How to Choose a Financial Advisor: 7 Simple Tips to Learn


What if one bad decision sabotaged all of your future investments?

Most of us don’t know how to properly manage and grow our wealth. Because of this, we must hire financial advisors.

Unfortunately, there is a world of difference between a good advisor and a bad advisor. And most people don’t know how to properly choose a financial advisor.

Fortunately, a few simple tips can help you make the right choice. Keep reading to discover how to make the perfect hire!

Do You Actually Need a Financial Advisor?

Below, we have our top 7 tips for choosing a financial advisor. Before that, though, you must answer an important question: do you actually need a financial advisor?

Many people live paycheck to paycheck. In fact, an estimated 40% of Americans are one missed paycheck away from ending up in poverty.

If you struggle to put away savings, then you likely don’t need a financial advisor. At this point, it’s important to focus on paying down debts and saving more each month.

When you get to a point that you are able to put away 20% (or more) of each paycheck into savings, it’s time to find an advisor. They can help you to actually grow your money while anticipating upcoming market shifts.

And if you’re still on the fence about whether you need an advisor, check out this article and make the decision. Once you’re ready to hire an advisor, the tips below will help you find the right one.

1. Focus on Services

The first step in choosing a financial advisor is relatively simple. You just need to figure out what kind of services you are looking for.

Some people simply need help making and managing investments. If this is your primary need, there are many advisors and even automated services that can fit the bill.

However, you may have more complex needs. This includes things like estate planning and insurance selection that need more of a personal touch from an advisor.

Once you know what services you need, it’s important to decide whether you want a local advisor or not. There are qualified advisors all around the world available through Skype and other services, but some investors still want to meet in person.

2. Get Recommendations

It’s easy to overthink the question of how to choose a financial advisor. Think of it this way: how do you make other major life and financial decisions?

One of the best ways is to get recommendations from friends, family, and colleagues. Start by finding someone in a similar financial situation and asking them for recommendations.

With luck, they can point you towards some well-qualified advisors. If nothing else, they may have some horror stories that help tell you what not to do when choosing an advisor.

3. Know the Types of Advisors

Earlier, we mentioned the different services that advisors may offer. It’s also important to know that all of the potential financial advisors you may hire can be split into one of two possible standards.

The first is the “suitability standard.” The name is pretty literal: these advisors are legally obligated to make investments that are suitable for you. However, “suitable” does not necessarily mean “best.”

The second is the fiduciary standard. This standard means that the advisor is legally obligated to make investment decisions that are in your best interests.

Ultimately, there are pros and cons to each type of advisor. All things being equal, though, we recommend going with the fiduciary standard.

4. Fiduciary Focus 

For many investors, the choice between “suitability” and “fiduciary” is no choice at all. They see any kind of non-fiduciary status as an absolute dealbreaker, and it’s not hard to see why.

Ever wonder why someone with the suitability standard would not want to invest in your best interests? Simple: they work on commission. Like any unregulated salesman, they may be tempted to put their personal profits ahead of client well-being.

Fiduciary advisors do not receive any kind of commission. Instead, they are paid via fees (such as a quarterly fee based on the number of assets they are managing).

Not only are fiduciary advisors legally obligated to act in your best interests, but they have no financial incentive to do otherwise.

5. Budget Accordingly

Obviously, financial advisors cost money. You will want to know the approximate cost of the services you need and budget accordingly.

Robo-advisors are automated services, and they charge the least. For example, they will likely only charge a percentage of .25% to .50% of the assets managed. This is quite affordable and a great way to get started.

Online financial advisors charge more, but they provide human guidance instead of automated assistance. Such services usually cost a little less than 1% of the assets managed.

Finally, there are in-person advisors. These advisors typically charge 1% or more of the assets managed, though others may charge fees instead.

6. Study Their Credentials

It’s important to review the credentials of any potential financial advisors. For example, you’ll want to hire someone who is a CFP (Certified Financial Planner).

Not all CFPs offer the same level of service, though. Cross-reference the advisors you are interested in with personal recommendations, online reviews, and social media reputation.

7. Personal Interviews

Sometimes, an advisor looks perfect on paper but still ends up being a bad choice. This is why we recommend conducting interviews with anyone you are interested in hiring.

It’s easy enough to conduct personal interviews with local advisors. And remote advisors should be willing to make themselves available for remote interviews.

Even after all of your research into potential advisors, it’s important to trust your instincts. If you’re getting a bad feeling about someone, you should likely seek out another advisor.

How to Choose a Financial Advisor: Grow Your Wealth Today

Now you know how to choose a financial advisor. But do you know who can help you make more money to invest?

We specialize in offering dads everywhere advice on marriage, money, and your home. To see how we can help grow your wealth, check out our “Make Money” archive today!

 

Jeff Campbell

Jeff Campbell is a husband, father, martial artist, budget-master, Disney-addict, musician, and recovering foodie having spent over 2 decades as a leader for Whole Foods Market. Click to learn more about me

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