How to find your financial advisor
Finding a trusted financial advisor was already difficult. The appeals court recently struck down the Department of Labor’s pending fiduciary rule that further confused financial consumers. It is vitally important to understand whether your financial adviser will act as your fiduciary or instead look for investments that are right for you. However, it’s also important to know if you’re dealing with a trusted person who understands your needs, offers an approach you’re comfortable with, and has the expertise you’re looking for for your unique circumstances. To help navigate the sometimes stressful search, we’ve put together our top five recommended questions when looking for a financial advisor.
1. Are you a fiduciary?
The fiduciary rule legally obliges advisors to put their interests before their own. Advisors working under a fiduciary standard must disclose any conflicts of interest and share with you if they benefit from recommending any products or other professionals. They must be transparent about the fees advisers receive for that advice.
Rather, the suitability standard is a standard that requires advisers to suggest investment products that are appropriate for you. There is no standard for concluding that the investment will help you achieve your goals or is in your best legal interest. In addition, there is no requirement to fully disclose any conflicts of interest, which could allow an advisor to recommend products that may generate higher commissions on their own over similar products with lower fees.
There are wonderful advisors and poor advisors who work under the fiduciary and suitability standard. We work under the fiduciary standard and we highly value the trust that we know it provides.
2. What are your credentials?
The professional designations and experience of an advisor are important. It gives you great insight into the advisor’s knowledge and areas of expertise. There are over 100 different types of credentials and they can be very confusing. If you’re looking for a financial advisor, you’ll want to at least be familiar with these three credentials that reflect an extensive level of training and commitment:
CFP® – CERTIFIED FINANCIAL PLANNER®
CFP® professionals have completed college-level financial planning courses, met experience requirements, and passed the rigorous CFP® board exam covering 72 topics ranging from investing and risk management to tax planning and retirement, legacy management and the integration of all these disciplines. They are also committed to continuing education and a high ethical standard. More information: http://www.cfp.net
CFA® – Chartered Financial Analyst®
To earn the CFA credential, professionals must pass 3 rigorous exams, each requiring a minimum of 300 hours of master’s-level study that includes financial analysis, portfolio management, and wealth management. Professionals must also accumulate at least four years of qualified investment experience and commit annually to a high ethics statement. More information: www.cfainstitute.org
CIMA® – Certified Investment Management Analyst®
CIMAs focus on asset allocation and portfolio construction. The study program covers 5 core subject areas and applicants must meet experience, education, examination and ethics requirements. CIMAs must also commit to continuing professional education. More information: www.imca.org
3. What services and products do you offer?
Be sure to find an advisor and a firm that suits your needs. If you need someone to help you with your investment, you can look for a company that has a range of investment solutions, such as an asset management company.
If you need help evaluating your current circumstances and creating a plan to achieve various goals in your life, you can find a financial planner. This advisor can help you consider college and retirement needs, tax strategies, risk management, and potential wealth transfers.
If you need financial planning and investment advice, you should seek out a wealth manager. This advisor has extensive experience and takes a holistic approach to guide you through comprehensive planning and portfolio management.
4. How are you compensated?
Do not be shy; ask for rates! All professionals deserve to be paid for their expertise and services. By understanding how the advisor is compensated, you can determine if the advisor’s interests align well with yours.
commission only – These advisors are compensated based on the investment products you choose, such as mutual funds, structured products, insurance policies, or annuities that they buy or sell for you.
only fee – Independent advisors often only offer advice for a fee. Their fee is often set as a percentage of the assets they manage for you, so they too benefit if your portfolio grows and are penalized when it declines. They may also offer fixed rates for specific services.
fee based – These advisors may charge a flat fee for the financial planning services they provide and charge a commission on any financial products you buy or sell. These can include mutual funds, real estate investment trusts (REITs), annuities, and insurance.
5. What is your approach to someone like me?
It is important to know that the counselor you seek has experience working with people in your circumstances. This is especially true if his financial situation is complex due to the wealth he has accumulated throughout his career. Ask the advisor to tell you about a client with common challenges and share what solutions were offered.
Finding the right financial ratio can seem a bit overwhelming at times. It’s a bit like dating; you have to meet a variety of people, ask a lot of questions, and wait until you feel good. Rest assured, no matter your circumstances, you can find an advisor who is excited to work with you and has experience working with clients just like you.