The Starter Guide: Truths About Financial Advisors Everyone Should Know

As your finances become more complicated over time, it is common to need a little extra help managing your monthly cash flow, tending to various investments, and preparing for retirement. Schools do not teach about money, so there is no surprise that people just like you need regular help managing their money. If you think finding a financial advisor might be right for you, follow this guide to understand the many aspects of this important decision.

Interview Several Financial Advisors

At the start, you should plan to speak with multiple advisors before you pick the right one. You shouldn’t blindly trust the first person you meet with your money. Instead, take the time to meet with several financial advisors so you can understand their unique investment style and financial philosophies.

Go in to each interview with a list of questions and have a friendly discussion to learn more about their experience and history as an advisor. How did they handle the 2008 financial crisis? What is the best investment strategy with an uncertain political landscape? Do you specialize in finances for certain age groups? How do you suggest I save for my next major milestone or goal? These and more all important questions to ask your prospective financial advisor.

Do Your Investment Values Line Up?

Are you risk-adverse with investments, or do you want to go all in on risky stocks hoping for a big payoff? Do you prefer individual stocks or mutual funds and ETFs? Do you buy and hold or prefer an actively managed portfolio? Do you trust fundamental analysis or technical analysis more when making investment decisions?

After discussing basic qualifications like years of experience, know that your investment strategy aligns with the advisor is important. Do not assume every financial advisor is the same. Each works with different mutual fund families, different support and research systems, and has a different background that influences how they direct your hard-earned money. Make sure you agree with and trust that strategy.

How Do You Pay?

Financial advisors have several different methods for charging and getting paid. It is important to understand how you pay for your financial advice. The two most common methods you will come across are fee only advisors and percentage of assets advisors:

  • Fee Only Advisors – Fee only advisors charge a flat fee regardless of how your investments perform. Many personal finance experts believe this to be the best method for financial advisors to charge, as you always know exactly what you are going to pay for the service with no hidden fees or surprises.
  • Percentage of Assets – Other advisors charge based on the assets you have under their management. For example, if you have $100,000 with an advisor, they would charge a flat percentage of the $100,000 in your account. However, because your assets will rise and fall with the market, you never know exactly how much you are going to pay until the bill arrives.

There is no official right or wrong answer, just your personal preference. However, as mentioned above, many financial experts believe fee only is the superior option.

Does the Advisor Have any Conflicts?

One of the reasons fee only advisors are so popular is that they inherently avoid conflicts of interest. Some financial advisors can “double dip” by charging a fee to clients and accepting a commission from the mutual funds if they send client investment dollars into a particular fund family.

This is a serious problem for the client, as the advisor may be incented to invest in funds that do not align with the clients best interest. This can lead to higher fees, worse performance, and an overall negative experience for the client. And the client might not even know about it! Always ask about mutual fund incentives, commissions, and kickbacks when choosing a financial advisor to ensure you avoid this problem.

Pick the Best Financial Advisor that Meets Your Unique Needs

Everyone has different income, expenses, investment goals, and personal finance needs. No financial advisor can specialize in everything, but that’s okay. You just need an advisor that specializes in your needs.

Whether you are saving for retirement, looking to purchase a second home, or just want to put enough cash together to send your kids to college, the best financial advisor is out there waiting. You just need to weed through the rest to find the right fit.

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