Want to learn how to choose a financial advisor? Read below to discover 4 key tips to find the right expert for your goals!
Understanding the Role of a Financial Advisor
Making objective decisions about your money can be tricky. Money is an emotional topic. It’s easy to make financial decisions that work against your best interest.
Financial advisors exist to provide objective guidance on planning your retirement and achieving your financial goals. They can help you make informed decisions about topics including:
- Investments
- Spending & saving
- Tax planning
- Insurance and risk management
- Estate planning
- And more
Financial advisors can create a comprehensive financial plan that aligns your money with what matters most to you.
4 Tips to Help You Choose the Right Financial Advisor
1. Identify Your Financial Needs
Before you start looking for a financial advisor, it’s important to make a list of your financial needs.
- Are you looking for help with retirement planning?
- Investments keeping you up at night?
- Do you feel like you are paying too much in taxes?
Not all financial advisors offer the same guidance and services. Some specialize in investment management, while others only help clients build financial plans.
Understanding your needs will help you find a financial planner or financial advisor with the right expertise.
2. Understand the Types of Financial Advisors
There are multiple types of financial advisors. Common advisor types include:
Fee-only advisors
These advisors charge their clients a fee or hourly rate and do not earn commissions. Fee-only advisors can manage investments for a fee and are only compensated by their clients.
Fee-based advisors
These advisors typically charge a combination of fees for financial planning and investment management. They also have the ability to receive commissions for selling products.
Commission-based advisors
These advisors only earn commissions on the financial products they sell and they are really financial sales professionals. Commission-based advisors are compensated by companies who incentivize them to sell products.
One way to tell if your advisor is fee-only or can receive commissions is to look to see if they are regulated by the Financial Industry Regulatory Authority (FINRA). Fee-only advisors are either regulated by their state or the Securities and Exchange Commission (SEC).
Other examples of terms that distinguish different types of financial professionals include
Registered Investment Advisors (RIAs)
Being affiliated with a Registered Investment Advisor (RIA) means that the advisor is not working for a large financial product company. They are likely a fee-only advisor.
Chartered Financial Analysts (CFAs)
CFAs often don’t work directly with clients. They have advanced investment certifications and primarily focus on investment portfolio construction. That said, you may occasionally see client-facing advisors who have this designation in their title.
Understanding the different types of financial advisors will help you find the right financial partner.
3. Evaluate How Much You Can Afford
Financial advisor costs vary based on their services and how they charge. Some advisors charge a percentage of the assets they manage. They sometimes bundle multiple services for this fee. Others may charge an hourly rate or a flat fee for advice outside of managing investments.
Consider how much you are willing to spend out of pocket on financial advisory services.
If you know you don’t have much room in your budget to pay directly for advice:
- You might want an advisor who manages your investments. They are commonly paid by billing your investment accounts.
If you feel confident managing your own investments but want other advice:
- Look for a fee-only advisor that bills your bank or credit card directly.
At the end of the day, the cost of hiring a financial advisor should be justified by the value they provide. Value can come in the form of monetary gain or peace of mind over the course of the relationship.
It’s important to factor in the long-term benefits of professional investment management and financial planning services. These services tend to show their monetary value after long periods of time.
4. Check Qualifications and Credentials
Ensure that the financial advisor you choose has the necessary credentials to provide you with high quality advice.
Look for certifications such as:
- Certified Financial Planner® (CFP®)
Additionally, check that an advisor is a member of organizations including:
- Financial Planning Association (FPA)
- National Association of Personal Financial Advisors (NAPFA)
- XY Planning Network (XYPN)
- Garrett Planning Network
Membership affiliations can be strong signs that your advisor is committed to professional development. It’s also worth noting that many of these organizations require that their members be fiduciaries.
What Questions Should You Ask a Financial Advisor?
When meeting with potential financial advisors, it’s important to ask the right questions.
Some key questions to ask include:
| Question | Why Ask |
| What type of client do you specialize in working with? | Ensures the advisor has the necessary skills for your particular situation |
| How do you charge for your services? | Clarifies the cost structure and helps avoid unforeseen or hidden fees |
| What is your approach to financial planning? | Understands the advisor’s methodology and alignment with your goals |
| Can you provide an example of what working with you would look like? | Provides perspective on the type of advice they offer |
Asking these questions will help you choose a financial advisor who aligns with your needs and expectations.
What Are the Benefits of Hiring a Financial Advisor?
| Benefit | Description |
| Expert guidance on managing your finances | Financial advisors provide advice on all of the important topics in your financial life |
| Offering customized financial planning services | Plans are designed to help you achieve your specific goals |
| Peace of mind | Knowing your financial future is well-managed can reduce your stress and worry |
With a financial advisor, you can gain access to professional investment management and comprehensive financial planning services. They can help you confidently achieve your financial goals.
See If Stage Ready Financial Planning Is the Right Fit for You
At Stage Ready Financial Planning, we specialize in fee-only financial planning for individuals and couples over age 50 in Dayton & Southwest, Ohio.
We help you create a clear and easy to understand plan so that you can retire with confidence and live your ideal lifestyle. Schedule your introductory call today!
Importance of a Financial Plan
Building a financial plan can be a powerful step in shaping your ideal future. It can help you identify and set clear financial goals and a roadmap to achieve them.
A financial plan can guide you through each STAGE of your financial journey, whether you are:
- Saving for retirement
- Buying a new home
- Trying to pay less in taxes
- Making decisions about your investments or Social Security
The Role of Traditional Financial Advisors
Financial advisors have historically been known to manage investments. Today, the services offered by a traditional financial advisor has grown to include:
- Comprehensive financial planning
- Budgeting
- Tax planning
- Risk management
- Estate planning
- And more
There are still many financial advisors who primarily invest client money for a living. It’s important to fully understand what your advisor offers!
FAQs
Do I really need a financial advisor when I retire?
It’s definitely possible to manage your finances on your own. Hiring a financial advisor can provide peace of mind and objective guidance to help you avoid costly mistakes.
An advisor can help you create a financial plan, manage your investments, and ensure you have a steady income throughout your retirement.
Their expertise can also assist with tax planning, estate planning, and navigating complex financial decisions, making your retirement more secure.
Is it better to have a financial advisor or financial planner?
The terms financial advisor and financial planner are often used interchangeably. A financial planner typically focuses on creating customized financial plans. Your financial advisor may offer services primarily focused on investment management.
The best choice depends on your specific needs and the services you are looking for. If your primary need is investment advice, a financial advisor may be more suitable. For financial planning advice on topics like budgeting, a financial planner might be the better choice.
What are the disadvantages of a financial advisor?
While financial advisors offer many benefits, there are potential disadvantages to consider. These can include:
- Cost of their services
- Potential conflicts of interest if they earn commissions on the products they recommend
- The challenge of finding a trustworthy advisor
It’s important to thoroughly research financial advisors, understand their fee structures, and evaluate their qualifications and experience.