Having a financial advisor is one of the most important decisions one can make in life, but where to start can be challenging. The process of hiring a financial advisor can be tricky by it requires one to be disciplined and chose the right person that one can work with for several years. However, getting the right firm or person can sometimes take time, but considering it is your financials at stake, the tedious process is worth it because, after that, you will have peace of mind.
Financial advisors range from conventional in-person financial advisors to automated investment management services. There are also financial planning services and online financial advisors who, just like traditional advisors, they offer the same service. Still, for them, they operate online as a way of cutting costs. To get the best financial advisor here are quick steps to follow
Understanding various categories of financial advisors
Different types of financial advisors offer financial planning services and those offering investment management advice. Some just manage investments and offer little financial planning, and then some offer retirement income planning. Therefore it is important to understand the kind of advice you need and thus the type of advisor.
Check credentials of the financial advisor
Financial advisors are professionals; therefore, they need to be accredited from professional bodies. If you get an in-person financial advisor, they might not provide the range of services you can get from a firm. Look for financial advisors or planners with accredited reputation have a Personal Financial Specialist (PFS) or Certified Financial Planner (CFP) designation or one with a Chartered Financial Analyst (CFA) certificate. You could also check if one is a member of The National Association of Personal Financial Advisors.
Know how the financial advisor is paid
Services of financial advisors are not free, and thus they are compensated. To hire one, you should know how they are compensated, which can be through asset-based fees, commissions, and fee-only. Commission-based are those who sell financial products such as insurance and mutual funds and earn commissions. Since they are paid to get sales, it is important to know that there is a conflict of interest and can misrepresent advice. Fee-based advisors just like commission-based advisors are paid a fee and are affiliated to an agent to sell products. Fee-only is the best type of financial advisors because they act with the best interest of the client. They make money through percentages of assets they manage and hourly rates.
Conduct an interview
You should conduct an interview and ask questions that will help you in identifying the right financial advisor. An interview can help you get to know the areas of specialization of the advisor and how they communicate. Always look for references because an advisor might not give one since laws prohibit them from using testimonials.
Be keen on fraud risks
It is easy for someone who has custody of your assets to perpetrate fraud. Usually, financial advisors use a third-party custodian such as Fidelity or Charles Schwab to hold your assets. This means they will open an account with the custodian and conduct trade through the account, and it is the custodian who will report transactions to you.
Verify credentials of the advisor
Make sure that the advisor you are planning to hire has a good track record and verify their credentials with the Securities and Exchange Commission, the CFP Board and the Financial Industry Regulatory Authority or any other body. Ensure there are no complaints against the advisor, and you can use Bightscope to check the organizations the advisor is registered with.