Posted on July 8, 2016 in ,

Finding the Financial Advisor That is Right for You

When searching for a financial advisor it can be difficult to see through all of the freshly pressed suits, colored charts, and echoed promises for superior service and returns. You want someone who you can trust with the money that your family worked so hard to earn, someone that has an investment philosophy that is similar to yours, and someone that can be your financial ally for years to come. Use the below as a guide for what to consider when comparing advisors.

Does the advisor have a good reputation? Long-term relationships are built on years of service and trust. Ask your friends or family for a referral if they are happy with who they have worked with or to get an idea of advisors that may be a good fit for you as well.

Is the advisor qualified? Investors should look for an advisor with reputable credentials, such as the Personal Financial Specialist (PFS), Certified Financial Planner (CFP), and Certified Public Accountant (CPA). Investors can check an advisor’s credentials online by visiting the FINRA website and looking under the BrokerCheck® link and can also see if that advisor has ever had any litigation or judgements made against them for financial matters during their career as an advisor.

How does the advisor get paid? Advisors are paid by commission, fee-only, or a combination of both. Commission-based advisors are paid when they sell you a product or investment vehicle, while advisors that are paid by flat-fee are typically paid as a percentage of invested assets. There has been increasing discussion on the topic of how advisors are paid, and the conflict of interest that is inherent with commission-based pay. Advisors such as Registered Investment Advisors are generally paid only by management fees, which are typically a small percentage of the assets under management. Many experts say that fee-only is preferable to eliminate conflicts of interest and the potential incentive for an advisor to sell you things that may be more profitable for him but that may not be in your best interest.

Does the advisor have a fiduciary duty toward his clients? An advisor that is a fiduciary (such as a Registered Investment Advisor) is held to the highest fiduciary standard by regulatory authorities. A fiduciary must, by law, only make recommendations that are solely in the best interest of the client. Not every financial advisor is a fiduciary. Some financial advisors that are not fiduciaries are held to a lower “suitability” standard, which means that they are allowed to make recommendations that may be broadly considered suitable to the client, but that may not be in the client’s best interest. Your advisor may say that he has your best interest at heart, but ask him if he is legally bound as a fiduciary to act in your best interest.

What services does the advisor provide to his clients? It is important to gather an understanding of what services will be provided to you by the advisor. Some financial advisors will offer only investment services, while others will offer comprehensive financial planning around retirement, insurance, estate planning and tax planning. Your best ally is a fee-only financial planner, not just a broker. A true financial planner will help you with all of your family’s financial decisions, and will make sure that all of the pieces of your financial plan fit properly with each other.