How To Choose a Financial Advisor for Your Specific Needs

A financial advisor is a professional who helps people manage their money so they can reach their financial goals. A financial advisor’s services include creating budgets, establishing savings plans, estimating future income needs and recommending insurance products. Finding the best financial advisor for your money is important because you don’t want to trust just anyone to help you with your finances.

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How To Find a Financial Advisor

There are a few steps you should take when looking for a financial advisor.

1. Appreciate the different characteristics of financial advisors so you can choose the right one

2. Learn what a financial advisor does

3. Understand how different financial advisors are paid

4. Know what questions to ask a financial advisor

5. Vet financial advisors to find one that you can trust

1. How To Choose a Financial Advisor

To decide what you want in a financial advisor, consider the following factors as you search.

Fiduciary Duty

A fiduciary puts your interests first. They refuse to take actions that would allow them to profit from their positions and disclose potential or current conflicts of interest. Although any financial advisor can choose to abide by fiduciary duty, not all of them are required to do so.

Credentials

Financial advisors come from many different backgrounds and offer a variety of different services. Their credentials provide insight into their education, experience and areas of practice. Here are some of the most common titles held by financial advisors.

Certified Financial Planner

A CFP is a professional designation issued by the Certified Financial Planner Board of Standards. Someone who holds this designation is best at offering general planning advice on a wide variety of personal finance issues like investing, saving, paying for college, purchasing long-term care insurance, choosing a mortgage and planning for an estate.

To qualify for this designation, the professional must:

• Have at least a bachelor’s degree

• Have at least 6,000 hours of professional experience or 4,000 hours of apprenticeship experience

• Complete a CFP-Board registered program

• Pass a certifying exam

• Take 30 hours of continuing education courses every two years

• Follow designated conduct standards and an ethics code

Personal Financial Specialist

The personal financial specialist credential is a professional designation issued by the American Institute of CPAs. Those who hold this designation are experts in the following areas of personal financial planning: estate, investment, personal income tax, retirement and risk management.

To qualify for this designation, prospective candidates must:

• Belong to the AICPA

• Possess a valid CPA certificate issued by a state authority

• Have a minimum of two years of full-time teaching or business experience — or 3,000 total hours — in personal financial planning within the previous five years

• Have at least 75 hours of personal financial planning education within the previous five years of application

• Successfully completed the final certification exam

Chartered Financial Analyst Certificate

The chartered financial analyst designation is issued by the CFA Institute. Although investment advisors holding CFAs often work for corporate clients, they are still regarded as investment management specialists. People looking for help with selecting stocks might find an advisor with a CFA designation to be a good option.

To attain this professional designation, candidates must meet one of these requirements:

• Have completed a bachelor’s degree or equivalent program and have received a degree

• Be in the final year of a bachelor’s degree program

• Possess a combination of work and university/college experience totaling at least 4,000 hours

Other requirements for this designation include:

• Passing a three-part exam

• Submission of two to three professional reference letters that comment on your work experience and professional character

Communication Style

Even the best financial advisor in the world may not be worth it if you have different communication styles. If you like to be frequently updated on the market and presented with new ideas, for example, you might not want to work with an advisor that only sends out occasional emails and year-end reviews. Similarly, if you prefer a “buy and hold” portfolio but your advisor is trying to move you in and out of stocks every week, you might not be a good match.

Testimonials

When you meet with any type of financial advisor, they are likely to highlight their personal strengths and explain why you should choose their services. While they may very well be telling the truth, reviews and testimonials from current clients can go a long way towards reassuring you that an advisor is right for you.

2. What Does a Financial Advisor Do?

Financial advisors offer a range of services to meet the needs of their customers. Here are some of the most common types of financial advisors.

Robo-Advisors

Robo-advisors provide automated portfolios based on the investor’s preferences and needs. This digital service is available through websites and mobile apps.

They’re best for people who need assistance with investments but don’t require human interaction. They also tend to be cheaper than traditional financial advisors because they typically don’t include financial planning — only investing help.

Traditional Financial Advisors

Unlike robo-advisors, traditional financial advisors use a personalized approach to provide a full range of financial planning options.

