Understanding and choosing a financial professional can be surprisingly complex. Nearly anyone can call themselves a financial advisor, financial planner, or financial coach, with minimum qualifications required. Consequently, it’s important to do your due diligence and be thoughtful when selecting a professional to help you save, grow, and protect your savings. After all, it is your future.
Take Your Time
Financial services commercials are nothing new to mainstream America. We are constantly bombarded with advertisements and insights on why you should choose this financial advisor, go with this financial firm, look into robo-advisors, or stay away from these guys.
Understandably, the anxiety of not having a financial advisor can begin to weigh on you. However, that does not mean you need to make a swift or irrational decision.
Get to Know Your Prospective Professionals
Do yourself a favor and take the time to get to know your potential financial professional. The person or firm you ultimately go with should not only align with your financial goals but your personal goals and family values as well.
Don’t be afraid to ask them personal questions like – What is your education? What are your current and past certifications? Why did you decide to become a financial professional and why are you still doing it?
These questions – and many more – are not only great ways to get to know your financial planner or professional, they will also help you uncover any red flags that may not be on the surface. YOU are the one in charge and bringing business to them after all, not the other way around.
Take What You've Learned And Do Your Research
During the process of getting to know your potential financial professional, make sure to take notes. While it is always nice to trust someone and take them at their word, there is no shame in doing your own research after the fact. With so many designations, you are sure to come across multiple during your search for an advisor.
Some retirement specialists out there are simply insurance agents with particular area’s of focus, i.e., retirement specialists. There are financial planners, Certified Financial Planners (CFP’s), financial advisors, fiduciaries or RIA’s (Registered Investment Advisors), and many more that you will come across during your search.
An advisor’s website and articles could be a good starting point to learn about their qualifications, planning practice, and thought process. You can get detailed information on independent advisors registered with their states or the U.S. Securities and Exchange Commission (SEC), as well as advisors associated with a brokerage firm, at Broker Check, a free tool from FINRA.
Understand Compensation and Conflict of Interests
This is a biggie. You should without a doubt understand how your financial advisor is getting paid – or going to be paid – before you enter into any agreement with them.
Understanding how your financial professional is paid will help you understand their motives, conflicts of interest, and overall intentions for their clients (or you).
Typically, advisors are paid through: 1) client fees (“fee-only”), 2) commissions, or 3) a combination of both (“fee-based”).
Unlike brokerage firms and insurance professionals who are paid based off commission, most RIAs are fee-based, offering investment advice based on a set percentage of their client’s total assets. AUM or Assets Under Management, are what your flat fee is applied to in order to compensate your financial professional. They do not make money on the sale or purchase of securities; the only way fee-based RIAs can make money is to increase the value of your portfolio or AUM.
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When Finalizing Your Decision on Your Financial Advisor
When you think you have a good idea of whom you are going to go with, turn to a close confidant. Whether it is your mother or father, good friend, or a trusted coworker – a second opinion never hurts. Many times we get caught up in the hoop-la that are life decisions and a different perspective on this situation in particular, can prove to be priceless in the end.