or not there is a charge for the plan or for periodic review and/or revision. Knowing how a financial advisor is compensated is key to choosing the right financial advisor for you. Most financial advisors are compensated in one of five ways.
Some personal financial planners bill you a flat or hourly rate for the time spent developing your plan and provide advice or even assistance with the implementation (follow-up).
These personal financial planners typically charge a fee for the strategic planning, and then charge an additional fee (computed as a percentage) of your assets for which they are providing on-going management service.
Fee and Commission
Many other financial advisors charge a fee for the time spent developing a financial plan, and may then help you implement the plan by offering to sell you investments or insurance. A commission is charged on the sale of these products if you decide to buy them through that advisor.
Still, other financial advisors are compensated solely by commissions from the products and services they sell to you. Sales of these products are necessary to implement the recommendations made in the financial plan, and therefore the financial plan becomes somewhat of a sales tool. Commission-based financial advisors are held to a “suitability standard” — meaning they must sell financial products that are “suitable” to you, but need not be ideal for you.
Many banks, credit unions, and other organizations offer financial planning services provided by salaried financial planners. Of course, their salary and bonus is determined by the number of clients they serve and whether bank-offered products or services are frequently purchased.
All five compensation methods have their advantages. You must choose the method that, combined with the other qualities of the financial advisor you select, best meets your needs. Keep in mind that compensation is only one of many important elements that will help you choose the right financial advisor.