Although I’m sure no kid sits on Santa’s lap and asks for a new financial advisor for Christmas, this time of year it is fairly common for folks to make the decision to work with an advisor for the first time or to seek the services of a new one.
Here are a few tips for your search:
Know what you’re looking for. Just as with any sort of shopping, it pays to have a list. The first question that I generally ask a prospective client is, “What prompted your call?” While it is OK to say generally to say you’re confused about your overall financial situation and that you need guidance, think it through a bit more. Areas where financial planners generally provide assistance include:
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- Retirement planning
- College savings
- Insurance and estate planning issues
- Tax planning
- Employee benefits and company stock issues
These and other issues are generally components of a comprehensive financial plan, which is often a great starting point if you haven’t taken stock of your situation lately or perhaps if you are within sight of retirement and want to make sure you are on track. Perhaps your needs are more specific, such as needing help with your investments or managing company stock grants.
[Compare local advisers to find the right one for you.]Perhaps your need is situational, prompted by an event such as an inheritance. Are you looking for one-time help or do you want ongoing guidance?
Understanding what you are looking for will help you determine if a particular advisor is a good fit for your needs. For further reference, The National Association of Personal Financial Advisors (NAPFA) has a great piece on choosing an advisor on its website (napfa.org) under the “How To Guide” tab.
Understand how the advisor is compensated. The three forms of advisor compensation are commissioned, fee-based and fee-only. Advisors paid via commissions, which are paid for the sale of investment and insurance products, such as mutual funds and annuities. Fee-based advisors may do an initial financial plan for a fee and then sell you commissioned products if you choose to implement their recommendations. Fee-only advisors are only paid via the fees they charge clients for their professional advice. This might be hourly, flat-fee, or based upon the percentage of the investments they are managing for you. I am a very biased fee-only advisor as I feel that it eliminates a huge potential conflict of interest that can be inherent in the sale of financial products.
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Trust, but verify. Verify that the prospective advisor is not in regulatory trouble. FINRA’s BrokerCheck database of federally and state registered investment advisers allows you to search by name, and lets you check up on firms as well. Several private services, such as BrightScope, have services to check an advisor’s regulatory record. If the advisor is a Certified Financial Planner you can also look up their information at the CFP Board’s website. None of this is a guarantee, but it is a great starting point.
Talk to the advisor and understand how a relationship with them would work. How often will you meet? What type of information will they provide? Have they worked with clients similar to you and with similar situations? For example, if you are a 35 year old you might not want to work with an advisor whose clients are mainly retirees. Finding the right financial advisor is important and is worth some time and effort on your part. Understanding what you are looking for in an advisor and asking good questions are a great start in this process.