How to select a financial adviser? The question is more daunting than ever now that video conferencing has created opportunities for long-distance relationships. Literally thousands of financial advisors across the country would welcome your business. It’s up to you to discern the best person for the job. Here are some tips for narrowing the field and finding a good match:
Assess your needs. Your first step is to think about what needs you want an advisor to meet. This will drastically narrow the prospect universe, as advisors have different strengths and interests. If you just got paid in stock options and want advice on how to handle it, the best advisor for you will likely be different than if you were looking for help selling your small business. If you want broad-ranging advice on all aspects of financial planning and investing, you’ll want someone with broad expertise rather than a narrow investment mandate.
“Keep in mind that some high-quality advisers have a team of experts who can fill in a number of different gaps they may have in their experience,” says Michael Finke, professor of wealth management at the ‘American College of Financial Services. “So be sure to consider how an advisor’s practice is structured.”
Consider qualifications and experience. As you evaluate advisors, you ultimately want to be confident that they have the breadth of knowledge they claim to have.
Start by digging into their qualifications. There are many counselor certifications and designations, each with different specializations and educational requirements.
The two qualifications most widely recognized as foundational in the consulting field are the Certified Financial Planner (CFP) designation, issued by the Certified Financial Planner Board of Standards, and the Chartered Financial Consultant (ChFC) designation, issued by the American College of Financial Services.
Another widely held designation is that of Chartered Financial Analyst (CFA), a certification issued by the CFA Institute. The CFA educational program is more investment-oriented and not as broad as the CFP and ChFC.
Beyond these, there are a host of designations indicating specialized training in everything from philanthropic planning to small business issues. For example, an advisor who specializes in elder care can become a Certified Senior Advisor (CSA) after completing their education with the Society of Certified Senior Advisors. An advisor wishing to create a niche in special needs can become a Certified Special Needs Consultant (ChSNC) by taking an online course through the American College of Financial Services.
Some advisors have a list of letters after their name indicating various certifications.
“A good choice,” says Finke, “is to go with an adviser who has a foundational designation with specialized expertise in an area where you seek advice.
Check the compensation structure and minimum assets required. Advisors often have minimum asset sizes they will work with, and they can be compensated in different ways: a one-time fee for a one-time service, a commission for a financial transaction such as buying an annuity or a mutual fund, or an annual fee. it is a percentage of the assets the advisor manages.
Which structure is best for you depends on your needs. You may only need a one-time plan to get your finances back on track. If you just need to purchase financial products and get limited advice, the commission model may be the cheapest and most appropriate. The annual fee structure is best for ongoing advice and more complex situations.
Ask for a meeting. Host an in-person or video meeting to assess your relationship with the advisor and, more importantly, to dig deeper. Ask questions to understand an advisor’s service model, fees and investment approach. For example: What would be the first step if I signed up? How often do you meet with clients to update their plans and meet their portfolio needs? Are you a fiduciary? If I have a question, can I contact you directly? How will you determine my portfolio allocation? Do you invest in individual stocks or mutual funds and ETFs? How much attention do you pay to reducing taxes?
“Things to look for are whether the person is a good listener who recognizes what’s important to you and gives you options to achieve your goals,” Finke says. “You want personalized advice and unbiased information that lets you decide which way to go.”
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