How to Find a Financial Advisor
by Dana George | Nov. 27, 2019
A good financial advisor can be worth their weight in gold. But how do you find a financial advisor you can trust?
If you worry about whether you're putting enough aside for your retirement or your kid's education, find that you keep losing money on the stock market, or don't have time to plan for your future, it might be time to make an appointment with a financial advisor. Here are some of the things you need to know about finding the right financial advisor, what they do, and what questions you should ask them.
How do I know if I need a financial advisor?
There is no one alive who knows everything there is to know about personal finances. There is always something new to be learned, or a new way of doing things that could make our lives easier. Whether you've been studying finance since you built your first lemonade stand or are a relative novice, a financial advisor is liable to have some tricks up his or her sleeve that have never occurred to you.
A recent Planning & Progress Study from Northwestern Mutual found that just 31% of Americans count on the assistance of a financial advisor.
You may think that by hiring a financial advisor, you are throwing money away on something you could do for yourself. After all, there's a wealth of information available online and even robo-advisors that can automatically manage your investments.
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But the Northwestern research showed that people working with a financial advisor were twice as likely to feel financially secure and more likely to feel they have clarity on what to spend now compared with what to save for the future.
And let's think about this logically. Rich folks are getting the information they need from somewhere. It's those just starting out in life and those stuck in the middle without a clear financial plan who need the services of a professional most. No matter how much money you have (or don't have), no matter how financially savvy you are (or aren't), you can benefit from an expert opinion.
What does a financial advisor do?
A financial advisor can be useful from cradle to grave, helping you build a budget, save for college, get out of debt, make strong investments, and plan for retirement. They are particularly helpful during times of transition, like a new marriage, birth of a child, divorce, or death of a spouse.
There are many different types of financial advisor out there, each with slightly different specialities. But perhaps more of us would make an appointment with an advisor if we knew:
- You don't need a set income level to work with an advisor.
- Financial advisors are paid in several different ways. There are advisors who charge an hourly rate, a flat fee to complete a specific project, a monthly retainer, or a combination of different fee structures. There are also advisors who are commission-based, earning a certain amount every time they sell a certain product or service.
- You can meet with your financial advisors as often or as little as you need. For example, he or she may build a plan that fits your needs so precisely that you can go another year without a visit.
How to find a financial advisor you can trust
You probably wouldn't buy a home after touring just one. Why leave something as important as your financial future to chance? Here are some of the things you can do to ensure that you find the best financial advisor for you:
- Talk to friends and loved ones about what you hope to accomplish by working with a financial advisor. Clarifying your goals can help you find the right financial advisor. Accept recommendations, but don't be afraid to go with a different advisor if their style suits you more.
- Look on a website like NAPFA.org to find other financial advisors in your area. NAPFA is the country's leading professional association of fee-only financial advisors, which can be a good place for a newbie investor to get started.
- Do an old-fashioned internet search of each name on your list. Look at their company website to find information, including bios and services offered.
- Go to the U.S. Securities and Exchange Commission (SEC) website. There, in the upper right-hand corner, type in the name of an advisor you are interested in calling. What will pop up is a detailed report covering the person's previous employers and any disciplinary action taken by the SEC.
- Next, visit the Financial Industry Regulatory Authority (FINRA) website to learn how many years of experience the advisor in question has, how many professional exams they have passed, and whether they have a state license.
- Finally, make sure your financial advisor is a fiduciary. Being a fiduciary means that he or she is required by the SEC or appropriate state authorities to work solely in your best interest. Although it is possible for a professional to be both a stockbroker and a financial advisor, stockbrokers do not have to met the same rigid SEC fiduciary requirements as financial advisors.
What to ask a prospective financial advisor
You probably have a slew of questions. You may worry about saving for both retirement and your child's college education. You may wonder if you're putting enough into your company's 401(k), or where your already-tight budget can be trimmed to make more money for savings.
Before you can ask these questions, though, you need to pin down the right financial advisor. It often begins with a phone call. Here are the questions you should ask on the initial call:
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- Are you a fiduciary? (If you found a potential advisor on the NAPFA.org website, you are likely in luck. Each advisor listed there promises to act as a fiduciary.)
- Do you have many clients like me?
- What type of services do you provide? Do you provide comprehensive financial planning or do you only work with investment management?
- How do you charge for your services? Is it an hourly or flat rate? And if so, what are those rates?
Time for a gut check: Is this financial advisor right for me?
You've done the homework and think you've found a suitable financial advisor. If you get into their office and something feels "off," listen to your gut. If he or she is too pushy (or too wishy-washy), or doesn't listen to your questions or concerns, or doesn't ask enough questions of their own, it may be time to say thank you and move on. That's not to say that you need a best friend, but you do need an advisor who inspires confidence.
By the same token, if you've been working with a financial advisor for years but no longer trust the advice you're getting, it's fair game to move on. There are thousands of qualified, well-educated, ethical financial advisors in the U.S. It may be time to meet a new one.
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