The decision to choose a financial advisor is an incredibly important one. This is a person who will manage your investments, teach you how to save and grow your money, and ensure that you’re better off in the long run financially.
It’s vital that you choose an advisor who understands not only your current financial situation but what your goals as an investor are. Wanting to save for retirement is a little different than working with a stockbroker, for example.
In this guide, we’re going to tell you not only what type of financial advisor you should pick, but which are the best solution for your needs and wants. The trick here is to know that it isn’t difficult to find a financial advisor. What’s hard is finding the right one.
Do I need a financial advisor?
Before getting into the process, think about if you really even need a financial advisor. Remember that they have to want to work with you as well, so make sure you check a few boxes before trying to get involved.
To start, make sure that you have some significant form of income to invest. No advisor wants to work with someone who can’t save their money and is constantly working paycheck to paycheck. They make their money off of you, keep in mind. So, it is believed that those who should seek out a financial advisor are those who can save at least 20% of their income every year.
That said, there are other ways to get started if you’ve less money than that. Some companies have different guides that can help you out, and groups like the National Association of Personal Financial Advisors (NAPFA) can set you up with an advisor for those who may not have as much money.
Robo-advisors, which we’ll get more into a little later, are another great way to get started. These advisors are much cheaper since they aren’t a person you have to pay for help. That said, they do cost some money with an average of .25% for every $10,000 invested. Also, these robo-advisors don’t require as high a minimum investment as other forms of advisor.
What are the different kinds of financial advisor?
Now that you know if you should ever get a financial advisor, let’s take a look at which type you should bring on.
There are multiple different kinds of financial advisor or financial planner. Some are experts in different industries, like stockbrokers, while others are more general, like a certified financial planner (CFP).
A stockbroker assists you in buying and trading stocks for a fee. Some fees may be commission-based, while others require a solid one on top of this. Stockbrokers are certified by the Securities and Exchange Commission (SEC).
A robo-advisor is exactly what it sounds like, a digital financial advisor. While these aren’t free, they’re much cheaper than traditional advisors since they aren’t someone who has to support themselves and a family.
Essentially, with these, you fill out a form and the robot takes that information and builds an ideal portfolio for you. These advisors also help plan your investments, alongside help out with risk and provide other financial tools.
These cost a fee to use, and you can even get a robo-advisor in combination with a human one if necessary.
Certified Financial Planner (CFP)
A CFP is one of the most qualified financial advisors you can find. These are members registered with the Certified Financial Planner Board of Standards and know nearly everything there is to know about financial planning.
CFP’s have passed extensive testing to earn their registration, alongside agreeing to continuously follow up on that education to ensure they’re up to date on the world of finance. They’re also one of the most ethical of financial advisors.
Registered Investment Advisor (RIA)
A registered investment advisor will guide you through the world of financials. These members are certified by the SEC similar to stockbrokers, and can assist you with investment portfolios among other things. They often work with a company.
Chartered Financial Analyst (CFA)
A chartered financial analyst not only helps you with managing your portfolio, but also specializes in market analysis, banking, and fungible securities. To become a CFA takes years of hard work, and it isn’t for everyone. Those with a proper license have seen most of what the industry has to offer.
Chartered Financial Consultant (ChFC)
You’ll want to be a little more wary of these than the others on this list. A ChFC is similar to a CFA in that they’ve studied the same things. However, this type of advisor doesn’t need to pass an exam, nor are they bound by any ethical code. They may know what they’re talking about, but they may not offer all of that information to you.
Chartered Retirement Planning Counselor (CRPC)
A CRPC is ideal for those looking to save for retirement. They’ve worked with the College for Financial Planning, and know exactly what you need to have and to continue to earn money once you’re done working.
Personal Financial Specialist (PFS)
A personal financial specialist is more of a tax expert. These agents are registered public accountants, but with more specialized training that qualifies them for more industries.
Which financial advisor do I choose?
Now that you know the different types of financial advisor, there are some things to consider before committing to a specific type. Some advisors charge different fees and at different times, while others ask for a flat fee upfront. Moreover, some advisors lie about what they’re good at and try to talk themselves higher than they really are. Here are some things to keep an eye on.
Can the financial advisor give you exactly what you need?
As mentioned previously, some advisors specialize in specific things like property or insurance. Others are more general with their advice. Is there an industry you want to get involved with or do you simply want an overview of what to do with your finances?
