Hiring the right financial advisor for your specific situation can be incredibly challenging, not least because there are thousands of people to choose from. Plus, with multiple strategies to consider it can be difficult for an unknowledgeable person to pick a financial advisor that is going to reap the rewards for them without costing an arm and a leg.
To make an informed choice, you must first figure out whether you truly need an advisor, what you want them to achieve and then you must interview and screen them. Ultimately, you should be able to narrow the selection down to a few candidates, any of which will be able to deliver the desired results.
Do You Need an Advisor or a Planner?
Plenty of people consider getting a financial advisor, but upon further investigation, many realize that a financial planner might be more suitable for them. The two terms are often used interchangeably, but truly they are vastly different.
A financial planner is somebody who can help you to create a plan to take you from A to B, removing you from an economic problem that you are currently facing. A financial advisor is there to help you to implement a plan by choosing specific investments and insurance.
Somebody who is a financial planner will very rarely pick out specific investments for you, and a financial advisor is unlikely to create a plan to get you out of an issue.
Instead, they should both be used, but at different points in your life. You need a financial advisor when you have money which you’re unsure about how to invest most efficiently. These professionals specialize in investments and insurance, guiding you to get the greatest returns.
Financial advisors traditionally work either for a flat-fee per month or for a commission on the returns that you see. Both pricing structures can work, but most consumers would be wise to choose a flat-fee advisor when choosing financial advisor so that they can understand what they are paying for and how much return they will see.
Choosing Financial Advisors is Often Worth the Investment
When choosing financial advisors, the consumer often asks themselves whether they are worth the cost. For most people who are looking to start investing, the answer is an overwhelming yes.
The average person has little clue about banking, let alone investing in complex plans or instruments. When you hire a financial advisor, you are paying for their years of experience and knowledge, which they will use to make better decisions for you.
If you are at all uncomfortable with the idea of making financial decisions regarding the assets that you own, a financial advisor can be useful.
While it is true that research and self-education can allow you to make all of these investment choices alone, that requires time and effort that most people are unwilling to invest. Instead, you can pay a small fee for an advisor who will handle your account and transactions.
How to Choose a Financial Advisor
Now that you have decided that a financial advisor is a right decision for you and your family, you must begin to look at the potential candidates. There are likely hundreds, if not thousands, of financial advisors within your area and choosing one might seem complicated.
But with a few tips and tricks, you can minimize the amount of work that you need to do while drastically increasing the chance of picking a great advisor. Not all financial advisors are alike and picking one randomly or without effective screening is a quick way to waste money and get sub-par returns on your invested cash.
Look for a CFP
A CFP or Certified Financial Planner is somebody that has gone through the process of getting a certification in their field. You might notice that these are ‘planners’ rather than advisors, but because there are very few certifications in the field, the best advisors will often become CFP’s.
This step helps you to weed out those that aren’t certified, but it also makes searching much more efficient because the CFP board has a list of their certified members. Using this list, you can quickly reduce your list of candidates down to a smaller selection.
Firstly, head over to the search tool at CFP.net where you can look for advisors in your local area. Secondly, start looking through the list to learn more about how they are categorized and separated.
Avoid those Working for Commission
As you’re looking through this list of candidates, you’ll see that many works only for commissions, a common practice in the financial world. While there is nothing inherently wrong with an advisor that takes a commission, some might argue that it could decrease their motivation to pick the best investments rather than those with the highest commission.
Instead, most consumers who don’t have tens of millions in assets would benefit most from an advisor who charges a small monthly fee for their work. These are characterized as “fee-only” because they don’t take a commission or any other fees for their efforts.
Ask a Friend
If you have friends who have hired financial advisors in the past, it can be useful to ask them for recommendations. Often you might find that there are people that they would avoid and some that they have worked well with and seen excellent results
Asking for advice from a friend can be particularly useful if you have a similar net worth and objectives for your financial future.
Inquire About the Pricing
Finally, you should inquire about the pricing structure so that you can have a greater understanding of how much you will be paying for their services. Don’t be scared away by high prices but do ask why they are charging more than other candidates.
With this information, you can more readily compare between potential advisors, both based on their personality and credentials, but also the price that they are charging. Understanding what you get for each dollar is a useful way to quickly screen for people that might not be a great fit because they are overcharging.
In the end, it’s really about creating trust between you and your financial advisor. At Trust Point, we believe we can help you be more steady on the road to financial confidence. Let us know if we can help you grow your portfolio.