Follow these Tips to Find the Best Financial Advisor
How to Find the Best Financial Advisor
Regardless of the amount of money you have now hiring a financial advisor makes good sense. This savvy individual can help you grow the money you do have. Think of them as the chief financial officer of your life.
More than one third of Americans do not have a strong understanding of a financial advisor’s job, says a 2019 CNBC and Acorns Invest survey. When it comes to Millennials, the figure rises to 46 percent. That is worrisome because the earlier in life that you hire the financial advisor, the better you will earn. That is because the best advisor lets you know what will work best to grow your money. You do not need a minimum amount to begin working with one of these individuals.
You can work with one on your income taxes to get the biggest refund possible and then invest that with the exchange-traded fund (ETF) or stock that the financial advisor recommends.
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Different Types of Financial Advisors
This should be your first step. Some offer a selection of services including investment management while others offer only financial planning services. Others focus on wealth building for retirement income. This area focuses on pensions, setting retirement dates if you plan to retire, Social Security, taxes and investments. You need to choose the best financial advisor appropriate for your situation.
This person will help you budget, learn to save and help you choose the right insurance. The best financial advisor does much more than help with investments.
Look for Credentials
Like certified public accountants (CPA), financial advisors and financial planners obtain credentials through coursework and testing. While some may have a CPA certification, they should have either a Certified Fund Specialist (CFS), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Certified Investment Management Analyst (CIMA) or Personal Financial Specialist (PFS). Those working as an investment advisor should have a Chartered Financial Analyst (CFA) certification.
Once they have proved their proficiency, they must continue to meet the ethics code established by their industry organization and adhere to annual continuing education requirements. You should also check the registry of The National Association of Personal Financial Advisors to ensure that your advisor is a member.
Specialized Advisors
Some financial advisors specialize a bit more than others. Let’s say you want to focus on planning for retirement or at least a career change in your 60s or 70s. This would mean a Chartered Retirement Planning Counselor (CRPC) would make the best choice for you.
If you have finances that create a complicated tax scenario, then a Personal Financial Specialist (PFS) could best help. They also need to be a CPA. If you own a business with personal funds tied up in it, look for someone who specializes in both personal and business taxes. Those who choose to include insurance in their financial plans or who want to focus on overall estate-planning matters would need a Chartered Life Underwriter (CLU).
Three Most Common Choices for the Best Financial Advisor
You may need an advisor more specialized than this, but typically one of these three can help get you started. This describes the level of education they should have.
1. Chartered Financial Analyst
This individual exhibits a wide range of expertise including knowledge of securities, financial analysis, investing, portfolio management and banking. They have completed a long and rigorous testing method.
2. Certified Financial Planner
The CFP has earned a bachelor’s degree and completed “a college-level program of study in personal financial planning, or an accepted equivalent.” This individual works to earn at least three years of industry experience and passes comprehensive tests to gain their certification.
3. Chartered Financial Consultant
This individual completes the same core curriculum as the CFP. Their certification does not require the same type of comprehensive board exam and their governing board does not institute a code of ethics.
Consider How the Advisor Charges
You need to consider by which method the advisor charges for their services. There are three options:
non-fee,
an asset-based fee,
an hourly rate,
a commission charge.
You may find some non-fee advisors, but they get paid by their company via meeting sales objectives or receive kickbacks. All of these compensation methods are appropriate and no one is better than the other method of payment.
Finding Your Local Financial Management Options
Ask for referrals from family, friends, and colleagues. You can use a financial advisor search engine to locate the contact information of local advisors. You will be able to use your ZIP code to locate an advisor using the search engines. These specialized search engines let you set the credentials you want your advisor to have as well as the billing structure you desire.
While you do not have to work with a local advisor, this allows you to meet face-to-face. You can also find advisors who work with clients over the Internet via video chats, instant messaging and email. FaceTime and Skype are other common choices.
Interviewing Your Potential Advisors
The locality is not enough for choosing your advisor. You need to interview each of the potential advisors.
