We all know how important it is to manage one's wealth. Only earning income from different sources does not make one well-off; a challenging task is to manage the wealth you accumulate to benefit you and your dear ones. It is not easy to look after your assets on your own since you might not possess the required knowledge and experience that is needed to take care of your portfolio. Not to forget that external forces like inflation erode your savings and decrease your purchasing power over time. Seeking the help of a financial advisor can help you manage your finances better for you and your family's needs. They can help you to beat inflation through strategic investments, retirement planning, finding your way out of debt, achieving new financial goals, and more.
Some investors believe that they can look after their money themselves by discussing their investments with their friends and family, conducting detailed research on various financial products in the market, or reading a particular article. Many people also shirk away from the job of hiring a financial advisor due to the additional fees or commissions that they may have to shell out. However, more often than not, this additional cost of opting for a financial advisor is lesser than the wealth you would stand to lose without one. The cost of engaging financial advisors must be considered as an investment rather than as an expense for the financial welfare of yourself and your loved ones.
Now, since you assign your financial advisor to protect and grow your money, you must find someone trustworthy.
It would be helpful to follow the steps mentioned below to find an advisor who is the right fit for you and is worthy of gaining your trust:
1. Choose a suitable financial advisor for your unique financial needs
Financial advisors have different areas of specializations. For instance, some financial advisors can help you with investment advisory services while others can help you with financial planning. Some offer retirement planning services while others can help you manage your wealth after retirement.
Below are broad categories of services typically provided by financial advisors:
- Investment advisory services - Under this, financial advisors guide investors about which investments to hold in which type of account. Suitable investments that provide good returns are chosen as part of the financial planning process.
- Financial planning services - Advisors help investors with decisions that are associated with all the facets of their financial lives. They help decide on how much earnings should be saved and what type of insurance is well-suited for the investor.
- Retirement planning - This service involves organizing different retirement benefits such as pensions, Social Security benefits, tax liability, investments, etc. to ensure that retirees do not fall short of money during their retirement life.
Looking at the above services, an investor should link his specific needs to the services provided by the financial advisors to reap the best that the advisors have to offer. You can also choose to opt for a robo-advisor. However, keep in mind that a robo-advisor's advice comes from an algorithm and lacks the human touch.
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2. Check the credentials of the financial advisor you wish to hire
Sometimes salespeople such as brokers and insurers pose as financial advisors to market and sell different financial products to clients. Listening to their recommendations may lead to unnecessary high expenditure on your behalf and even losses in the future. The solution to this issue is to ask the financial advisor for their credentials. Some of the well-recognized certifications include CFA (Chartered Financial Analyst), CPA (Certified Public Accountant) and Chartered Investment Counselor (CIC) and more. All advisors with the specialization mentioned above can provide specific advice pertaining to a particular investment area. A CFA typically deals in the area of stock and money management. A CPA would be able to guide you on tax planning.
Few financial advisors also serve as RIAs i.e. Registered Investment Advisors. These advisors are registered with the U.S Securities and Exchange Commission, thus automatically making them a fiduciary.
A fiduciary is a person who is obliged by state law to act in the best interest of their clients. If your financial advisor is a fiduciary, he will make sure to work, keeping in mind your wants and needs prior to his own. By looking at their credentials, you can figure out whether they are fiduciaries; for instance, in the case of RIAs, they are required to fill a form named DAV with the SEC which automatically makes them a fiduciary. It makes it easier to trust an authority that is bound by a fiduciary duty as you are aware that he will not be motivated to carry out his own self-interests at the cost of your own.
3. Interview your potential financial advisor
As you need to work with your advisor in the long term, it is essential that you ensure you make the right decision while hiring them. The best way to find out if an advisor is a perfect fit for you is to set up a meeting with them and interview them with all your queries.
Here is a list to help you initiate the questions to ask your advisor. This set of questions roughly covers the overall broad aspects that one should look for in a prospective financial advisor.
- What type of services do they offer? What is their primary source of income? How do they earn their income through clients?
- What is your approach to investments? What are your general investment styles and strategies?
- Where does their area of expertise lie?
- What type of client do they majorly deal with? What according to them is their ideal client?
- What credentials do they hold?
- How many years have they been in the financial advisory industry?
- What will the charges of the services you provide include?
The last questions seek to find out if the advisor is a fee-based one or fee-only based. If the advisor is fee-only, then he may charge you a predefined fee which could be based on different factors such as an hourly-based fee, a fee that is associated with the value of the assets under management under the advisor, or just a fixed fee.
On the contrary, a fee-based advisor earns his income by charging a combination of fees and commissions. He might charge a fee which is an hourly fee or a fixed percentage of the value of assets. In addition to it, he may earn commission on products that he sells to his client as a part of his advisory services. Let us look at an example to understand this: a fee-based advisor who recommends investing $2000 into a particular investment fund, then may earn a commission of 5% on it and earn $100 from the fund for pushing the product to you. They may charge a separate hourly or percentage-based fee from you.
Other questions mentioned in the list above will help you get a clear idea of what services you will get access to and with what type of advisor you will be dealing with in the future. You will also get to know if they have good experience dealing with a client background similar to your own.
Conclusion
Having an experienced and knowledgeable individual looking after your finances is always beneficial. However, it is important to spend some time and effort on your own to understand your budget and your specific financial requirements in order to find a suitable financial advisor. Only then, will you be able to take full advantage of the advisory services. Also, it is advisable to continue to oversee your wealth even when you hire a financial advisor. You are your own best advisor and you should ensure that you keep track of all the activities undertaken by the advisor on your behalf to ensure no mishaps occur.
To get in touch with a fiduciary advisor who can help provide you with suitable investment strategies, use the free advisor match tool. Answer a few questions and get matched with 1-3 qualified financial advisors that may be able to help you with your unique financial needs and goals.