If you’re just getting started, maybe consider a robo-advisor due to their cheaper fees and ability to assist nearly anyone regardless of their financial status.
Are you able to afford the payment plan?
Commission-based financial advisors are the ones you want to stay away from. This is because they make a profit from you regardless of how their advice performs, so they may not have the best future in mind for your money. Instead, they’ll want you to take riskier, more expensive investments since they’ll get a higher takeaway from it.
Then you have fee-based advisors. These planners charge a fee for each service they provide, which sounds like it would be cheaper for you on paper. However, fee-based advisors can also take commissions, and may push you products that they earn from as well. So, it’s possible that this type of broker will cost you even more money than a commission-based one in the long run.
Fee-only advisors are a better bet than the others. This is because they don’t associate with commissions, and instead earn from the fees you pay. Fee-only advisors tend to have your best interest in mind, because you’re more likely to stick with them if they make you money, in which they’ll be making more money. These agents usually charge a flat fee or hourly.
Are they as valid as they say they are?
When doing your search, make sure to commit to a background check on any financial advisor you come in contact with. Make sure they have the proper certifications and that they’re up to date as well. Find something called a fiduciary, which simply means they are sworn to always make moves that are in your best interest.
Check how long said advisor has been in business. Do they have a lot of experience in their field, or are they just making things up? How about their ethical background? Take a look at BrokerCheck and see if anyone marked against the advisor.
Finally, see if you two even get along. If you meet up with the advisor in person and they’re someone you don’t feel you can trust, don’t commit to them. Remember, this person is handling your financial future. You want to be sure you get along with them.
Ensure that the advisor isn’t just talking themselves up. Make sure they can deliver on their promises.
Ask around for information on an advisor
Before doing a search on some random, ask your friends or colleagues if they have any financial advisor experience. See who they’ve worked with, who they recommend, and you can get a very good view on someone without risking your own finances.
Also, make sure to ask around for people in a similar financial class. You don’t need your super rich friend telling you to go to some advisor with ridiculously high fees and expectations that you cannot match at this time.
Don’t stick with the first one
Financial advisors know how to sell themselves. They’re usually charismatic and know how to talk to people. When conducting your search, the first few may seem charming. They’ll make themselves sound like exactly what you need. Don’t fall for the trap.
Of course, it’s entirely possible that the first advisor you come across is a great one. But, you won’t know that until you take the time to look at your options and compare and contrast. If you let the first advisor you interview convince you to work with them due to their charm, you may be making a grave mistake.
Ask important questions
As about an advisor’s biggest horror story. Have them tell you about their best and worst clients. Ask them how they think they can provide a unique service to you. There are all sorts of different questions you can bring up that will provide you more insight into a potential candidate.
What different services do they offer? Can you work with them on different forms of payment? Nobody is the best at everything, but sometimes it may be nice to settle with someone who you get along with that offers multiple services. Again, it all depends on what you’re looking for and what they can offer, but you’ll never know what you get until you ask.
The best questions to ask a financial advisor
To ensure you aren’t getting talked around, here are some fantastic questions to ask a financial advisor that will not only gain their respect, but that will help you ensure who’s being fake and who’s the real deal.
You want an advisor with multiple years in their respective industry. While sure, someone a little greener around the ears could work, you only want to walk into a situation like that if you don’t have a ton of money to lose. For example, a CFP must have a minimum of two years before getting started.
Some industry experts only work with rich clients, while others go all across the board. Make sure your advisor has experience in your financial bracket. Otherwise, they may advise some situations that are too risky for you, and you won’t know the difference.
Ask them what their background is like. Make sure the professional doesn’t have any blemishes on their record. If your potential advisor isn’t willing to be clear on their history, they’re probably hiding something. That’s not someone you want to associate with.
Where to find a financial advisor?
Fortunately, there are multiple ways to search for a solid financial advisor. The National Association of Personal Financial Advisors (NAPFA), is one of the best places to start. This organization is one of the top places to find fee-only advisors.
Here, you can search for advisors near your location via zip code, and can then find addresses, phone numbers, certifications, and more.
There’s also letsmakeaplan.org, which helps you find the best CFP in your area. This space helps you find top certified financial planners that have experience in “72 areas” and must have over “thousands of hours of experience” to exist here.