Your interview questions should uncover how well the financial advisor knows their specialty, how they communicate and their ideal client. You need to understand their answers and be able to tell that they know their topic.
You will not see testimonials on a certified advisor’s web page or brochures. That is because it is against their regulations. They also cannot reveal the names of their clients. If you see testimonials, you should not contact that person. They are violating regulations.
Check each financial advisor’s name, record, credentials and complaint history with the CFP Board, the Financial Industry Regulatory Authority (FINRA) and the Security and Exchange Commission (SEC). The advisor you choose should exhibit a strong service record. Check Brightscope for a list of the organizations with which an advisor has registered. One complaint is pretty common, but if an advisor with multiple complaints against them should not get hired.
Questions to Ask
During your interviews, you should touch on a few high points that you must learn in order to choose the best financial advisor.
Does the advisor track the investment cost basis for you?
Does the advisor or their firm prepare and/or file your tax return?
Does the advisor help you with tax-related questions?
Does the advisor offer information on or partner with a company that provides annuities, life insurance or long-term care?
Do they offer estate planning or distribution of wealth?
If the firm cannot provide a service you need will they refer you to another financial professional?
What is the succession plan?
What methods of communication does the advisor use?
Really Important Considerations
Your financial advisor gets to touch your money. They manage it. Since they have custody of your assets, they can easily defraud you. The best financial advisor has a third-party custodian hold assets entrusted to them. Fidelity and Charles Schwab are two examples of this.
Take an exceeding amount of care with this part of interviewing and choosing your advisor. If you recall Bernie Madoff’s Ponzi scheme, he was able to pull it off by using other people’s assets entrusted to him.
And another thing. You really need to pay attention to what benefits the advisor. Some advisors co-own the firms they use or the investments they recommend. These and other potential conflicts of interest should get covered in the firm's disclosure document on form ADV Part 2.
When Should You Start Using a Financial Advisor?
Start using an advisor for your finances as early in your life and career as possible. It is not too soon to consult an advisor in college.
You may also consider consulting a financial advisor at the following times of life:
before or after your wedding,
the birth of a child,
divorce,
death of a spouse,
inheritance,
large gambling winnings,
major illness.
It is extremely common to turn to an advisor at these major life events. Each can adversely or positively impact a situation. The best financial advisor can help you make appropriate choices on a number of items that can grow your money.
The position helps you determine your financial big picture and set goals. This differs from the stockbroker who advises you on specific stocks and bonds for investment. The advisor helps you with determining your financial goals and how to achieve them. They help you determine how to achieve the goals you set and help determine your risk level.
Risk Levels
The risk levels typically include high, moderate, and low. High-risk portfolios play the stock market strongly. They include smaller percentages of savings and money market accounts and lean heavily toward stocks. A moderate risk level portfolio includes a more balanced portfolio. It uses nearly a 50/50 balance of savings/money market and stocks. It may use indexes such as an ETF. A low-risk level portfolio weights itself toward savings/money market accounts. It may have only 25 to 30 percent of its investments in stocks and bonds.
This means that your advisor needs to understand the big picture and either know how to plan for the investment level items or refer you to someone with whom they work well to do so. You will end up with a financial advisement team.
Check Advisor’s Record
I cannot emphasize how important checking the potential financial advisor’s record is. An isolated complaint on their regulatory record with FINRA does not mean their performance as an advisor is poor. You should avoid having anything to do with a broker or financial advisor or financial planner with multiple infractions.
You need to choose the best financial advisor who meets the acceptable fiduciary standards of the industry by responsibly acting in the best interests of each of their clients. To better understand the appropriate level of fiduciary standards to be met, read the Department of Labor's Fiduciary Rule which became active on June 9, 2017.
Communication Considerations
Your financial advisor comprises a vital member of your personal financial team. You need to choose a person who communicates in the way you need it. Their favorite communication method should also be yours. This is because this is the person with whom you will work the closest on your portfolio and plan for your financial future.
