Selecting someone to be a trusted steward of your finances takes forethought and careful consideration. The first step in choosing a financial advisor is to determine exactly what you require. Are you looking for someone to help you create a comprehensive financial plan? Perhaps you need investment advice and/or portfolio management. At this point in your life, you may be giving some serious thought to leaving a legacy to your loved ones or favorite charitable organizations. Or maybe you are concerned that you don’t have enough for the rest of your retirement. Perhaps you have a financial advisor in place and are seeking additional viewpoints about one or all of these areas.
Whatever your reasons, it’s important to “interview” several different advisors in order to select the one that’s right for you, preferably face-to-face, rather than over the phone. If it makes you feel more comfortable, bring a good friend or relative with you who can help you screen the candidates. Often, it will come down to personal chemistry and gut instinct. But there are certain characteristics that you should look for before making your decision. For example, it’s important at the outset of your search to understand how a particular advisor makes their money. This way, you can determine objectivity and motivation in suggesting a particular course of action or investment. Financial advisors generally fall into the
Fee-only advisors receive compensation only from their clients and do not receive money from third parties, including commissions, rebates, bonuses, or finder’s fees. The fees you pay could be in the form of hourly fees, a set fee for a articular
service, or a percentage of assets under management. Advisors who are members of the National Association of Personal Financial Planners are strictly fee-only.
Advisors that are paid by commission make a living by receiving compensation from providers of investment and/or insurance products on the sales of those products.
Some financial advisors will charge a fee to analyze your financial situation and they will also receive money from the sales of certain investment and/or insurance products. They are paid using fee-based, or fee-offset, commission, not to be confused with fee-only compensation.
Some advisors “do it all” (or claim to); others stick to a few basic services. Some concentrate on the investment side and can buy and sell stocks, bonds, and mutual funds on your behalf. Others focus solely on creating current and future financial plans or addressing a specific objective like retirement or funding a child’s education. Minimizing your income and estate taxes is another potential area of expertise. Determine what you need and be sure that the candidate has experience providing it.
Many advisors have one or more acronyms after their name that indicates their particular specialty and the level of training they have received. These may include the following: CFP® (Certified Financial PlannerTM), CPA (Certified Public Accountant), CPA/PFS (Certified Public Accountant/Personal Financial Specialist), CFA® (Chartered Financial Analyst®), RIA (Registered Investment Advisor), and RR (Registered Representative). Depending on the kinds of services you require, you may be interested in interviewing individuals who hold one or more of these designations.
Choosing a financial advisor is a decision with ramifications, so it’s important to take special care during the selection process. Even if you are satisfied with your current advisor, it doesn’t hurt to get a second opinion from another professional. Your future financial security — and that of your loved ones — could benefit significantly from it.
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