When it comes to your finances, you want to be sure that you are working with someone you can trust. After all, this is the hard-earned money we are talking about. Choosing a financial advisor is a big decision and one that should not be taken lightly. With so many options out there, it can be difficult to know where to start.
When choosing a financial advisor, be sure to research the individual or firm’s credentials and track record. A good place to start is the Financial Industry Regulatory Authority (FINRA) website, which provides information on firms and advisors.
Also, be sure to ask about the financial planner’s experience and education, as well as the services they provide. Choosing the right financial advisor can help you reach your financial goals.
Here are some tips to help you choose a financial advisor you can trust.
1. Work With an Independent Financial Advisor, Not a Broker
Most financial advisors are either brokers or registered representatives of a broker-dealer. The distinction is important because it has to do with how the advisor gets paid and whether or not he or she will act in your best interest.
Brokers are “salespeople” who are paid by the transaction. Their pay is often contingent on selling you investments that carry a hefty commission, like mutual funds that have record-high management expense ratios (MERs).
A registered representative at a broker-dealer will work for the firm and only disclose conflicts of interest after you sign a contract with him or her, which makes it very difficult for you to change advisors if you want to.
An independent financial advisor doesn’t work for a broker-dealer or anyone else. Instead, he or she works for you. The fees are typically fixed, rather than contingent on a sale. As such, the advisor’s interests are aligned with yours and he or she will be more concerned about working in your best interest rather than selling you products with higher commissions.
Also, an independent financial advisor will clearly identify any conflicts of interest so that you can easily understand how he or she is getting paid and whether there may be an additional incentive to sell you a product that isn’t in your best interest.
2. Ask About Investment Performance and Fees
Why pay a financial advisor when you can invest on your own? It’s a good question, but one without a simple answer. The fact is, if you are investing money on your own, you are doing what is called “retail” investing.
This means that when you buy or sell an investment, the fees charged to do this are built into the price you pay for the security. If an advisor isn’t helping manage the investments in your portfolio, then he or she will have to buy them in bulk from mutual fund companies and other investment firms.
This type of transaction will result in higher fees and commissions than if you were paying retail prices as an individual investor. According to the National Association of Financial Planners, barely 30% of investors have a compensated financial advisor.
Investment performance can also impact the fees an advisor charges. If an investor’s investments are outperforming the market, then he or she will be paid more for his or her services. Your advisor should be transparent with you about how much he or she is being paid to manage your money and whether that amount is dependent on performance.
3. Ask About Investment Exposure
This is a simple one: If you do not know what type of assets are in your portfolio, then you simply cannot know whether the financial advisor you are using is putting your money in a diversified portfolio that has a good chance of providing a higher return over time than if you had invested it yourself. And it’s not just about the type of investments, but also about the allocation of those investments.
Ideally, your portfolio should be allocated across asset classes so that you are getting exposure to different types of investments. For example, a good allocation might include both US government bonds and US stocks. However, if your advisor is putting 80% of your money into US stocks, then he or she is more likely to be overweighting the position compared to an advisor who is diversifying the portfolio with international stocks and bonds.
4. Know Your Risk Tolerance
Risk can be defined as your likelihood of achieving the return you are aiming for. The higher the risk level, the greater the chance of achieving that return and the lower the chance of not meeting your goals. The key is to know what you are comfortable with and to invest accordingly. If you don’t know how much risk you can stand to take, then talk to an advisor who can help assess your tolerance for risk and develop an investment strategy that will work for you.
5. Check References and Contact Past Clients
This may seem like common sense, but it happens far too often that you hire someone for a job and then discover that it wasn’t really a great fit. This is a huge concern because once you have invested your money with them, how will you find out if they are lying to you or not?
Because of this, having the ability to do some background research on the advisor is crucial. It’s also crucial to find out whether people who have used them in the past were happy with their service. Then, when it comes time to sign up for your appointment, you can ask whether they know their clients so that there are no surprises. You should also ask if the advisor has received any complaints about them.
6. Look for Someone Who is Certified or Licensed in The State Where He or She Practices
State licensing is designed to protect you and your money, and it is a step that all financial advisors should take before they can offer investment advice to clients in this state. All states require that financial advisors obtain licenses in order to be able to sell securities and provide investment advice, just as doctors are required by law to be licensed before they can treat patients.
A financial advisor who is licensed in a state will be able to provide you with investment advice and recommendations that are accepted by that state’s Board of Regents. Licensure checks your advisor’s education, experience and background. If he or she has passed board exams for some specific type of license, then it is pretty likely that he or she knows what he or she is doing and has the qualifications to provide you with the type of services you need and deserve.