Here are a few of the nitty-gritty items to consider vis a vis communications:
- Ask yourself what your favorite method of communication is. For example, for me, it is meeting with the actual person, face-to-face or exchanging e-mails or instant messages. This leaves all communication to mutual convenience. It makes it one-to-one and ensures utter understanding between both parties. It cuts out any extraneous people who could misunderstand. It puts everything in writing for the latter two methods and ensures direct communication with body language included in the first. By determining this about yourself, you now know what to look for in a financial advisor’s method of communication.
- Determine the frequency of communication you want to have with the advisor. Do you want to have day-to-day or weekly communication? Is once a month more suitable? Would you prefer a quarterly report?
- How often do you want in-person meetings for a portfolio review? The typical choices for this are quarterly, semiannually or annually.
- How often do you want phone meetings? Do you want to speak or instant message via Skype?
- Do you need to video conference with your financial advisor? At what frequency do you desire this?
- Do like texting with your financial advisor and your stockbroker? You need to ensure you find a digitally savvy advisor.
Do You Fit Their Profile?
Examine the financial advisor’s client base. Does your financial situation match that of their typical client? Ask them to describe their current clients in demographic terms. This includes age, income, risk levels, portfolio types, etc.
The best financial advisor provides advice on all of your major life concerns that include a finance aspect. That means car buying tips, funding college for yourself or for your spouse or children, buying your home or refinancing your existing mortgage. They provide an ideal source of information on competitive rates.
Start When You Have Little Money
The people who really need a financial advisor are the people who are not already wealthy. Those folks need wealth-building advice. Two categories of people truly need a financial advisor:
the impoverished,
those stuck in the middle class.
Whether they work with a brokerage or as an independent financial advisor, many do not work with the middle class or low income. Some firms only pay brokers’ commissions on larger accounts top $500,000 in assets. For accounts with less assets than that, firms typically charge annual fees or one to two percent.
You do have options. You can find advice on sites like Wealthry.com to obtain a self-education.
You can also turn to micro-investment and micro-saving sites like Stash to obtain portfolio advice and auto-balancing of your portfolio.
These online financial advisors can also include a person who instant messages with you as part of a larger firm like Fidelity Investments or TIAA-CREF. These advisors have the education and experience necessary, but they work with you long-distance.
Robo Investing
Stash and sites like it fall into the category of Robo advisors. The advantage of these services is that they work well for individuals in lower and middle incomes to learn financial planning and investment ropes. They provide automated portfolio management services that cost one percent or less of the total value of the portfolio.
These savings and investment apps and their websites provide educational tools as well as automated methods of funding the investment account such as round-ups and auto-deposits. Using these can help you build your investment account to the point that you are ready to move it to an established advisory and brokerage firm.
One such firm, Schwab Intelligent Portfolios, requires a $5,000 minimum to begin. It charges no advisory fees, commissions or account service fees. If you find Stash limiting, you could quickly move up to Wealthfront, a robo advisor requiring only a $500 minimum to open an account. It charges a small annual advisory fee of 0.25 percent.
Savings Account
Another great option for starting to build wealth on your own, is to open a savings account. It is an interest-bearing account with a limited number of transactions, therefore great for saving up some money, so that later on you can start investing. Below you can find some of our favorite savings accounts. Take a look and choose which one works best for you:
Finally,
The point is you need a financial advisor. You need one to start as soon as possible. Working with one as early as your college years makes good sense. You start building wealth before you have it. It does not occur instantly or via a windfall. You get a job. You save money. You invest that money. You add to that money with additional savings. You invest that money, too. You buy insurance with a savings component. You purchase bonds and certificates of deposit (CDs). You develop money handling skills, build your portfolio and your investment grows.
You become wealthy a little bit at a time. By the time you reach 65, you have money. Wealthy people know this. Few inherit wealth. Most build it from scratch. The only thing stopping you from doing this yourself is you. Find the best financial advisor today and get started.