Four Steps to Selecting a Financial Advisor

Taking control of your finances, whether you manage a modest income or a large inheritance, can be daunting. Comprehensive personal finance is rarely taught in high school or college, and many people opt to steer clear of money talk rather than embark on the intimidating journey to take control of their financial futures. Working with a financial advisor can alleviate much of the uncertainty and worry associated with personal finance, but even finding the right advisor requires substantial effort.

While many people feel uncomfortable talking about money and think of it as something detached from their day-to-day lives, in reality few things are more personal than finance. Managing finances might mean ensuring loved ones are safe and secure, buying and taking care of a family home, planning for dream weddings or vacations, launching a family business, or minimizing debt accrued from a hard-earned degree.

Selecting a financial advisor to guide you on such a highly personal journey requires organization, research, transparency and trust. Regardless of the size of your assets, financial planning is a must. Finding a financial advisor whose expertise and experience match your needs and goals can take the trepidation out of building wealth and planning for the future.

1. Get organized

Before you begin to look for a financial advisor, take some time to assess your finances. You will need to know what your current financial picture and your future financial goals look like before you can determine which financial advisor will best suit your needs.

Create a starter personal balance sheet by thinking about what assets you own and what liabilities or outstanding debts you owe. The following documents will help you determine the foundation from which you and a financial advisor will build a path to increased financial satisfaction:

  • Budget and spending needs
  • Tax returns
  • Loan statements
  • Bank statements
  • Investment account statements including brokerage, 401k, 529 and IRA accounts
  • Employer benefit statements
  • Details for life, health or other types of insurance benefits

2. Set Goals

Based on the holistic look at your finances, establish some preliminary financial goals. Consider short-term goals you’d like to reach within five years, as well as longer term goals.

Short-term goals might include paying off student loan or credit card debt, saving for a vacation, or preparing for home improvement costs. Longer term goals might be homeownership, building a retirement nest egg, or funding trusts for children or grandchildren. Because finance is personal, your financial goals will be too.

Goals should be grounded in your own cash and spending needs, your savings requirements, and your family needs. If you understand where you want to go, the right financial advisor can help you get there.

3. Research

Researching and vetting financial advisors is easier with your personal finances and goals in mind. Unfortunately, the term “financial advisor” means different things at different companies, and there’s no universally accepted definition of the title. However, there are some professional designations that offer insight into an advisors’ background and qualifications. Certified Financial Planner (CFP®) and Chartered Financial Analyst (CFA) designations are the most highly regarded in the industry.

Understanding how advisors are compensated and how that affects the services they offer clients also provides insight on whether or not they are the right fit. Fee-only financial advisors are paid directly by clients for their services. This might be a flat fee, an hourly rate, or a percentage of assets under management. Commission-based financial advisors are paid by their clients, but they typically have additional compensation as well, such as from commissions from selling clients financial products.

Vet several financial advisors and ask how they are compensated. If financial advisors earn some or all of their money from selling products, this may likely impact the type of advice you receive. If insurance or other types of financial products are key parts of your financial plans and goals, an advisor who works on commission might make sense for your needs. If you’re looking for objecting planning advice, however, steer clear of commission-based advisors.

Protect yourself by asking smart questions and have your antenna up for signs of salespeople masquerading as conflict-free advisors. Ask potential financial advisors if they are fiduciaries for their clients, which is the highest level of care, or if they follow lower standards of suitability standards or best interests.

Advisors also vary in their areas of expertise. Determine if the advisors with whom you speak have the experience which best fits your current needs, whether that be strong communication skills, the ability to provide education and information on overall wealth management, investments, diversified portfolio management and asset allocation, financial planning, spending analyses, insurance needs and options, tax management, estate and next-generation planning, philanthropic expertise, or, most likely, a combination of several of these priorities.

4. Establish mutual transparency and trust

When it comes to working with a financial advisor, transparency and trust are two-way streets. Being honest and forthcoming with your advisor is as important as finding an advisor whom you trust.

Whichever financial advisor you choose will need as comprehensive and transparent of a financial picture as possible in order to make the best recommendations for you. Provide a complete overview of your finances by providing as much detail and documentation as possible. The best financial advisors are creative, big-picture thinkers who can tailor plans and solutions to best meet your needs and objectives. This only happens if they have a full understanding of their clients’ finances.

See if a potential financial advisor will offer some upfront, experience-based and off-the-cuff recommendations and advice prior to hiring them. This will aid in the understanding of whether or not they actually provide useful, unbiased advice. It also allows them an opportunity to demonstrate a willingness to serve as a true partner.

Once you select a financial advisor to have as a partner on your personal finance journey, the experience of planning your financial future will be much less daunting. Collaborate with your new advisor with mutual confidence and commitment to help you achieve your financial goals.


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