As your life circumstances and needs change, a traditional financial advisor can guide you in making the best decisions regarding your finances — a service that a robo-advisor cannot provide. If you desire face-to-face interaction, a traditional financial advisor is likely your best choice.

Online Financial Advisors

Online financial advisors offer traditional financial advising services. These advisors use technology to come up with your investment plan and can conduct business over the phone or online.

These professionals are best for people who need some help but don’t want to incur the cost of a full-service, in-person financial advisor.

Fee-Only Fiduciary Financial Advisors

Some financial advisors don’t work for commissions but rather get paid an all-encompassing fee for their services. Typically, this fee is an annual fee of roughly 1-2% of a client’s assets, although there can be a broad range. As fiduciaries, they are obligated to act in your best interest rather than their own. Working with a licensed, fee-only fiduciary advisor ensures that he or she is paid directly by you and is not enticed by commissions into selling you specific products.

Registered Investment Advisors

Registered investment advisors are financial professionals who carry a fiduciary responsibility and must be registered with the SEC and/or licensed with individual states, depending on the size of the assets they manage. Most RIAs directly manage money for clients, making buys and sells of various securities on their behalf. Most RIAs are also fee-only fiduciary financial advisors.

3. Understand How Different Financial Advisors Are Paid

Another important consideration when you’re searching for the best financial advisor is how the specific advisor is compensated. Compensation is one of the factors that influence how much it costs to go to a financial advisor. Some financial advisors are fee-only, some earn commissions only and some earn fees and commissions.

Here are the differences between the three forms of compensation.

• Commissions: Financial advisors who only receive commissions typically sell investment products and earn money when they sell these products to customers.

• Fee-only: Financial advisors who only receive fees might charge a flat, hourly or retainer fee to help customers manage their finances.

• Fees and commissions: Financial advisors who receive both fees and commissions charge a flat, hourly or retainer fee for financial planning services and earn a commission on eligible investments they sell.

4. Know What Questions To Ask a Financial Advisor

According to the National Association of Personal Financial Advisors, here are some important questions to ask a financial advisor you’re considering hiring. The answers to the following questions can help you evaluate the financial advisor so you choose the person best suited to help you meet your financial goals:

• How are you compensated?

• Do you itemize commissions, if applicable?

• Do you accept referral fees?

• Are you held to a fiduciary standard at all times?

• Are you willing to sign a fiduciary oath that states you’ll always put my interests first?

• Have you ever been disciplined by the Securities and Exchange Commission or the Financial Industry Regulatory Authority?

• Do you provide full-service financial planning or just investment management?

• Do many of the clients you work with fit my profile?

• Will you or an associate work with me?

5. Vet Financial Advisors To Find One That You Can Trust

When you’re ready to start searching for a financial advisor, ask friends and family members for names of advisors they trust. Or, check professional networking organizations such as the Financial Planning Association, NAPFA or the Garrett Planning Network for advisors in your area. Some banks also have financial advisors on staff.

Unfortunately, fraud is not uncommon in the financial planning and advice industry. Always, look up the person on FINRA BrokerCheck.

Additionally, keep an eye out for signs of fraudulent activities from your financial advisor.

Are Financial Advisors Worth It?

Only you can determine if it’s worth it to pay a financial advisor. If you’ve mastered the financial basics, such as saving at least 10% of your income, investing consistently for the long run, and minimizing costs, you may not need to pay an advisor. However, if you’re just starting out — or, on the other side of the coin, if you’ve got a very complex financial life — an advisor may be more than worth it.

Final Take

Ultimately, what you’re looking for in a financial advisor depends on your personal goals. It’s important that you not only make sure that the financial advisor you choose offers the products or services you need but also that they are someone you can trust and relate to.

FAQ

Here are the answers to some of the most frequently asked questions regarding financial advisors.

• What does a financial advisor do for you?

  • A financial advisor can create budgets, help you establish savings plans, estimate future income needs and recommend insurance products and securities

• Is it worth paying for a financial advisor?

• How much do you pay a financial advisor?

John Csiszar contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: How To Choose a Financial Advisor for Your Specific Needs