Choosing a financial advisor is no easy task. With so many financial professionals available to you, deciding on the right one can take a lot of consideration. Here are 4 important characteristics to look for in a financial advisor you work with and why hiring one provides the best kind of peace of mind.
When it comes to your investments, your savings, and your income, you don't want to leave anything to chance. So when you're choosing a financial advisor, it's important to choose one that is knowledgeable in the areas you need most, as well as someone you respect and enjoy working with.
To assist you on your search for the right match, here are four criteria to consider. Follow these and you're far more likely to end up with someone who can offer you the best kind of peace of mind when it comes to your finances.
Financial advisors usually have a few letters after their names: CFP, CPA, ChFC and so on. Each license, credential and certification designates a different specialty, so determine what you need and then choose someone with the right credentials. Ask what type of certification your potential new advisor has, and be sure you know what the letters stand for! Some are harder to earn than others. A CFP (Certified Financial Planner), for example, requires significant study and candidates must pass a famously difficult exam in order to rightfully attach those CFP letters to their names.
2. Fiduciary Standard
Ask if your financial advisor is bound to a fiduciary standard that was established as part of the Investment Advisors Act of 1940. The fiduciary standard means that a financial advisor – by law – has to put their clients’ interests above his or her own at all times, not just when it’s convenient. This is an important standard that is well worth looking into for any financial advisor you consider working with. Knowing that a financial advisor will only make financial recommendations that are in your best interests can put your mind at ease knowing there are no hidden agendas.
One thing everyone wants to avoid when hiring a financial advisor are hidden fees. They could be in the form of complicated billing, surprise charges, or unmentioned commissions. Always. Always. Always…ask these two questions: "How much do you charge?" and "How do you charge?" They may say:
- they charge by the hour, or
- a flat fee-for-service/project, or
- a percentage based on the amount of assets under their management, or
- get paid a commission from whatever they recommend to you, or
- they may say they don't charge anything at all (red flags should go up on this one
Additionally, make sure to ask if they receive (or even the potential to receive) any commissions from the products they recommend to you.
4. Client Service
What level of care can you expect to pay and what will your fees afford you as a client? Ask how often your prospective financial advisor communicates with clients and make sure you are comfortable with the amount of communication and type of communication they are willing to provide. While some financial advisors will send monthly reports in an email, others offer higher-touch services that can be more supportive of your needs and comfort level.
Finally, it probably goes without saying, but make sure your financial advisor is someone who seems genuinely interested in you and your success. This is likely a lifelong partnership with someone who is going to be involved in intimate areas of your financial life. Take your time to select a relationship that feels right on every level.
Anjali Jariwala is the founder of Financial Investment Tax Advisors, a fee-only financial planning firm serving clients across the United States. Young professionals who are ready to build wealth are often met with obstacles from the very industry that should be helping them. FIT Advisors is a trustworthy alternative to the status quo. They serve physicians and business owners in the wealth accumulation stage as their financial life coach.
Anjali and I became friends after meeting through the XY Planning Network and I asked her to write about why someone would want to hire a fee-only financial advisor as a guest topic for The Northwoods Blog.