Why It’s Important to Have a Financial Advisor You Can Trust
In this day and age where everything can be done online, it seems like the ability to invest your money is much more readily available than ever before. However, this is not the case at all. In fact, there are some who still believe that investing on your own is just as good as having a financial advisor you can trust.
There are a lot of benefits to having a professional financial advisor who you have worked with for a long period of time. For one thing, it’s less likely that you’ll be conned by an advisor who is looking to take your money and run.
Because you have a long-term relationship, your advisor’s motives are more likely to be motivated by the desire to help you achieve your goals and not the goal of making as much money as possible. The Financial Industry Regulatory Authority (FINRA) has compiled a list of approximately 200 professional certifications used by financial professionals.
When it comes time to sign up for an investment, it’s important that you know you are getting what you deserve. As hard as it may be, do your research. Look at the credentials and education of an advisor and make sure that he or she has been around for a while and has shown an ability to provide sound investment advice. If they don’t have the knowledge and experience you are looking for, then it’s probably best to look elsewhere.
Once you establish that your advisor has the right credentials, then you should also consider how much money he or she will be charging you. It is important to know ahead of time what your advisor will be charging and what level of service he or she can provide. There is a huge difference between someone who charges a premium for their services versus someone who simply doesn’t charge one because they would rather invest your money instead of managing it for you.
In order to be most successful, look for a financial advisor who will work with you on an ongoing basis. This will allow you to build a true relationship, which is one of the keys to making sure that your advisor is looking out for your best interests. The SEC enacted the new Best Interest Regulation in 2019. (Reg BI).
The Difference in Cost Between Someone Who Charges a Fee and Someone Who Takes no Fee
An example of the difference in cost between someone who charges a fee and someone who takes no fee is as follows:
Let’s say that both advisors manage $100 million. The first makes 1% and the second takes 20%. Both are considered to be among the top advisors in their field. Over time, this could make a big difference as far as how much money each advisor makes (but not necessarily what they get paid).
The first advisor will make $1 million, but he or she is also responsible for paying out $1 million in fees. So, in the end, the advisor would make about a tenth of a per cent. The advisor who takes 20% will have earned $10 million, but he or she has also taken home $20 million from fees. In the end, this advisor will have made twice as much money for himself or herself because of the difference in fees that are taken from each investment.
Of course, it’s not that simple. The first advisor has to work harder and smarter to achieve success and deserves to get paid for that hard work.
According to the financial counselling website SmartAsset, hourly prices range from $100 to $400 per hour.
8 Benefits of Having a Financial Advisor
If you’re looking for a good financial advisor, you’ll want to find someone who’s familiar with the financial industry. They should be able to help you create a financial plan and offer advice on how to reach your financial goals.
A chartered financial analyst (CFA) is a good option if you’re looking for someone with experience in the financial industry. According to a recent Harris Poll, 38% of survey respondents are working with a financial advisor, up from 29% before to the epidemic. There are many benefits of having a financial advisor, and these are some of the top ones that people keep in mind.
1. They can Help You With Investing for The Future
A financial advisor can help you set up your portfolio to be optimal for your goals. He or she will be able to make sure that you have the right mix of stocks, bonds and cash investments in order to keep you as safe as possible while still allowing you access to a long-term plan that is tailored specifically for your money-making needs.
2. They can Help You Plan for Your Retirement
A financial advisor can help you set up an investment plan that is sustainable over the long term and which will allow you to achieve your dreams of a secure future. He or she can help you throughout your entire life and make sure that any money you save is invested in a way that will allow you to keep providing for yourself as far as possible.
3. They Can Give You Sound Advice When it Comes to Managing Your Portfolio
When it comes down to it, having a professional who is well versed in all things finance is invaluable, especially when it comes to making investments that are meant to keep you financially fit for years and years from now.
Additionally, a financial advisor can recommend portfolios that are meant to be appropriate for your situation, as well as make sure that your investments aren’t being managed in a way that will leave you penniless when you want to retire or buy a new car.
4. They can Help You with Tax Planning
Keeping up with the latest tax code changes is a job that is best left to professionals who are able to keep things on the right track so that people’s personal investments can be protected in the event of an IRS audit or significant change in tax laws.
Your financial advisor can help you with this, as well as make sure that the accounting that your money is being kept in is properly documented and will protect you from any unwanted scrutiny from the IRS.
5. They can Help You to Save for Your Children’s Education
Your financial advisor can work with you in order to set up an investment plan that will allow you to put aside money specifically for your children’s education by making sure they are protected while they are still minors living at home.
He or she can help you make sure that college fund is available when it comes time to save, plus keep track of any scholarships that are offered and make sure the information on them reaches everybody who may be able to claim those funds.
