How to Find the Best Financial Advisor – Overview
Finding the best financial advisor, especially if you have little or no experience in working with professionals in the field, can be a formidable task.
The market is full of financial advisors with various titles, designations, investment styles and fee structures. What’s more, many advisors use different names for the same services.
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Nonetheless, putting in the effort to find the best financial advisor for you can pay big dividends. Here are a few of the things a good advisor can do:
• Advise you on how to reach your long-term financial goals
• Execute and manage your investment choices
• Provide detailed tracking on how investments are performing
• Keep you abreast of the latest market trends and investment opportunities
This article demystifies the process of choosing a financial advisor by offering 6 tips on how to find the best financial advisor that matches your needs.
6 Tips on Finding the Best Financial Advisor for You
1) Decide what level of service you want
Some financial advisors do not actually manage your investments for you. Commonly known as investment advisors, or simply financial advisors, these professionals are paid to give advice.
If you wish to maintain a hands-on approach to your investing, the advice-only approach may be the right choice. This type of advisor will offer a wealth of expertise, but will leave the implementation to you.
For many investors the best financial advisor is one who offers a full-range of management services, including wealth management, estate-planning, tax-planning and so forth.
This option usually provides great value for the money, and allows your investment strategies to be implemented seamlessly and without delay.
2) Decide whether you want a fee-only, fee-based, or commission-based financial advisor
One of the keys to finding the best financial advisor is understanding how the advisor earns money.
The difference between fee-only, fee-based and commission-based financial advisors can be understood with one simple question: How much of the advisor’s income is generated from sales commissions?
There are a plethora of financial products on the market today, and many of them pay commissions to financial advisors who sell their products. This means that some advisors have a vested interest in putting certain investments in your portfolio.
• Commission-based financial advisors receive the majority of their income from sales commissions. Fees may be lower, but advise is more subjective since the advisor depends on commissions to earn a living.
• Fee-based financial advisors make money by charging fees directly to the client, but may also receive sales commissions from certain financial products.
• Fee-only financial advisors receive 100% of their income from fees charged directly to the client. Since they have no vested interest in selling certain financial products, the fee-only advisor is often considered the best financial advisor on the market.
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3) Check the advisor’s credentials
If you walk into a financial advisor’s office, chances are you’ll see one or more titles on the wall. Knowing the basic definitions and requirements of these titles will help you find the best financial advisor for you.
• CFP means Certified Financial Planner. The recipient has several years of experience as a financial advisor, and has passed a 10 hour board exam to achieve the CFP designation.
• ChFC means Chartered Financial Consultant. Holders of this title have completed the same core curriculum as CFPs, but have not been subjected to the board exam.
• RIA means Registered Investment Advisor. This title is usually awarded to an organization, but may also be obtained by individual. RIAs specialize in managing the accounts of $1 million or more.
• CFA means Chartered Financial Analyst. This is a very difficult designation to obtain, and indicates a very high level of investment expertise. Roughly 20% of financial advisors who seek the CFA designation are successful. A CFA who also holds other designations, such as CFP, is often a sign of the best financial advisor you can find.
• CPA means Certified Public Accountant. Advisors who hold this title have demonstrated expertise in risk management, tax planning, account analysis, and investment strategy.
4) Look at the advisor’s age, lifestyle, and other clients
For many investors, the best financial advisor is one who:
• Manages similar portfolios belonging to clients of similar net worth
• Is not more than ten years older or younger than the client
• Has similar goals, financial interests, and investment philosophies
As an investor, you want to feel that your financial advisor is 100% aligned with your goals, and understands you on a personal and lifestyle level.
5) Ask for sample investment plans
The best financial advisor should be able to look at your assets and provide you with sample investment plans. This is a good way to dip your toe in the water and learn about this particular advisor’s style and expertise.
It also clarifies the best style of communication between advisor and client. If a financial advisor provides sample investment plans that are many pages long and difficult to grasp, many investors will not understand.
On the other hand, if an advisor provides a short, concise summary of possible investment scenarios, a more involved investor many not have all the information he or she wants. Asking for sample financial plans is an excellent method for finding the best financial advisor.
6) Clarify how much contact you want from a financial advisor
Handing over a large sum of money to even the best financial advisor is not easy. Staying in contact allows you to keep tabs on your investment, and maintain a feeling of security and collaboration.
It’s best to be upfront with your advisor about how much contact you want or expect, and to be clear about any extra fees involved.
Financial advisors typically work with many different clients, and therefore cannot afford to have unlimited contact with a given client. Extra fees may apply for investors who desire more consulting time.
Conclusion
Choosing the best financial advisor involves a number of different variables, including your own investment philosophy and the size of your investments.
It’s also an exciting process that can develop into a mutually beneficial, long-term collaboration. Following these 6 tips will increase your chances of finding the best financial advisor for you.
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