The right financial advisor can help you reach your financial goals. From investments to estate planning and financial planning, advisors offer a wide range of services and expertise. But how do you find the right one for your needs? Follow these three steps.
How to Choose a Financial Advisor in Three Steps
1. Determine Your Needs
Before you start exploring your options, take the time to determine your needs. What kind of financial help do you need?
- Do you need help with investments? Advisors can research investment options and help ensure that your portfolio stays within your desired risk level.
- Do you need help with budgeting? An advisor can analyze your income and expenses to build a budget to help you reach your financial goals.
- Are you creating an estate plan? A financial advisor can help create a strategic plan to transfer your wealth to whomever you desire.
- Do you need help with tax planning? An experienced advisor can help you find ways to reduce your tax burden. Tax planning is not the same as tax preparation. Tax planning is a strategic approach to lowering your taxes now and in the future through actions like tax-loss harvesting or making charitable donations.
- Do you need help creating a comprehensive financial plan that considers some or all of the above? A financial advisor can help!
Once you’ve determined your needs, you can narrow down your choices to advisors who offer the right services to help you reach your goals.
If you’re unsure of what you need, explore the services that financial advisors offer and see which ones align with your financial goals.
2. Find Options
Now that you understand your needs, you can start looking at your options. Finding local advisors isn’t as complicated as you may think. Here are some tips.
Ask for Recommendations
Start by asking for recommendations from friends, family, co-workers, and colleagues. These are individuals that you know and trust. If they already have a financial advisor that they are happy with, it’s worth considering that professional’s service.
When asking for recommendations, make sure that you ask questions about their experience and understand their goals and needs. For example, if your co-worker’s financial advisor only helps with estate planning and you need help with investments, their advisor probably isn’t the best fit for you.
Recommendations are a great place to start when looking for a financial advisor, but make sure that you’re getting them from like-minded people who have similar goals.
If you can’t obtain any recommendations, check Google. Search for local advisors and see what they have to offer. Don’t forget to check for reviews and to explore each advisor’s website to learn more about their offerings.
Even if you do get recommendations, check Google to see what other people are saying about the advisor.
Consult with Financial Planning Associations
Many professional financial planning associations also have databases of advisors that you can access for free, including:
- Alliance of Comprehensive Planners (ACP)
- The National Association of Personal Financial Advisors (NAPFA)
- XY Planning Network
Keep in mind that just because an advisor is a member of a financial planning association, that doesn’t mean they’ll necessarily be a good fit for you. Make sure that you research their credentials and background before making your decision.
3. Vet Each Financial Advisor
At this point, you should have narrowed your options down to a few advisors. The next step is to vet each advisor that you’re considering. When vetting advisors, consider the following:
Are They Philosophically Aligned With You?
Are you and the advisor on the same page? If you’re not philosophically aligned, you may find yourself butting heads and feeling dissatisfied with their service. For a financial advisor to help you reach your goals, you need to share similar values and ideas.
Will They Tell You “No?”
A good advisor won’t be afraid to tell you “no” and advise against ideas that may conflict with your goals. Advisors that simply do what you ask without giving input or advice may not be looking out for your best interests.
The right advisor truly wants you to reach your financial goals – whatever they may be – and they will tell you “no” when necessary.
What is Their Fee Structure?
Before you choose an advisor, make sure that you understand their fee structure.
Fee-only advisors are paid directly for their services and do not receive compensation from other sources. These advisors almost always act as fiduciaries, which means they are obligated to put their clients’ best interests first. A fee-only advisor’s rates may be based on:
- Per plan
- Per hour
- On retainer
- Percentage of assets managed
Fee-based advisors are paid directly by clients, but they also make money through commissions and brokerage fees. When fee-based advisors are registered wtih the SEC, they have a fiduciary duty when acting as your advisor. A fiduciary must offer advice which serves your best interest. However, when selling products, the suitability standard could apply.
Commission-only advisors receive compensation from other sources, such as commissions from financial products they sell. These advisors do not act as fiduciaries, as they work as salespeople for investment and insurance brokerages. Should you avoid commission-only advisors? Not necessarily. However, it’s important to take extra care to ensure the products being offered are truly in your best interest.
When vetting financial advisors, it’s important to ask questions. Meet with each advisor you’re considering to discuss the points above and learn more about them and their services. Asking questions is the best way to determine whether the advisor is a good fit for you. Here are some important questions to consider:
- Are you a fiduciary?
- What services do you offer?
- What kind of clients do you work with?
- Will you collaborate with my CPA or attorney?
- How often will we meet?
- What is your approach to financial planning?
You may also have some specific questions to ask based on your goals, needs, and life circumstances. Make sure that you write down your list of questions before each meeting, and be prepared to write down these answers so that you can compare them later on.
Choosing a financial advisor isn’t a decision to take lightly. Follow the steps above and weigh your options carefully. It’s important to choose an advisor who’s on the same page as you, won’t be afraid to tell you “no” and has the right credentials and experience to provide the level of service you desire.
To learn more about how KPN Enterprises can help you with financial planning or to schedule a call, contact us here.