How to choose a financial advisor? Are you struggling with how you will achieve your financial independence? If so, having a financial advisor will be a good starting point.
A financial advisor is an experienced person who will give you advice on how to structure your finances based on your current situations.
He/she will give you tips, strategies, and help you design the fastest and easiest route to achieve your financial independence.
So, how do you choose a financial advisor?
In this article, I am going to teach you how you will choose your financial advisor in 9 steps.
1. Decide why you need a financial advisor
Why do you need a financial advisor? Do you need an advisor to make investment decisions for you? Can you afford a financial advisor?
These are the questions you will need to answer before you start looking for a financial advisor. Your income, future goals, and financial conditions will help you determine the answers to these questions.
It will not make sense to look for a financial advisor you cannot afford. Your financial advisor must be paid. If you are not making enough money or do not have a lot of money; it could be difficult for you to find a good advisor who will give you the best investment advice.
2. What do you expect from the financial advisor
Your financial advisor will direct you on the right path using his research, education, and experience. You should expect good service at a fair price.
He/she will act in the best of your interest to make sure that your financial situations are stirred in the right direction.
You must understand that your advisor is a human being, and therefore, he/she will not tell you with certainty what will happen in the future.
The information they will give you will be based on research they have conducted, the proper education, and the experience they gained over the years.
3. Ask friends and family members for referrals
The best way to find a financial advisor is to use referrals from your friends and family members. Your family members and friends will not want you to fail. For this reason, they will give you the best referrals based on their own experiences.
This does not necessarily mean that a friend’s referral is the best financial advisor. You will still use the proper steps to make sure that they meet your finance’s goals.
However, it will be a great starting point on your quest to find a good financial advisor.
4. Try using Google to find advisors in your area
Financial advisors are everywhere around the world. No matter where you live, there will be a financial advisor.
The only thing you will need to do is to google financial advisors and select one that fits your needs.
Check their credentials and eliminate the ones whose interests and experiences do not align with your goals.
5. Interview multiple financial advisors
Not all financial advisors out there will act in the best of your interests. There are those who partner with hedge funds and other investment institutions to recommend clients to those institutions.
In return, these advisors ear commissions on top of what you are paying them.
Although there is nothing wrong to get recommendations from your investment advisor, you should know the kind of recommendations you are getting.
This is why you need to interview multiple advisors to learn how they conduct their businesses. This will be your best chance to eliminate bad advisors and hire the ones whose decisions align with your interests.
Your advisor should be able to tell you how his past clients responded to the services they received from him.
You will also need to know if your advisor retains his clients. A high retention rate can help you understand the level of satisfaction of other clients.
If other clients were not satisfied with the services they received, what makes you different?
It will be nice if your advisor has access to other resources that can help you as a client. You don’t want to go to someone who will just talk to you for hours.
Furthermore, your advisor should have a neutral stand on the recommendations they give you.
You don’t want advisors who give you recommendations on resources where they are getting commissions.
During the interview, ask them about how much they charge for services. All fees and related charges should be made clear.
Keep in mind that there are financial advisors who will have hidden fees on particular services.
Once you have your numbers, compare with the money you have in your budget.
6. Check their qualifications
A financial advisor should have work experience in their industry. This is because experience gives them a solid understanding of the industry and a chance to predict the future trend of these industries.
As a result, they can predict the profitability of investments in these industries.
Besides they should be certified for the work they do. The following are some of the top financial advisor credentials, according to Investopedia.
- Certified Financial Planner (CFP): To receive CFP certification a candidate must meet education and work requirements. According to the CFP Board, a candidate will need to complete the CFP Board-approved coursework and have a bachelor’s degree from an accredited university.
- Chartered Financial Analyst: According to the CFA Institute, a CFA candidate must pass CFA exams and meet educational and work experience requirements.
- Personal Financial Specialist (PFS): A PFS requires an examination, education, and work experience.
You must evaluate the qualifications of your financial advisor before you sign up with them. Having certifications will be a good starting point. There are a lot of false or fake financial advisors who will trick you to get your money.
You should not have a financial advisor who does not have certifications. How will you know the quality of the recommendations you are receiving if your financial advisor is not certified?
7. Evaluate complaints from past clients
Your financial advisor will never tell you that he/she is mediocre. They will always paint themselves as the best in the area. They will also tell you how they helped their clients to generate millions of dollars of profits from their investment.
You should not rely on what they tell you.
You can always find out the kind of service they provide to their customers using other resources.
One way to do it is to check their ratings. An angry customer will most likely leave a review online. So, dig deeper and read as many reviews as you can. This will give you a general idea of the quality of service your advisor provides.
If 80% of customers, for example, leave a negative review on the services they received, you should think twice before you hire this advisor.
8. Make a final decision based on your findings and budget
All financial advisors do not cost the same. Some of them are expensive compared to others. Your job is to find an advisor who will get the job done at the lowest cost possible.
The best way to understand how much money you can safely spend on the advisor is to create a budget.
Your budget will help you understand all your expenses, how much you make, and more importantly, how much disposable cash you have.
For this reason, the money you will spend on the advisor should fall into your budget.
After shopping around, eliminate all financial advisors that will cost you more than you are willing to spend.
At the same time, you should consider how much returns they will help you achieve. If returns outweigh expenses, you may consider trying them out for a period of time.
How much should I expect to pay my financial advisor?
The fee you will pay for financial services will be different depending on the services you are getting.
According to Nerdwallet, there are Robo-advisors who charge no fee for digital investment management services. However, you should expect to pay on average 0.25% of your account balance for investment advisors.
9. Have comprehensive terms of services with your financial advisor
Once you have selected a financial advisor, you will need to have terms of services with the advisor.
If it requires both of you to have a contract, have it. The bottom line is that you should have advice and recommendations when you need it.
You should also have a written contract of what your advisor can or cannot do on your portfolio.
A good financial advisor should be there when you needed him.
