A Helpful Guide For How To Choose A Financial Adviser

By Michael Diaz. May 7th 2016

Hiring a financial adviser (FA) can be a prudent decision for those who are uncomfortable handling their financial investments, or for those who simply want to take a “hands off” approach to their personal finances. If you fall into one of these categories, then you might consider enlisting the services of a financial adviser. When thinking about hiring a financial adviser to manage your personal finances, there are several important considerations that you should take into account.

What Does A Financial Adviser Do?

FA’s are not stockbrokers or accountants. Rather, they give financial advice about how to save, invest, and grow your money. They can focus on achieving a specific financial objective or they can manage all aspects of your personal finances.

What To Look For When Shopping For An FA

Credentials

Reduce your chances of dealing with inexperienced or unqualified FAs by making sure that your FA is a certified financial planner (CFP) or a chartered financial analyst (CFA). CFPs and CFAs are licensed investment professionals who are regulated by oversight bodies. Both receive classroom training and must pass rigorous tests to become certified. They are also required to take continuing education courses which keep them up to speed on new financial products and ethical regulations.

How Do They Charge For Their Services?

FAs typically earn money by charging commissions on transactions or by charging a flat or hourly rate for their services. A commission is a fee that is paid to an FA when a client buys or sells a financial product. Keep in mind that FAs working for commission might not always have you best interests in mind given that they earn money based on transactions. Therefore, a less than noble FA working on commission might advise you to buy or sell an investment when it is not strictly in your best interests to do so. Therefore, it might be advisable to seek out an adviser who charges a flat or hourly rate.

Seek Out Recommendations

Ask friends, family, and colleagues if they have an FA that they like and trust. Recommendations from trusted sources can be a valuable resource.

Investigate Your Prospective Planner

Before signing on with an FA, make sure to thoroughly question her history. Ask your prospective adviser if she has ever been convicted of a crime or has ever been under investigation by a regulatory body. Also be sure to confirm her credentials and ask her to disclose any potential conflicts of interest. If the FA works at a large financial firm, you should also investigate the history of the firm. Search for red flags involving criminal history and investigations.

Hire a Fiduciary

A fiduciary is a financial planner that has pledged to act in your best financial interests at all times. Non-fiduciaries are held to a lower standard and can give advice that merely has to be suitable for you rather than in your best interests.

If It’s Too Good To Be True, It Is

Be extremely cautious about FAs who promise or guarantee large financial returns. Given the extreme volatility of financial markets, it is dishonest at best and illegal at worst to guarantee such financial success. Instead, look for an FA who lays out a clear and reasonable plan for how to obtain your investment objectives.

Examine The Resources At The FA’s Disposal

FAs who work at large financial firms will often have a large pool of resources and a wide variety of services and products at their disposal. Independent FAs and those who work for smaller firms often charge less for their services, but will likely have less of these resources. Think about what services and products that you might be interested in. This will help you decide between an FA from a large firm or and independent or smaller market FA.

Know What Your Investment Objectives Are And Communicate Them To Your Prospective FA

An FA can only be as helpful to you if they know what your investment objectives are. Think about what your short and long term financial goals are. Do you want to growth your wealth over time? Are you more interested in preserving your current standard of living over the long run? You also need to consider how much financial risk you are willing to take to meet your objectives. These are important considerations that you need to share with your FA.

Regularly Reevaluate Your FA

It is your responsibility to evaluate how good a job your FA is doing. Are your financial objectives being met? Are all of your questions adequately answered? Have you noticed any red flags? Make sure to regularly track your FA’s performance. This will allow you to change your adviser if things are not working out.

Although there is no formula for choosing the best FA, these tips should help you to make a well informed and prudent selection. This will allow you to get the most benefit out of your FA.

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