6. They Can Help You to Make Sure That You Have The Proper Safety Net in Place
When it comes down to it, a financial advisor is someone who has experience in many different areas and can give advice regarding insurance and other legal matters that can help protect you from many different forms of lawsuits. They can also help you with estate planning, which is a very important aspect of planning for your financial future.
7. They are There to Keep You on The Right Track When it Comes to Planning for Retirement
Most people are not able to plan for their retirement on their own and need help along the way. A financial advisor can help you make decisions based on your personality and goals so that you know that you are making the right decisions when it comes down to it. They can keep track of your progress, as well as work with you in order to set up a plan that will allow you to achieve your long-term goals.
There is a common misconception that having a financial advisor will cost a significant amount of money, but this is not always true. Most people find that they can get all the help they need from someone who is willing to work with them for free or for a minimal amount of money.
8. They Can Help You With Financial Planning
When it comes to financial planning, it is important to choose a qualified and certified financial planner. There are many personal financial advisors out there, but not all of them are created equal. Be sure to do your research and choose an advisor that you can trust to help you make the best decisions for your financial future.
Hourly prices may range from $100 to $400, with one-time financial plan expenditures ranging from $1000-$3000 and annual fees ranging from 0.25% to 1%-2% of assets under management (AUM).
How to Avoid Being Scammed by a Financial Advisor
There are many different ways that people with malicious intentions can take advantage of people who are in desperate need of financial advice, so it is important for you to know what may be going on if you ever have a concern about your financial advisor. It is possible for him or her to be doing something illegal without you realizing it, which could cause serious issues later.
1. They May Charge Money That is Completely Out of Line with The Industry Standard Commissions
In some cases, your financial advisor may charge an exorbitant amount of money for their services while not offering any investment advice that really provides value. The issue may not be that they are charging too much, but rather that they are charging too little. You may not have any idea whether or not you are paying too much because the amount of money they charge may be so small as to be unnoticeable.
2. They Could Potentially be Stealing Your Money and Paying it Back to You Later When You Least Expect it
Your financial advisor could have a scheme where he or she claims to help you with whatever issue you are having and then in exchange for the services, they convince you to invest money in something that will end up being illegal for them to deal with. You could get a check for a large sum of money, but none of it will be yours and all of it will end up being returned to you once the police have been contacted.
3. They Could Have Mixed Motives
Your financial advisor may have a problem with paying taxes and scamming people who need financial advice in order to make up for the money you are going to lose if an audit happens. This can be a very serious issue since there could be very serious legal consequences for what they are doing if you cannot get your money back from them later on.
4. They Could Potentially Have a Complete Lack of Regard for The Law
If you have a financial advisor who is completely ignoring the laws of your country, state, or city and you are doing business in their territory with them, they could be breaking local laws and could end up being prosecuted for it. If they are not willing to pay attention to what is going on around them, then what kind of advice do you expect from them?
5. They May not be Licensed in Your State
Your financial advisor may show up in a state where he or she is not licensed by the government that has jurisdiction over it and you would likely be the one that ends up being in trouble if something goes wrong. They do not have to be licensed in every state where they work if they work remotely, but you should always keep this in mind.
6. They Could be Running a Ponzi Scheme
This is a very serious scam that has been responsible for the downfall of many people. If your financial advisor is working with a Ponzi scheme, then he or she may end up stealing your money and you will never get it back. You will likely never get any of your money back if you are part of this kind of scheme and you will likely have to report it to the police.
How to Spot a Financial Advisor Who Isn’t Trustworthy
It is important to learn how to spot a financial advisor that you can trust, especially if you have no previous experience with them or if you do not know much about what they do. There are many different things that you should be looking for when it comes to finding an advisor who has your best interests at heart and will always deliver for you.
1. They Need to Have the Proper Credentials Before You Ever Hire Them
They should have appropriate licenses from their state or city as well as the proper education to be working in their line of work. If you are working with anyone who does not have the proper credentials to do what they claim to be doing, then that is a problem. If someone is claiming to work for you and do what is best for you, then why are they unable to prove that they can actually do it?
2. They Should be Willing to Keep Track of all of Your Accounts and Everything They do With Them
They should have a system in place where they keep an eye on everything that happens and is able to tell you exactly what happens when you make changes or ask them for help. If they are not willing to offer you this kind of help, then what is the point in hiring them to begin with? They need to be able to give you a breakdown of how your accounts function and where your money is going so that you will be able to make an informed decision about what happens.
3. They Should Always Have Your Best Interests at Heart
Your financial advisor’s primary goal should be striving for your long-term goals over their short-term concerns, which should always line up with yours. If they are putting more emphasis on what they get out of it in the short term instead of working towards something long-term, then they may not be looking out for you any longer.