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A 5 Question Guide on Choosing a Financial Advisor

Do you know your parents’ financial advisor? Are you a friend of the family? Have you served your parents for decades?

Wouldn’t you like to have one of those? After all, you have money that needs attention, and you could use a steady, guiding hand. After all, you want to retire one day.

You probably know someone who has the perfect financial advisor. But those relationships don’t just happen. They occur through research and a complete understanding of your financial counseling needs.

These 5 Questions Will Help You Find a Financial Match

To find a counselor who is best suited to your situation, you need to know why you want help in the first place. Then you can also ask the financial advisor a few questions. These are not necessarily the literal questions you will ask, but you do need to know the answers, whether you get them from the financial professional or by searching the Internet or talking to another client.

No. 1: Why do you want a financial advisor?

Whether it is an increase in income or an inheritance, or if you are reaching the age at which retirement income should be considered, you have a reason or reasons for wanting to use a financial advisor. Ask yourself why.

Make a list. You will only find the right financial advisor if you know what you want that advisor to do for you. Whether it’s retirement planning, budgeting for your child’s education, or you’ve developed a new interest in investing, your relationship with a new financial advisor will only work if it works for you.

First, find out what services you want from an advisor before you start looking for potential candidates. Your personal needs will narrow down your candidate list and also point you in the right direction as you search for candidates.

There is something else to consider in addition to your current financial counseling needs. Do you hope that this financial advisor you find will be with you for years to come? If so, you should consider the age of the person you are working with and eventually ask about their career intentions regarding their own retirement. You don’t want to be left high and dry on the road, going through this process again.

Question 2: “Are you a financial advisor?”

Ha! That is a trick question! There is no “financial advisor”.

At least not as far as the Securities and Exchange Commission is concerned. Absolutely anyone can call themselves a “financial advisor” because there is no regulated definition of that term.

However, there are many other terms that are in fact regulated, that require a lot of study (sometimes years) and come with all those cool initials you see after the names of the financial professionals you come across.

While anyone can call themselves a financial advisor and get away with it, what you want to find is a certified financial planner. A CFP undergoes 1,000 hours of education and must pass an exam offered by the Certified Financial Planner Board of Standards.

Keep in mind that a CFP has worked hard to be able to offer their services and you will pay more in fees (most likely) to receive those services.

In addition to their education and dedication to work, CFPs must also meet the Skill Standard, which says they will always put their clients’ interests first. Not all financial professionals adhere to that standard.

You can also look for a CFA, a chartered financial analyst, who has already worked as an investment professional for four years before you can apply for your CFA certification. Again, you must decide whether you need this level of investment advice.

What you may need is a Personal Finance Specialist (PFS), who is a certified public accountant who also has experience in personal finance and wealth management, including insurance, budgeting, and investing. This may be more your speed.

Question 3: “Are there any complaints against you?”

The reason many people never hire a financial professional to help them with their personal finances is because they fear that their life savings will be taken advantage of or stolen. But, when you’re ready to consider candidates for your personal financial advisor, you can find out if your candidate already has a client complaint against them.

The website allows you to type the name of a financial advisor or provider into a search engine and find out if there are any complaints against that person or company with the Securities and Exchange Commission.

It is a non-profit organization licensed by the government and is linked to other websites to provide information to consumers to protect them from the rats that give financial advisers a bad name.

Question 4: “How do you earn money?”

Not long ago, this question came down to “fees versus commissions,” that is, the difference between paying an advisor for every action they take on your behalf versus paying a commission for the investment products they sell you.

Today, most financial advisers work on a fee-based system, but you must determine what services you are willing to pay for. Do you need budgeting, retirement planning, investment planning, education finance planning? Each of those services will have a price, and you should ask your advisor candidate exactly how much each service will cost.

Even better, there may be a fee schedule posted on your website.

Question 5: “Are you listening to me?”

Surprisingly, this is a legitimate question and the most important.

Successful financial advisers work with dozens, maybe even hundreds of clients, and they may believe that they know what is best for their clients. However, what is right for one client is not necessarily best for another client. You have already decided what you want your financial advisor to do for you, such as helping you prepare for retirement or saving for your baby’s college education. Are you willing to do what you ask?

If you want to limit your financial advisor to playing a specific role in your financial plan, do you accept that decision, or are you trying to sell or push you to other services that you already decided you don’t want or need at this point?

If your financial planner is looking for investments for you, do you understand your risk tolerance level? Does your financial advisor candidate take “no” for an answer?

There may be more questions

After conducting an interview or two with financial adviser candidates, you may come up with more questions that need to be answered. That is good! That means you now know more about the process than before and can make a smarter decision in the future.

Kent McDill is a veteran journalist who has specialized in personal finance issues since 2013. He is a contributor to The Penny Hoarder.



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