Looking for reliable financial advice in this uncertain economy? Lots of people are. You might want one to jump-start your retirement savings or to make sure what you already have invested survives these turbulent times.
But there’s a lot to consider in your search, especially if this is someone you want to work with long-term.
For starters, you’ll want to know their qualifications and what they charge. You should also look into whether they’re a fiduciary, meaning they’re legally required to act in your financial interest, or whether they work on commission.
Here are three things to ask a potential financial adviser:
1. What services do you offer?
If you’re going to hire a pro, you probably want one who takes a holistic approach — someone who will:
- Consider your investment portfolio and how to balance it given your risk tolerance and timeline.
- Understand your tax situation and make moves to reduce your taxes.
- Help with retirement planning, including setting long-term goals and benchmarks.
- Consider long-term care and estate planning.
Most Americans don’t use a financial adviser, in part because they assume they’re just something rich people need and can afford. But many offer a variety of services and can work on hourly rates just like lawyers and accountants. Which brings us to the next question …
2. How are you compensated?
Most advisers make money from commissions. That doesn’t mean they’re dishonest, of course, but you have to weigh their advice from that perspective: They get paid more to sell you certain stuff.
That means they have an incentive to know well the things that make them money, and may spend less time learning about options that don’t.
One way to avoid this situation, or worse ones, is to look for a fiduciary adviser. That means they’re legally required to act in your best interest, not theirs. The standard they’re held to is “suitability,” which means they must only suggest investments that make sense for someone with your goals, means and risk tolerance. It’s the difference between “can” and “should.”
Another way to eliminate conflicts of interest is to look for advisers who are fee-only — that is, advisers who charge either an hourly rate (in which case you don’t have to make any long-term commitments) or an annual fee based on the amount they’ll manage. Fee-only advisers are more likely to be fiduciaries as well.
3. What experience do you have?
Obviously someone who’s been doing this for 20 years is better than somebody fresh out of college. But education is a good place to start: Do they have a degree in finance?
Do they have any credentials, like Certified Financial Planner (CFP)? You can and should vet those credentials using things like the Certified Financial Planner Board of Standards’ “Verify a CFP Professional” tool and FINRA’s BrokerCheck, which will also help you spot complaints and regulatory actions taken against them.
Note that titles like financial analyst, financial adviser, financial consultant, financial planner, investment consultant and wealth manager are not credentials. None of these requires demonstration of specialized skill or education; they’re just labels anybody can slap on their door.
Are they members of any professional organizations, such as the National Association of Personal Financial Advisors?
How to pick an adviser
You’ll want to talk to several before you make a decision; that’s how you’ll find the one who really stands out.
One source might be referrals from friends or co-workers, who may have similar financial circumstances. You should also check out a free referral service like SmartAsset or Wealthramp.
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